Recently, my doctor recommended that I receive a vaccine against whooping cough.

“OK,” I said, my legs dangling off the exam table.

After I agreed, she proceeded to try to sell me on it. Clearly, this doctor was used to being argued with. Although I tend to be a questioner, in this instance, I had no qualms. I’d already done the risk / reward calculation in my head and determined that the reward of avoiding whooping cough outweighed any risk. I also subscribe to the broader philosophy that if you cannot trust recommendations from your doctor, your first order of business is to find a new doctor.

This is not a post in which I wish to argue about choosing doctors or the merits of vaccines. Rather, I wish to posit that considering the risk / reward profile of any action can help you make better and quicker decisions.

I find this frame more useful than creating pros and cons lists. The risk / reward frame puts you in a mindset that implicitly acknowledges this truism: Living involves risk. 

There is no such thing as a risk-free existence. Luckily, there’s no such thing as a reward-free existence, either!

Stock investors know this. They are always asking, “What’s my upside? What’s my downside? What’s the risk / reward?” As a stock analyst, I spent a lot of time trying to call bottoms in stocks — meaning, interpreting whether a stock was as low as it could go. Depending on one’s time horizon and risk profile, going long a stock (that is, buying it) when it is at a bottom is not a bad way to grow the portfolio. Minimize risk, maximize reward, make money. (The mindset is easy. Doing it is the hard part.)

You can apply your own internal risk / reward calculation to every major life decision. Even inaction carries risk.

In your personal life, risk tolerance is a spectrum with thrill-seeking dare devils on one end and perhaps accountants on the other. (Calm down. Some of my best friends are accountants.) To the thrill seeker, the reward of the thrill outweighs the risk of death. Put another way, a thrill seeker’s choices are designed to avoid the risk of living a life without exhilaration. Same type of calculation, different tolerance set point.

If you haven’t done so, try putting some upcoming decisions within a risk / reward framework. What’s your absolute downside? What’s the upside? Can you apply probabilities to each — in other words, what are the odds of each happening? Now which side outweighs the other?

We all get this calculation wrong from time to time — that’s called learning.

Non sequitur: Many of our political disagreements are arguments over risk tolerance versus perceived reward. When you disagree with someone, you might try asking yourself how his views play into his perception of risks and rewards and how those might differ from your own. How do probabilities tie in?


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