Contemporary Risks

People have a number of risks from different sources. We have culture risks, because our culture beliefs can be harmful. We have cognitive biases risks, they may lead to bad decisions. We have education risks, because education can be useless and outdated. We have risks of changes because our environment can change unexpectedly for us. Each possible risk has at least two unknown features: probability of happening and a cost. Fortunately for us there are methods to evaluate risks and make decisions considering them.

To account risks we can use the utility theory for decision making, positive outcomes would have a positive utility while negative outcomes and possible risks would have a negative utility. So everyone can calculate the expected utility of a risk multiplying its probability and its expected value. Some simple risks may have only one event that creates the risk, so we only need to find one probability and one utility value. Some risks may be more complex, they may contain a number of separate events, so different probabilities and utility values should be calculated.

It may look difficult, to calculate and estimation something about events that may or may not happen. But usually we can use existing statistical data of similar events to make evaluations. We can even estimate a margin of error of every calculation, which gives us a lower and a higher estimation of a risk.

If it still looks difficult think about this: you don’t have to make detailed analysis of risks each day. You only need it when you make major decisions in your life or when you need to make a decision about something you don’t know very well. This extra hour of work can save you months of your time and amounts of money comparable to your annual salary or even more. People usually don’t remember all possible risks they may encounter in a particular decision, but if they start methodically record and analyse information, then they most likely find these risks.

Even if you don’t have any big decision in the nearest future you can practice with smaller ones to improve your decision making skills. So when you face a bigger and more complex decision you will know what to do.