Humans crave risk, sort of. Danger heightens our senses and races our hearts. When threatened, we come to full and focused attention. All of which are well-honed reflexes built from millennia of natural selection. Those who paid attention survived and those who didn’t, well they didn’t. Our risk perception systems were highly tuned to focus on the “downside,” (i.e., survival) and that remains encoded in us even today.
Thankfully our world has become tremendously safer. Outside of war settings, fewer and fewer on the planet truly have to pay keen attention to their surroundings to survive. Life spans across the world have steadily increased and death by violence or perception mistakes (i.e., accidents) continue to decline. Yet our operative sense of risk is not set by the incorporation of statistics but rather by our relatively recent observations – what we see or think we see around us shapes our perceptions.
The tragedy of terrorism is a dreadful and timely example of what behavioral economists term “availability bias” – namely the speed at which one can recall something, dramatically skews our perception of its prevalence. Gambling is another excellent setting in which one can study this heuristic. It harnesses emotions, exposes us to perceptions of risk (i.e., losing money) while also surrounding players with the perception and the joy of winning – a combination that is often addicting, with global casino revenues projected to total $186B in 2015. Gambling is an industry that preys on our oldest vulnerabilities.
In one particular game, poker, behavior and decision making can in fact tilt the balance. What makes poker unique is the fact that players are competing against themselves and their individual choices can make big differences in the odds of beating, not the house, but each other.
Several choices or decisions are in play. The first is whether to play or fold on a given hand, a decision that has to be made based on the initial cards dealt. Champion poker players are very hesitant to advance forward into a poorly dealt hand of cards. But once “in,” the second, and perhaps the most critical, skill of the best poker players is knowing when to fold. But risk it turns out is something that we become quickly insensitive to. That is to say, the longer we hold a given hand, the more attractive it becomes and in witnessing the winning around us we increasingly believe that we are more and more likely to win as well. This is often called the Gambler’s Dilemma – our analytical self is converted to an emotional one. The best poker players are those who can fight this emotional conversion and know when to fold, as folding early, before the stakes climb is what drives long-term success, in poker and often in business.
The two key decisions we have to make every day, as business leaders, entrepreneurs or just as individuals are similar. Should we or should we not do something? And when we do elect to advance, how effective can we be in changing our mind and reversing course when the upside proves less attractive? Can we be brave (or smart) enough to fold? But downside or risk of failure is always much more potent than what we can imagine the upside to be. Will we lose face, respect, health, friends, reputation or our livelihood? Downsides seem to appear acute and quantifiable; whereas, upsides seem distant, uncertain and diluted. Daniel Kahneman’s, Thinking: Fast and Slow provides excellent details on just how lopsided these interpretations can be.
The executive function to know when to take the risk, and how to iterate from failure (i.e., learn something) – combined with the judgment to know when to exit early are the package of skills that distinguish excellence. As individuals, we can find those amongst us who seem to have this about them, we often consider them highly effective leaders. As organizations grow, it becomes harder and harder to keep these visceral components of a startup-like culture and the quick-to-decide effectiveness alive. Like people, organizations are similarly inclined to fear failure in the short term and under appreciate the longer-term implications of their daily decision-making.
All too often individuals strive to over-socialize or share the risk of a given decision with their team or boss. This escalates the perception of the risk associated with a given decision and brings in more senior individuals, who often have less time available or acute understanding of the decision at hand. Everyone on the team witnesses the organization’s inability to decide and begins to perceive that effective decision-making is a risky endeavor.
For leaders, the most important decisions are often those that they don’t make. That is to say, the best leaders are those who empower the directly responsible individuals, DRIs, on their teams to make the decision themselves; to be accountable, to take the bet, and to carefully manage the consequence. Those who learn to exit as soon as the decision appears to be heading towards the gutter, those who are willing to do it all over again in charge with more confidence and experience, those who glow and share in the success – those are the folks that we have empowered to decide who will be the great leaders of tomorrow.
Earlier this year, we lost one of major league baseball’s most animated and iconic figures. With 10 World Series rings, 14 Series appearances, 15 All-Star Games and three MVP awards, Yogi Berra was a model of humility and fountain of thought provoking perspectives. But perhaps none were more actionable or more apropos as his often quoted classic, “when you get to a fork in the road…take it.” As a die-hard Red Sox fan, even I can get that.