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Most decisions we make involve some measure of risk. Generally, the consideration is fleeting. Do I take the stairs and risk falling, or the elevator and risk it breaking down? At times, the choice is more absolute: Do I take the double-black diamond with moguls, or do I go around on the bunny trail? Sometimes the odds are important: Is my need to cross the street against traffic so great that the attempt should be made despite oncoming traffic? Risk is ubiquitous.
It is embedded in the friends we make, where we go to college, what job we take and in our choice of a marriage partner – a risk my wife and I took fifty-six years ago today. A wise friend used to say that he was never upset with mistakes he had made but was troubled by risks he never took. Risks vary depending on what we do. To a soldier in combat, risks have different consequences than the ones we encounter daily. In his 1916 collection of poems, Mountain Interval, Robert Frost included “The Road Not Taken.” At a fork in the road a traveler pauses, knowing he cannot walk down both paths, so chooses “the one less traveled by…” The reader never knows whether the choice was a good one or not, only that it “has made all the difference.” As well, progress is impossible without risk. A baserunner cannot steal second without taking his foot off first. Neither can we avoid risk. “Security,” as Helen Keller once wrote, “is mostly a superstition.”
Risk is defined as the interaction with uncertainty, a measure of the probability of danger or loss, against safety or profit. In our daily lives, we try to mitigate risk. We are encouraged to look before we leap. Insurance companies employ actuaries to assess risk and calculate premiums. Investors use algorithms to quantify the risk of loss against the potential for gain. While these calculations are never perfect, they are Darwinian in that those who are best at measuring risk tend to be the most successful, what Joseph Schumpeter termed creative destruction in industries as they adapt to change.