Richard Gottlieb

Risk

What is it that most citizens of Toy Nation have in common: A love for toys? The little bit of child that is still in them? A desire to make money? A desire to do some good in the world? Well, yes, probably any one of those could be true for some people. What I think we all have in common, however, is the chronic sense of anxiety that comes from continually taking on risk. 

It is with this in mind that I have decided to do a series of blogs about risk this week. This is therefore the first in a series of four.

When I speak with prospective clients I like to ask them: “What do you worry about at 2:00 AM?” It’s my way of finding out what is really on their mind. The typical response is a pause, a nervous laugh and then a confession of worry about various aspects of their business. 

It was with this in mind that I came across an interesting piece in The New York Times entitled: “What Happens if We’re Wrong?” It is a great look at risk and the assumptions people make. 

As I read it, I thought about my personal journey regarding risk. As a young man I was extremely risk averse. I would look for opportunities that only had high percentages of success. The only problem with this outlook is that even if there is a 99% chance of success there is still a 1% chance of failure. As a result, I was constantly too careful and entirely risk averse.

Then one day it occurred to me that assessing risk based strictly on the odds would never work because what I was not dealing with was whether I was honestly assessing the downside and if I could live with the consequences should failure occur. So, I began to ask myself. If I take this action, what is the worst case scenario and if it should occur could I live with it? Could I recover, learn from it and move on? I didn’t ask myself if I liked it, just if I could live with it. 

Well, that became my mantra and I wish I could tell you that after that day I had nothing but success. No, I took on the risk, tried some things and I failed. What was important, however, was that each time it happened I got back up, felt the pain (financial and emotional) and healed. I then applied what I learned and do you know what?  I made money on what I had learned. I did it better the next time.

Now, that way of assessing risk, though new to me was not new at all. It was first espoused by the philosopher and mathematician Blaise Pascal in the17th Century. Pascal used belief in God as his means of considering risk but it really applies to toys or any other risk you choose to take on (although the downside is a bit more serious when you are messing with God). Here is how The New York Times article I sited at the beginning of this piece described Pascal’s analysis:

One day he [Pascal] asked himself how he would handle a bet on whether “God is or God is not.” Reason could not answer. But, he said, we can choose between acting as though God is or acting as though God is not.

Suppose we bet that God is, and we lead a life of virtue and abstinence, and then the day of reckoning comes and we discover that there is no God. Well, life was still tolerable even if less fun than we might have liked. Here, the consequences of being wrong would be acceptable to most people.

Suppose, however, we bet that God is not, and lead a life of lust and sin, and then it turns out that God is. Now being wrong has put us into big trouble.

So, when you think about risk think about the consequences before you consider the odds. You may make a better decision and even sleep a little better (but not much).

Posted by Richard Gottlieb on June 22, 2008 | Comments (0)