Taking Risks and Making Good Decisions

Permission to re-post by:
Michael Karnjanaprakorn
http://www.mikekarnj.com/blog/2010/05/20/taking-risks-and-making-good-decisions/

Recently, I gave a talk at the Harvest Hobby event about poker, risk taking and decision making. While giving the talk, I slowly realized that no one in the audience really cared about the intricate strategies behind poker. Terms like “check-raising” and “sucking out” didn’t really resonate with a crowd of non-poker players. Then I quickly realized that the audience related to the real life examples that I gave near the end about decision making and relationships (DUH!), which is what inspired this article I’m writing tonight. (Also, I can’t take credit for the thoughts below as everything I’ve learned were based on mentoring from Annie Duke & Rafe Furst). So, here we go!

Wikipedia defines decision making as “the mental processes resulting in the selection of a course of action among several alternatives.” Pretty obvious right? Poker is a game of decision making under conditions of uncertainty, which is caused by chance and imperfect information.

“The higher the uncertainty, the higher the risk, so your goal is to reduce uncertainty.”

There are 1,326 distinct possible combinations of hole cards your opponent might be holding. If you can narrow that to a range between 10-20, you’ve allowed yourself to make a better decision by reducing uncertainty. You’ll never *know* what they’ll have, which is why poker is mathematically unsolvable, but as long as you make enough good decisions in the long run, you’ll be a winning poker player.

"In life, your goal is to reduce uncertainty and connect the quality of your decisions with the quality of your outcomes by taking calculated risks. You want to take calculated risks (decisions) when the upside outweighs the downside.”

If you’re completely unhappy with your 9-5 job right now, you’ll still be unhappy 25 years down the road doing that same job on the brink of retirement. This outcome will not change unless you identify what you want out of life, and start taking some calculated risks to get you there. Think about what you’re missing out on life by not taking some type of risk right now. The opportunity cost of possibilities is tremendous!

Taking calculated risks has nothing to do with “losing” because you can always learn from your “losses” and mistakes. Your goal at this stage is to increase your confidence and risk tolerance to try bigger things later.

You can do this by taking small baby steps while minimizing the downside. This could be as simple as talking to a stranger in the street who could end up being your wife, or traveling to an exotic location for the experience. This is why some poker players are comfortable buying in for $100, while others buy-in to a poker game for $1M. They slowly built up their confidence and risk tolerance to get to that level.

So, let’s say you want to be an entrepreneur. You can start by researching (Step One: Due Diligence), developing a plan (Step Three: Solution), launching a prototype (Step Four: Action), etc. to build your confidence and risk tolerance to swing for the fences later. The goal of your business plan isn’t to convince others that you business is going to work. It’s to convince yourself that your idea is going to work.

Success throughout your life comes from making good decisions by reducing uncertainty and taking calculated risks. The more risks you take in your life, the more chances you’ll have to maximize your happiness and be successful. So what are you waiting for? What risks in your life are worth taking right now?

ZDT Author’s note:
Notice that in the summary statement the formula contained three of the four steps in the MODELTM System. Not bad.

This approach makes a unique and often overlooked statement: The role that risk takes in the process of decision making. Many times the risk (or the perception of it) is what causes the apprehension to actually make the real decision, and where the statement “I’ll need to think about it” comes from…so, using techniques, systems and formulas that can mitigate risk is more essential than many are willing to recognize. Hopefully, these little revelations will help…Remember our meme.