Psychology of Risk Taking: Contents

Psychology of Risk Taking
Contents:
1) Types of Bets
2) Calculate Risk Fast
3) How Much Do You Have to Lose?
3A) A Lot to Lose? Be Risk Averse
3B) Little to Lose? Be Risk Aggressive
4) Death Opens a World of Opportunity
5) Fools and Cowards
6) Enter With Boldness
7) Fight and Win, or Don’t Fight
8) Relevant Reading
9) Further Reflections
9A) Ambition and Hopelessness Drive Risk Taking
9B) Baltasar Gracian’s Advice
9C) Brave Men Want Security For Their Children
9D) Creativity is Risky
Preamble:
A life with zero risk is neither possible nor desirable.
Risk can be managed. It can be moved from one place to another. It can be
increased or decreased in amount, but it can never be eliminated.
1) Types of Bets:
There are different types of opportunities or 'bets' that will appear in life.
Smart Bets are those with big upside and small downside; they are low risk high
reward bets. Stupid Bets are those with small upside and big downside; they are
high risk low reward bets. Everyone should seize Smart Bets and reject Stupid
Bets.
Tragically, Smart Bets are incredibly rare while Stupid Bets are common. In the
game of life, it is rare that you can win smartly but there are endless opportunities
to lose foolishly.
Ambivalent Bets are those where it's difficult to tell which is bigger; the upside or
the downside? A bet with big upside and big downside is a high risk high reward
bet, while a bet with small upside and small downside is a low risk low reward
bet.
2) Calculate Risk Fast:
“Life is a game of calculated risk taking.” –WallStreetPlayboys
A critical skill is the ability to quickly calculate risk and reward.
Whenever an opportunity appears, quickly categorize it into which type of Bet it

is: 'Smart' 'Stupid' 'High Risk-High Reward' or 'Low Risk-Low Reward'
This calculation will sometimes have to be done in a matter of minutes;

sometimes in a matter of seconds.
In the real world it is impossible to calculate risk and reward with mathematical
certainty. However, opportunities can certainly be ranked relative to each other in
regards to how risky they are.
We cannot say there is X% chance that if you start a business you will become a
multimillionaire, but we can certainly say that starting your own business is a
higher risk and higher reward path than being a corporate employee.
3) How Much Do You Have to Lose?
3A) A Lot to Lose? Be Risk Averse:

If your life is going well (you have high status within the macro hierarchy), then
you have a lot to lose. Being risk averse is rational.
If any high risk high reward opportunities appear you should reject them, and
instead tend towards a path that is low risk and low reward.
3B) Little to Lose? Be Risk Aggressive:

“All courses of action are risky, so prudence is not in avoiding danger (it is
impossible), but in calculating risk and acting decisively." –Niccolo
Machiavelli
If your life is going badly (you have low status in the macro hierarchy and this is
likely to continue into the future), then you have little to lose and a lot to gain;
being risk aggressive is rational.
If a high risk high reward opportunity appears, you should seize it without
hesitation.
If your life is on track for failure, you have to escalate your tactics. Any fear
you have is irrelevant; if there are high risk high reward strategies that you have
been afraid to use up to this point, it's time to execute them.
Continue executing high risk high reward strategies until you either win or
die. Better to die than to live defeated.
4) Death Opens a World of Opportunity:

"Life has more meaning in the face of death." -33 Strategies of War
Only Satan knows the things you’d be willing to do if you had nothing to lose.
There are plenty of young men in perfect health who think they have 'nothing' to
lose, when in truth they have everything to lose; they have another 50 years of
life ahead of them.
The only people who truly have nothing to lose are those diagnosed with terminal
illnesses or those who are determined to carry out suicide.
Having nothing to lose is a miserable position to be in, but it is also a

position of immense power.
You are enabled to use high risk strategies that nobody else is; everyone else is
understandably afraid of the consequences, however you need not fear
consequences since there is nothing you have that can be taken away.
Should you be informed you have a terminal illness or should you choose to
carry out suicide, do not slowly fade away; go out in a blaze of glory.
Before death arrives, execute every high risk high reward strategy available.
5) Fools and Cowards:

