How to Become an All Star Risk-Taker

How to Become an All Star Risk-Taker here are a few things you can do to avoid becoming a victim of your own psychological habits.

1. Quantify the real loss.
Loss aversion kicks in because it’s a bias that weighs loss heavier than gains, even when they’re the same. That’s like saying you can put two identical objects on a scale but see different weights. You could draw a comparison to anorexia—where someone continues to lose weight far past any healthy standard, yet they see a fat person even as a skeleton stares back at them through the mirror.
I don’t know how to beat anorexia, but I know beating loss aversion in your everyday life means finding ways to assess how big a loss really is when you feel like it may be tremendous.
A good way to do this is to compare the loss to a gain.
Earlier, I mentioned most people see losing $100 as a bigger deal than gaining $100. In reality, they’re the same. And the way to see that is to ask yourself two questions:

• How would my life change if I lost $100?
• How would my life change if I gained $100?

Anchoring the different sides to something more tangible in your mind will help you see a gain or a loss for what it really is.
2. Focus on success in the future instead of failure in the past.
I was listening to NPR the other day, and Shankar Vedantam made a great analogy that applies perfectly to beating this psychological disadvantage:

Making decisions from a perspective of loss aversion is like driving a car by looking through the rearview mirror. If you wouldn’t drive your car by looking backward at where you’ve already been, why would you direct your life that way?

When you feel the sunk cost fallacy kicking in and find yourself rationalizing what you know is a bad decision just to keep something from your past, it’s time to check yourself!
Ask yourself, “Where is it I really want to head?” If the answer is not where you’re headed now, you know the sunk cost fallacy is directing your life and you need to look at things from a perspective of moving forward.
3. Take frequent breaks to assess where you’re actually at.
The real reason our friend with the $2,600 banana ended up in misfortune is because he got caught up in the moment and allowed his emotions—fully vulnerable to all kinds of psychological disadvantages—steer his decision-making.
If, instead, he’d taken a moment to cool down and think about the situation he was in, he would have made the smart decision to accept his loss and move on with some resources still available to him (while he still had plenty to move on with).
Any time you find yourself making panicked decisions, it’s a sign loss aversion is taking over and you need to remove yourself from the situation, take a break, and allow yourself to assess where you’re really at.
You’ll make far better decisions.

Your Homework Today

You probably won’t ever find yourself choosing between paying your rent or buying a $2,600 stuffed banana, but the lesson here can be applied to your life regularly—often to decisions you make every day.
Today, take a minute to figure out where loss aversion could be affecting the choices you’re making for your life, and follow the three tips above to start looking at those decisions from a new perspective.
Remember: Smart Riskology means racking up lots of little wins over the long-term. True success is measured in years and decades, not days and weeks. Make decisions accordingly!