Making Big Life Choices Less Risky

Entrepreneurs show us how to create low-risk, high-reward situations

Posted Feb 01, 2021 | Reviewed by Kaja Perina

Big life choices are rarely between something that’s clearly good and something that’s clearly bad. That’s what makes them hard: having to choose between two things that both have the potential to turn out well.

Should you take a sabbatical and travel? Should you go back to school? Is there a better job out there waiting for you, or should you be content with your current position?

And for those bitten by the entrepreneurial bug, the age-old question: Is this the right time to jump ships and become a full-time founder?

How Jeff Bezos decided to start Amazon

Almost everyone who’s started a company has had to decide if and when to give up their stable (and often lucrative) career to take the leap of faith. When Amazon’s Jeff Bezos was looking out over the cliff edge in 1994, he was comfortably employed by an investment management company in New York.

Bezos had a successful career. To make matters worse, leaving in the middle of the year would mean leaving his bonus on the table. On the other hand, the promise of the Internet was growing by the month, and Bezos had the chance to write the rulebook for online shopping.

We often see the same pattern:

  1. Staying at your current company and role is the low-risk, low-reward choice. It can offer a great quality of life, but your progress will remain very linear.
  2. Jumping on the new opportunity has the potential to change your life. At the same time, there’s a huge risk of putting in years of work and ending up with nothing to show for it.

We know how the story ended for Jeff Bezos, but what’s more interesting is the way he made the decision. He imagined himself looking back at age 80, asking himself which decision he would regret the most. As Bezos put it in Brian Christian’s book, Algorithms to Live By:

“I knew that when I was 80 I was not going to regret having tried this. I was not going to regret trying to participate in this thing called the Internet that I thought was going to be a really big deal. I knew that if I failed I wouldn’t regret that, but I knew the one thing I might regret is not ever having tried.”

Making bets safer, the Virgin way

Entrepreneurs are often seen as risk-takers, but in reality, this couldn’t be further from the truth.

You’ve probably heard the story about how Virgin Atlantic started. If not, a quick recap: Richard Branson was due to fly from Puerto Rico to the British Virgin Islands, but his flight got delayed to the next morning. He was in a hurry, so he used his credit card to charter an aircraft, wrote “Virgin Airlines” on a blackboard, and started selling the seats to the other stranded passengers.

Before a company releases a new product, they do their best to make sure it will succeed. Branson’s charter flight is a good example for a low-cost pilot project. Notice how this experience could have turned out one of two ways:

  1. Branson charters the aircraft, but can’t sell a single seat. On the positive side: he still gets to the Virgin Islands. The negative: the ticket costs a hell of a lot more than he wanted to pay for it – not great, but something a successful entrepreneur can live with.
  2. Richard Branson sells every seat, goes back to England and leases a plane, and Virgin Atlantic is born.

An entrepreneur’s job is to create a situation where the upside is unlimited, and the downside is capped.

When emotions and risk models collide

Calculating risks and expected values is something people do every day, whether or not we’re entrepreneurs.

Modern economic theory, with its emphasis on mathematical models, has developed several formal models for taking risks. But in daily life, we usually bypass these models when we calculate risks.

When we face a big decision, we might simply assess the perceived risks by listing the pros and cons of each choice. These provide an expected value that we can use to make the decision itself.

Emotions quickly get in our way, as we know what the right decision would be but are still afraid to make it. This doesn’t mean that we should try to eliminate emotions from the process; the key is to use them to our advantage. How we feel about a decision is an important input: each of us approaches risk differently.

Some of us willingly take chances on things that others shy away from, but we all have the option to change the risk profile of a situation. Two people can look at the exact same opportunity and make opposite decisions, depending on their approach to risk. But the hard part is not calculating the risk. The hard part is taking our own advice.