A Risk-Averse Culture

  • Author: Alistair O'Sullivan

People are generally not all that happy about risk. As Nobel Prize-winning psychologist Daniel Kahneman has written

“For most people, the fear of losing $100 is more intense than the hope of gaining $150. [Amos Tversky and I] concluded from many such observations that ‘losses loom larger than gains’ and that people are loss averse.”

While the phenomenon of loss aversion has been well-documented, it’s worth noting that Kahneman himself refers to “most people” — not all — when describing its prevalence. According to 20 years of research conducted by Columbia University’s Tory Higgins, it might be more accurate to say that some of us are particularly risk-averse, not because we are neurotic, paranoid, or even lacking in self-confidence, but because we tend to see our goals as opportunities to maintain the status quo and keep things running smoothly.

Higgins calls this a prevention focus, associated with a robust aversion to being wide-eyed and optimistic, making mistakes, and taking chances.

The rest of us are promotion-focused, see our goals as opportunities to make progress and end up better off, and are not particularly averse to risky choices when they hold the potential for rich gains.

Our risk-taking spirit appears to be fading away.  What would history have to say about that?

Companies add jobs more slowly, even in good times, investors put less money into new ventures and, more broadly, we start fewer businesses and are less inclined to change jobs or move for new opportunities.

Wins and losses are all part of the game.