Risk Perception vs Risk Reality

Know your risk!

Let’s talk about RISK. There is a disparity between risk perception and risk reality.

By becoming aware of this disparity we can hopefully improve our decision making accuracy and maximize our expected values.

Let’s talk about 3 heuristics (rules of thumb):

1. Availability Heuristic: The tendency to judge the probability of events by how easy it is to think of examples.

Example: your mind quickly thinks of examples based on news and survivorship bias. Like rattlesnake bites while in desert. I recall walking in a beautiful trail in New Mexico and all I was focused on was a rattlesnake coming after me and biting me. Nearly impossible as they are more afraid of us!

2. Certainty Heuristic: The tendency to reject options that are associated with uncertainty.

Example: your mind quickly thinks of things that are “unknown” or uncertain and assumes they are riskier because of their uncertainty. Like nuclear power replacing our current traditional energy generation. Since we only hear about the “nuclear meltdowns” and are uncertain about its potential effects, we assume it is riskier when in fact research shows that coal has more risks.

3. Controllability Heuristic: The tendency to assume there is more risk with less control.

Example: the easiest example here is an airplane. Yes the crashes, when they occur, are all over the news and can traumatize all people. Nonetheless it is devastating for all but are airplanes more dangerous than cars because we have less control since an airplane is flown by an unknown pilot in a locked cockpit. We rarely even see them.

So, if we have more control and more certainty, is there less risk?

Be aware and question yourself before making a less accurate choice.