I Am a Risk Taker

The Risk-Taker Bias

Consider the restaurant business in a competitive place like New York City. One has indeed to be foolish to open one, owing to the enormous risks involved and the harrying quantity of work to get anywhere in the business, not counting the finicky fashion-minded clients. The cemetery of failed restaurants is very silent: walk around Midtown Manhattan and you will see these warm patron-filled restaurants with limos waiting outside for the diners to come out with their second, trophy, spouses. The owner is overworked but happy to have all these important people patronize his eatery. Does this mean that it makes sense to open a restaurant in such a competitive neighborhood? Certainly not, yet people do it out of the foolish risk-taking trait that pushes us to jump into such adventures blinded by the outcome.

There is an element of the surviving Casanovas in us, that of the risk-taking genes, which encourages us to take blind risks, unaware of the variability in the possible outcomes. We inherited the taste for uncalculated risk taking. Should we encourage such behavior?

Economic growth comes from such risk taking. But some fool might argue that if someone followed reasoning such as mine, we would not have had the spectacular growth we experienced in the past. This is exactly like someone playing Russian roulette and finding it a good idea because he survived and pocketed the money.

We are often told that we humans have an optimistic bent, and that it is supposed to be good for us. This argument appears to justify general risk taking as a positive enterprise, and one that is glorified in common culture. We have enough evidence to confirm that we are an extremely lucky species, and that we got the genes of the risk takers. The foolish risk takers, that is.

I am not dismissing the idea of risk taking, having been involved in it myself. I am only critical of the encouragement of uninformed risk taking. The überpsychologist Danny Kahneman has given us evidence that we generally take risks not out of bravado but out of ignorance and blindness to probability! The next few chapters will show in more depth how we tend to dismiss outliers and adverse outcomes when projecting the future. But I insist on the following: that we got here by accident does not mean that we should continue to take the same risks. We are mature enough a race to realize this point, enjoy our blessings, and try to preserve, by becoming more conservative, what we got by luck. We have been playing Russian roulette; now let’s stop and get a real job.

Justification of overoptimism on grounds that “it brought us here” arises from a far more serious mistake about human nature: the belief that we are built to understand nature and our own nature and that our decisions are the result of our own choices. Many instincts drive us.

Evolutionary fitness is often touted as gospel. The more unfamiliar someone is with wild Black Swan–generating randomness, the more he or she believes in the optimal working of evolution. Silent evidence is not present in their theories. Evolution is a series of flukes, some good, many bad. You only see the good. But, in the short term, it is not obvious which traits are really good for you, particularly in a Black Swan–generating environment of Extremistan. This is like looking at rich gamblers coming out of the casino and claiming that a taste for gambling is good for the species because gambling makes you rich! Risk taking made many species head for extinction!

The idea that we are here, that this is the best of all possible worlds, and that evolution did a great job seems rather bogus in the light of the silent-evidence effect. The fools, the Casanovas, and the blind risk takers are often the ones who win in the short term. Worse, in a Black Swan environment, where one single rare event can come shake up a species after a very long run of “fitness,” the foolish risk takers can also win in the long term! Extremistan worsens the silent-evidence effect.