Cautious or Courageous?

Mind Tools Newsletter 74 - 15th May 2007 This newsletter is published by Mind Tools Ltd of 2nd Floor, 145-157 St John Street, London, EC1V 4PY, UK. You have received it because you have subscribed to our double opt-in newsletter. To subscribe or unsubscribe, just click the links at the bottom of this email.

Contents: What's New? "Cautious or Courageous?" A Final Note

When you’re making important decisions, are you cautious, courageous or purely objective?

Objectivity sounds like the right answer. Yet, it's hard to be purely objective when our decision making is so tied up with our individual ways of thinking. It is therefore very useful to look at how you think as a decision maker and, in particular, how you think about risk. Are you naturally "cautious" in your approach, or are you naturally more confident in certain areas of your life?

This week’s article “Decision Making: Cautious or Courageous?” helps you understand your natural appetite for risk, and so helps you make better decisions.

What's New?

As well as today’s article on decision making risk, we have new help on speed reading. For many people, reading takes up a significant amount of time in the workplace. Whether you’re reading reports, articles, books, or even just your emails, speed reading strategies can significantly increase your reading effectiveness – and save you a huge amount of time. We strongly recommend this truly essential skill!
We're also experimenting with a fun new approach to using our tools - take a look at our Interactive Wheel of Life, and let us know what you think!

Meanwhile, in the Career Excellence Club, members are taking that next step in their career development, ably assisted by our team of writers, trainers and coaches. In the past two weeks, we've helped readers target their time management weaknesses, we've looked at decluttering for improved effectiveness, we've taken decision tree analysis skills to the next level, and we've heard about some great tips for beating email overload. We've also listened to an intriguing insight into the mysterious but important subject of doing business in China.

Back to today’s article, it’s an easy decision to read it. Enjoy learning how your natural "caution" or "courage" may affect the more difficult decisions you make!

  

James Manktelow & Rachel Thompson

James Manktelow and Rachel Thompson
MindTools.com
Mind Tools – Essential skills for an excellent career!

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New Article

Decision Making: 'Cautious' or 'Courageous'?

Understand your risk preference, and make better decisions

Decision making affects everything you do. From the moment you wake up, you're making decisions. Everything, from what you wear to what time you leave for work, requires a decision, however small. And inherent in almost all the decisions you make is an element of risk.

To make the best decisions you can, it is important to understand how you approach the decision making process.

For each decision you make, there are unknown elements that you can’t control. Consciously or subconsciously, you evaluate these unknowns and the potential outcome of each alternative when you take a decision. However, the payoff and the risks involved are not absolute: They're estimated, and are therefore colored by your perception. In turn, your perception is strongly influenced by your propensity to take risks.

By nature, some people are more tolerant of risk than others. We all know people who thrive on big risks. People who gamble or take part in off-piste skiing are typically pretty risk tolerant, as are those who invest in new markets and emerging technologies. To them, the excitement and potential rewards make the risk worthwhile.

Before they participate in these activities, though, they make a decision to do so. This then implies that decision making is affected by your risk profile. When you’re amenable to risk, you tend to consider and embrace riskier options. People who need more stability and control tend to choose far less risky options.

Understanding your Risk Propensity

So, in thinking about your decision making, you need first to understand your attitude to risk. Are you risk averse, a risk taker, or does it depend on the situation? The amount of risk you accept in your decisions is related to your overall risk profile. Some people are simply more cautious by nature. So what the cautious decision maker deems high risk, may have a lower risk assessment when analyzed by the "courageous" decision maker.

This is important because we all have to take risks in our life if we're to achieve our full potential, and it makes sense to try to find the middle path between suffocating caution and reckless optimism. The ability to find this middle path, to be able to take risks intelligently, is a great advantage in many business situations.

Research has shown that your personality type is a good way of predicting your risk propensity. Click here to find out more about a good approach to personality typing, and to take a quick self-test that will help you understand yours.

People fall into three groups when it comes to risk propensity. Some people are through-and-through risk takers. Not only do they thrive on the sensation of danger, they will actively seek out this thrill. In terms of personality type, they will tend to have high Extroversion and Openness scores, and low Agreeableness, Natural Reaction/Neuroticism and Conscientiousness scores (see the personality types article to find out what this means.) These people like to have fun, enjoy the "buzz" of novelty and danger, and aren't too worried about what others think of them.

People with the opposite personality scores (Introverts with low Openness, but high Agreeableness, Natural Reaction/Neuroticism and Conscientiousness) will normally be risk averse.

