“It’s impossible that the improbable will never happen.”
Gumbel, Emil J
A risk professional tends to view his life and the environment rather seriously and so seems to find many potential risks in our day-to-day activities. So it is a bit funny to see someone posing to have an utter disdain for prudent behaviour. Glorified in our movies, the so-called hero will brave desperate odds and yet emerge victorious. It is a perfect case of ‘ignorance is bliss’ and ‘fools rush in where angels fear to tread’.
For anyone seriously interested in evaluating risks, apart from the many complicated inputs that are required, the following basics would help –
- You better know some basics of Maths and the theory of probability. You need to understand what is more unlikely to happen when the outcome cannot be guaranteed. For example are the odds better on whether I can guess your birthday date knowing that you were born in January 1980 than I can get the number 5 twice in a row by rolling a single 6 number dice?
- You need to appreciate that there is an inherent asymmetry of information is most scenarios and quite often you may not know the full picture. In fact there is the likelihood of the presence of lot of unwanted ‘noise’ trying to colour your perception. And so if the outcome really matters to you then you better get the last possible sliver of information that can be acquired through reasonable cost and effort.
- Remember that ‘self-interest’ – and it can be avowedly separate from even personal interest – very often comes into play and people end up playing games with high stakes and no comebacks.
So the risk people would love to reduce variability and move the system towards stability. No one likes to have nasty surprises, right?
Four elemental strategies for risk management are popular and they are guided by our risk appetite and risk assessment. Let us look at it from the perspective of being a school-going student having to deal with a System of exams, assignments, and surprise tests.
Risk Avoidance – Obviously the right strategy when the odds are really against you. If only our hero would remember before jumping in to the fight with his Pants down. More close to home, remember being a lucky one to have fallen sick on the day the teacher took a ‘surprise’ Maths test.
Risk Acceptance – You are home with the bacon with this one when you opt for this one after having done one’s homework right. No one has a choice to miss the final exam and so one does devise a strategy to make peace with the inevitable.
Risk Insurance – You are bit iffy on this one mainly on account of risk assessment.So every kid will remember taking help from the genius in the class when we were not sure of knowing the right answer.
Risk Transfer – You have little risk appetite but cannot avoid taking the risk.It makes sense to ‘outsource’ the risk to someone better equipped to deal with it. Talk about borrowing notes of one’s senior in the school or asking an elder sibling to help you turn in the essay assignment. Google search too is a boon for students wanting instant recipes for success.
School days used to be fun because often the kids got their strategies wrong and end up with Egg on their faces. The strategies often went wrong because our risk assessments were bad. Typically we were overconfident about our abilities and tended to underestimate the difficulty levels of the task involved. Occasionally one could be blamed for having an incorrect level of risk appetite – but usually the outcomes in such scenarios used to a surprising positive upside than a fiasco. Girls in particular tended to be very cautious in assessing the risks and so would demonstrate relatively lower risk appetites wherein the guys would simply swagger into the trap unmindful of the risk just like babes in the wood.
But the best story I remember from my school days came in a movie as well and I call it the ‘Coin Game’. It involved a canteen owner wanting to show how unintelligent was his ‘kid’ helper. In the presence of his friends he would ask the child to choose between a 1 rupee or a 2 rupee coin. The kid would quietly chose the coin with the lower value and walk away with it. The canteen owner would be amused by his foolishness and kept repeating his game. But it was the kid who would have a quiet laugh at the end and calmly state, ‘The game will be over the day I pick the 2 rupee coin…’.
The rarest event is known as a ‘Black Swan’ moment that is the extreme edge of randomness and can take everyone by surprise and have tragic consequences. Sadly I remember a dear friends of mine who cleared the NDA entrance exam but came up with a cropper when he flunked his Hindi Board exam paper.
Sadly such failure has a lot of serious consequences for one’s esteem and self-confidence. Many youngsters miss a step and never quite recover again. Luckily my friend survived with the support of his family and friends. He eventually pursued a career in Engineering instead. So I really believe that everything in life is a risk and hopefully we are lucky to get a Second Chance when we desperately need it.