Risk Taking vs Informed Risk Taking: Which One Is Better for Your Success?
Learn the difference between risk taking and informed risk taking, and how they can affect your chances of achieving your goals. Discover which one is better for your success and how to apply it in your life.
Who does not take risk in their life?
Some jump into new opportunities without much hesitation and some take their time to carefully weigh the pros and cons before making any decision.
Whichever type of risk you take, this post will help you find out the difference between risk taking and informed risk taking, and how each of them can affect your capacity to achieve your goals.
But first, what is risk taking?
Risk taking is the act of exposing yourself to a potential loss or harm in order to gain some benefit or reward.
Seen as both positive and a negative trait, a lot of it depends on the context and the outcome of the situation.
Nevertheless, some of the common examples where we see a lot of people taking risk on are:
- Investing in a volatile stock or cryptocurrency without doing due diligence
- Quitting a stable job to pursue one’s passion or dream
- Traveling to an unfamiliar country or culture without much preparation
- Trying a new sport or hobby that involves physical danger or skill
And so many more!
All said, risk taking abilities can be motivated by various factors too. Some of them are innate personality traits of curiosity, excitement, challenge, opportunity, creativity (and even boredom!).
To top it all, the world normally considers risk takers as adventurous, innovative, confident and courageous, only because they are willing to take chances and explore new possibilities.
However, risk taking can also have negative consequences. Some of it which we all know as well such as:
- Losing money, time or resources
- Damaging your reputation or credibility
- Hurting oneself or others physically or emotionally
- Facing legal or ethical issues
- Missing out on other opportunities or alternatives
The drawback of taking risk is also subject to criticism, rejection, failure or regret when someone fails in their endeavor.
This then leads us to another aspect of risk-taking which in the commercial world is normally called as ‘Informed Risk Taking’.
So, what is ‘Informed Risk Taking’?
Informed Risk Taking is the act of exposing yourself to a potential loss or harm in order to gain some benefit or reward, but this risk is backed by careful analysis of the situation and the possible outcomes.
This approach being a more rational and strategic way to taking risk, some examples of informed risk taking could be:
- Investing in a volatile stock or cryptocurrency after studying its history, performance and trends
- Quitting a stable job to pursue one’s passion or dream after saving enough money and building a network of support
- Traveling to an unfamiliar country or culture after learning about its customs, laws and safety measures
- Trying a new sport or hobby that involves physical danger or skill after getting proper training and equipment
Clearly, Informed risk takers are seen as smart, diligent, responsible and resourceful and their actions are often seen to be motivated by factors such as opportunity, growth, improvement, learning or even achievement.
They are able to take calculated risks, but again, this approach too has its own set of drawbacks such as:
- Spending too much time or energy on research and planning (being overtly cautious!)
- Missing out on spontaneous opportunities
- Overestimating or underestimating the risks or rewards
- Being influenced by external or internal biases or emotions
Big drawback in some of the informed risk takers is that they can become too cautious or conservative, and sometimes become complacent and avoid taking necessary risks too.
The key question now is — Which one is better for your success?
Straight up, there is no definitive answer to this question since both risk taking and informed risk taking have their advantages and disadvantages.
But the best fit approach highly depends on some key factors such as:
- Your personality: Are you more impulsive or more analytical by nature? Are you more optimistic or more pessimistic in your views? Are you an open-minded or a closed-minded person?
- Your goals: What are you trying to achieve? How important is it for you to achieve it? And how urgent is it for you?
- Your environment: What are the opportunities and threats in your situation? How competitive your market is? How stable or volatile is it?
- Your resources: What are the assets or debts you have on you? How much money, time, energy, knowledge, skills and connections do you have on you to leverage on in times of need?
- Your preferences: What are your core values and priorities? What are your strengths and weaknesses? What are your likes and dislikes?
Depending on the above factors, you may choose to take more risk or less risk in different situations.
The key here is to find the right balance between risk taking and informed risk taking that suits your needs and circumstances for a situation.
This then lead us to another question on — How can we apply informed risk taking approach in our life as a general habit?
Here are some tips that you can follow every time before you are ready to take a risk:
- Identify your goals and motivations: What do you want to achieve and why? How will it benefit you and others? How will it align with your values and priorities?
- Assess the downsides and rewards: What are the potential outcomes of your actions? What are the probabilities and impacts of each outcome? What are the best-case and worst-case scenarios when you take the risk?
- Gather relevant information and data: What are the facts and evidences involved? What are the sources and reliability of the information? What are the gaps and uncertainties in the information?
- Evaluate the alternatives and options: What are the different ways that you can achieve your goals? What are the pros and cons of each option? How do they compare with each other?
- Make a decision and take action: Based on your prior analysis done, what do you think is the most optimal option for you? And how confident are you in your decision? How will you implement your action plan?
- Monitor and review the results: Once you have decided to proceed with an action plan, what are the actual outcomes of your actions? And how do they match with your expectations? What are the feedback and consequences that you receive?
- Learn and improve: What are the lessons and insights that you gain from your experience? How can you apply them to your future decisions and actions?
In summary, Risk taking and Informed Risk taking are two different approaches to dealing with situations which are involving uncertainty as well as opportunity.
In almost every scenario, informed risk taking approach always puts you in a much better space to make solid decisions with a clear path forward.
Nevertheless both the approaches have their benefits and drawbacks depending on various factors. It is all about finding the right balance between the two and proceed accordingly based on your needs and circumstances.
So go ahead, apply informed risk taking approach in your life, make better decisions and achieve greater success!
Drop in your comments in you have any experiences of irrational risk taking vs informed risk taking in your life or in your loved ones’ life, and how did you go about it. Never know, your experience may share more insights to someone who needs most!