The third group contains those whose propensity to take risks depends on the situation. These people tend to have mid-range scores on most of the "Big Five" personality dimensions. Their approach to risk tends to differ across following the six main areas:

• Health
  
• Personal safety
  
• Social
  
• Recreational
  
• Career
  
• Personal finance

Examples of people whose risk propensity is different in each of these areas include a fast-driving smoker who stays within one company for his whole professional life (taking risks with personal safety and health but not with his career), or someone who gives up a well-paid job to start a new business yet always wears a cycle helmet (taking risks with her personal finance but not her personal safety).

Tip: Exploring a candidate's risk propensity may be appropriate when recruiting for some jobs. For example, risk aversion is not a good trait in derivatives traders, while a high propensity to take risks would not be ideal in a laboratory scientist. However, because some people's approach to risk is situation-specific, recruiters should be careful not to infer that risk taking in one area (such as an enthusiasm for sky-diving) implies the candidate would be a risk-taker at work.

Risk Propensity and Decision Making

Once you are fully aware of your approach to risk in decision making, you can start to think about how your natural risk appetite is influencing your decisions. If you are naturally a "courageous" decision maker, then you may want to increase the amount of analysis you conduct, so that you avoid taking unwarranted risks. On the other hand, if you are a "cautious" decision maker, then knowing that may help you to break free of constraints that may be holding you back.

Here’s how to use your understanding of your risk propensity when you have to decide between two or more options:

Step One: Analyze the Riskiness of Each Option

First of all, you need to identify the dangers inherent in each option, the likelihood of their occurring, and the potential impact they’d have if they materialized. One of the key tools available for this is risk analysis.

Tip: It is particularly important to carry out a formal risk analysis if the scale of the decision is very large, or the potential consequences of your chosen option going wrong are particularly high – for example, the company going bust, or someone suffering a serious injury.

Once you’ve calculated the risks for each option, and considered how you could manage these, rank your options according to the riskiness of each one, and decide which is your preferred option.

Step Two: Compare Your Risk Propensity to the Riskiness of Your Preferred Alternative
If you're naturally a "courageous" decision maker who enjoys taking risks, and you've chosen a high-risk option, step back. Consider whether your choice is influenced by the excitement that this risky option would bring. Although a high-risk option seems the most attractive to you, is it really the best choice, or are you just seeking an "adrenaline buzz"?

Equally, if your tendency is towards risk-averse, "cautious" decision making and you've chosen the least risky option, check that your natural prudence isn't getting in the way of a truly objective assessment of the choices available.

Key points:

Being aware of you own propensity to take risks is of great benefit when making decisions. Risk-taking people preferring high risk options should consider reviewing their decisions carefully. On the other hand, risk-averse people wanting to take the safe option may need to push themselves if they're to achieve the best outcomes. Being aware of your risk patterns will help you to determine if you are truly choosing the best option, or if you're letting your risk profile influence the decision more than it should.

The Mind Tools Store:

• The Career Excellence Club (The Mind Tools members area): Make career development and every-day part of your life with member-only discussion forums, the Mind Tools Extended Toolkit, downloadable MP3-based Book Insights and Interviews, regular coaching, training, and much, much more. More >>
  
  
• The Mind Tools E-book: All of the tools on the Mind Tools website in one convenient, easily-downloadable, easily-printable PDF file. We have excluded advertising to enhance clarity and have formatted sections to be easy to read, print and use. More >>
  
  
• How to Lead: Discover the Leader Within You: Learn the 48 simple but essential skills you need to become a top leader in your industry. More >>
  
  
• Personal Coaching from Career Excellence Professionals: Find career and life direction, bring your job under control, build self-confidence and put yourself on the path to long term success with a Mind Tools coach. Our coaches give you the focused personal coaching you need to make the very most of your career and life. More >>

A Final Note From James

Decision making is a core skill area for both home and work. I hope you enjoyed thinking about how your natural sense of caution or courage might come into play. Put this to good use next time you’re making a big decision!

Decision making is a key area at Mind Tools, and one we dig deeper on in the Career Excellence Club. This week’s Bite Sized Training lesson in the club is on Decision Tree Analysis. If you are at decision point in your work or career, it might be a good time to check out the club for yourself. As you may already know, it’s only US$1 for the first month, and it’s easy to pay by credit card or debit card from around the world – the equivalent in your own currency is simply charged to your account.

Before we close, I'd also like to thank everyone who helped us a couple of weeks ago by telling their friends about Mind Tools. Thank you - and it was a pleasure to welcome them all to the site!

Our next newsletter is in two weeks’ time, with a new tool to help you unravel your organization’s culture. Until then, enjoy all that’s on offer at the Mind Tools, and have an excellent two weeks!

James

James Manktelow

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