As a part of our everyday life, everyone makes decisions on a daily basis whether it’s choosing the clothes or makeup you wear, to bus or drive, or even the meals during the day. Underneath these decisions are hidden with what’s called Risk. We may not notice consciously, but Risk is an important factor that plays a significant factor in our decision making in my opinion.
What is risk?
Risk is like a building block to decision making.
In finance, Risk is defined as the probability that an investment’s actual return will be different than expected. What this means is that risk plays an important role of determining how much we expect by prediction to gain or lose from choosing or making a decision. Decisions are made by businesses by measuring the different types of risks that are linked to the decision and the overall effect it has on the decision.
Risks are taken into account on a daily basis when it comes to the financial and business world. Decisions on which projects to take, papers to sign and companies they want to partner with all have to incorporate risk measurements in the final decisions. Experts often provide valuable tips on measuring risk to provide the building block on making the decision with the best return. Return is the goal you expect from making a decision with risk measurements taken into account. Ofcourse the ideal goal for businesses is to have the best return with the least risk possible. This means the ability to maximize gain with the least you can lose from making that decision.
Relating all this to everyday life, we make decisions according to the types of risks that can affect either good or bad of different outcomes. For example, you are trying to determine whether or not to wear shorts or jeans on a typical day in San Francisco. The risk you take for wearing shorts are to freeze or even catch a cold and the risk you take for wearing jeans are sweating and feeling uneasy if the weather gets hot. You measure risk by checking out your window and searching for weather forecast online or tv. Your decision is based on your overall goal you are trying to achieve and the outcome you expect by taking measure of risk. You decide that wearing shorts produces a better outcome because it looks cuter and you don’t mind taking the risk of a cold day. These are the things we may not notice on a regular basis because we make certain decisions in merely minutes or seconds but decisions are indeed related to how we view risk.
How we spend our money and the budgets we create for ourselves all incorporate the ideal of risk. We create budgets to save money with the lowest risk possible and we don’t overspend our money so we don’t risk being broke. Risk is something that holds us back from making a decision but at the same time can be advantageous towards making a good decision to gain more.