Fools tell you to always be risk aggressive. Cowards tell you to always be risk
averse.
Wisdom lies in knowing when to be risk aggressive and when to be risk averse.
You will encounter many fools going down high risk paths because they think
they have 'nothing to lose', when in truth they have a lot to lose.
You will also encounter many cowards whose lives are on track for failure and
who in truth have little or nothing to lose, who refuse to use high risk strategies
because their fear is biasing them.
6) Enter With Boldness:
"If you are unsure of a course of action, do not attempt it; your doubts and
hesitations will infect your execution…Going halfway with half a heart digs
a deeper grave." -Law 28
Take as much time as you need to carefully consider whether or not you want to
embark on a high risk course of action, or continue being risk averse.
However, when you embark on a high risk course of action you must do so with
total confidence.
During the analysis that takes place before action, consider every doubt and
hesitation conceivable.
In the moment of action, banish all doubts and fears; launch with boldness.
7) Fight and Win, or Don't Fight:

There are those who will tell you it is better to try and fail than to not try at all.
When the stakes are low (as is the case with low risk low reward strategies) this
is true. However when the stakes are high this is wrong; dead wrong.
When the stakes are high or when considering a high risk strategy, it is far better
to have not tried than to have tried and failed.
Better to have not tried, when a little foresight and a little caution could have
spared you from so much unnecessary suffering.
8) Relevant Reading:
Martin Daly:
Risk Taking, Inequality, Homicide
Evolutionary Psychology Pioneer
Felix Dennis:
How to Get Rich
88 The Narrow Road
9) Further Reflections:
9A) Ambition and Hopelessness Drive Risk Taking

Ambition + Hopelessness = Extreme Risk Taking
High Testosterone + Low Serotonin = Extreme Risk Taking
Testosterone fuels ambition. Who has high testosterone? Men

Low serotonin induces feelings of hopelessness. Who has low serotonin?
People (both men and women) at the bottom of dominance hierarchies.
Men at the bottom of dominance hierarchies have high testosterone levels

and low serotonin levels; they are filled with both ambition and
hopelessness.
They are the one’s who engage in extreme risk taking; risks that look
insane to most people but that are perfectly sane if you have nothing to
lose and everything to gain.
9B) Baltasar Gracian's Advice:

"Never compete against a man who has nothing to lose." –The Art of
Worldly Wisdom
Never put an adversary into the position of having nothing to lose.
If your adversary has nothing to lose, he may be willing to burn down

everything and everyone including himself and including you.
9C) Brave Men Want Security For Their Children:

Most people are risk averse, period. With every decision they make they
will search for a low risk option.
Among extremely risk aggressive men they may be willing to take risks
when it comes to decisions affecting their own lives, but they are risk
averse when it comes to their childrens’ lives.
Risk aggressive men want glory for themselves, but for their loved ones
they want security.
9D) Creativity is Risky:

Creativity is a high risk high reward strategy. Most new ideas are useless,
but a tiny minority are spectacular.
In creative professions you will find that most people make little or no
money, but a tiny minority are spectacularly rich.
'Creative' professions would include entrepreneurship, art, music, and
writing.

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What are the different types of bets discussed in the text?

What are the different types of bets discussed in the text?

What factors influence extreme risk taking according to the text?

What factors influence extreme risk taking according to the text?

Psychology of Risk Taking

A critical skill is the ability to quickly calculate risk and reward.

Whenever an opportunity appears, quickly categorize it into which type of Bet it

This calculation will sometimes have to be done in a matter of minutes;

3) How Much Do You Have to Lose?

3A) A Lot to Lose? Be Risk Averse:

3B) Little to Lose? Be Risk Aggressive:

4) Death Opens a World of Opportunity:

Having nothing to lose is a miserable position to be in, but it is also a

5) Fools and Cowards:

7) Fight and Win, or Don't Fight:

9A) Ambition and Hopelessness Drive Risk Taking

Testosterone fuels ambition. Who has high testosterone? Men

Men at the bottom of dominance hierarchies have high testosterone levels

9B) Baltasar Gracian's Advice:

Never put an adversary into the position of having nothing to lose.

If your adversary has nothing to lose, he may be willing to burn down

9C) Brave Men Want Security For Their Children:

9D) Creativity is Risky:

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