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Ethan Evans Podcast

Feb 5, 2020

When does a decision become a risk or a gamble? Everyone loves to gamble when they feel sure they will win. After all, a bet you are going to win is not really a bet at all. At work, we get ahead by making smart decisions. But when decisions become unclear, they start to feel risky. Different people, and different companies, handle these unclear decisions in very distinct ways. At some level, all decisions have risk. If one alternative was so clearly better than the other, with no downside whatsoever, you probably wouldn’t even consider the alternative. When a decision has ambiguity as to the outcome or trade-offs that are not fully predictable, we start to call it a risk. If we feel it is particularly risky, out of our control, or uncertain, we call it a gamble. The terms are not precise, but very broadly if we believe something is 90% or more likely to work out as we plan we tend to term it a decision or a choice. Around 70/30 we call it a risk, and when it starts to feel like a 50/50 coin flip, we call it a gamble. To take smart risks we have to do three distinct things: 1) Recognize that there is a decision being made with alternatives and consequences that are not fully predictable or controllable 2) Identify what things are controllable and work to control them. Amazon calls these the controllable inputs. 3) Consider the consequences of the decision not working out, of the risk being realized, and what you can do if that happens Some decisions will not work out how we planned. We can skew the odds in our favour by recognizing them and controlling what we can. We can improve the results by considering our response to a bad outcome upfront. In the end, smart risks are those where you can skew the odds in your favour and where you can accept the consequences if it does not work out. Dumb risks are those where either you don’t even recognize the possibility of a bad outcome or you fail to take steps to prepare for it.