Gymnast Simone Biles knows how to take calculated risks.
In one case, that meant adding a never before landed “triple-double” to her winning routine at the U.S. national gymnastics championships. In another, it meant choosing to withdraw from the Tokyo Olympics after experiencing a mental block that put her physical safety in jeopardy.
Understanding how to decide when to take risks and how they can impact your work and personal experiences is an important part of developing a successful career and satisfying life.
What Is Calculated Risk-Taking?
Calculated risk-taking means choosing to pursue an activity or goal whose outcome isn’t certain but where factors such as the likelihood of success and the potential risks have been evaluated and seem to indicate a good result.
This includes considering possible outcomes, including positive and negative consequences of particular decisions, and determining the probability that those decisions will succeed or fail.
It requires the ability to be thoughtful and strategic about which chances you take. Inherently, any sort of risk-taking involves leaving your comfort zone. Doing so opens you up to the possibility of both greater success and greater failure.
We’ll be talking about why those opportunities offer some of the best chances for growth and how understanding the potential risks and rewards make it possible to move forward in the face of uncertainty.
Risks Vs. Calculated Risks
By definition, a risk is anything that involves uncertainty or potential danger. They are often unpredictable, and the consequences, whether positive or negative, can range from minimal to severe.
Calculated risks are a subcategory that includes a higher level of preparation, analysis, or decision-making meant to minimize negative outcomes and maximize positive ones.
For example, imagine you are a window washer for skyscrapers in New York City. It’s a job that inherently has some risk to it. You’re offered jobs by two different companies.
One of them pays higher than average wages but only provides the minimum required safety equipment. The other pays lower wages but has invested in top-of-the-line safety equipment for all its employees.
Both jobs have the same baseline risk of working on the side of a skyscraper, but one includes more financial risk while the other includes more physical risk.
So, which do you choose? Making that calculated risk will depend on various factors that will be different for each person.
Factors That Affect Risk-Taking
Research has linked a number of factors that determine an individual’s preference for risk-seeking or risk aversion. Understanding what affects your risk tolerance will help you know what to consider as you make calculated risks.
- Age: Generally, young people are more risk tolerant than their older counterparts. One study found that risk tolerance1https://academic.oup.com/psychsocgerontology/article/69/6/870/545646 in different areas changes at different paces. For example, tolerance for financial risks goes down dramatically in older age, while recreational risks drop more steeply between youth and middle age
- Gender: The same study also showed that gender plays a role in risk-taking. Other research found2https://hbr.org/2014/08/why-women-dont-apply-for-jobs-unless-theyre-100-qualified that men will apply for a job where they meet 60% of the qualifications, while women apply when they meet 100%. The reasons men and women have for not applying are also diverse, with women’s responses geared more toward the ability to get through the hiring process than their confidence to actually do the job.
- Personality Type: The book The Introvert Advantage discusses how dopamine sensitivity varies between introverts and extroverts. Extroverts have a higher tolerance for the “feel-good” neurotransmitter and seek it out through riskier activities. Introverts have a higher sensitivity to dopamine and therefore find satisfaction in quieter activities and tend to avoid situations where they are likely to be overstimulated by dopamine. Check out Advanced Tips for Extroverts to learn more about communicating with introverted personalities.
- Culture: The environment and cultural norms you exist in have an impact on your own risk-taking tendencies. For example, CEOs from cultures3https://www.sciencedirect.com/science/article/abs/pii/S037842661300085X with a lower tolerance for risk-taking, such as from nations with higher religiosity, are less likely to engage in high-risk business decisions.
- Personal History: Of course, personal experience also plays a role in risk-taking preferences. For example, suppose you were a gymnast throughout college and now volunteer at a kids’ gym. In that case, you’re likely to have a higher tolerance for cartwheels than if you attempted one for the first time in a decade, only to fall and hurt your back, putting you out of work for several days.
How Does Fear Affect Risk-Takers?
Fear, as we know, is the emotional response to a threat or danger, real or perceived. It’s what kept our ancestors alive when a growling saber tooth tiger appeared on the ridge.
In our modern society, we’re more likely to encounter social rejection, fear of failure, or the terrifying unknown. Our emotional brain4https://www.smithsonianmag.com/science-nature/what-happens-brain-feel-fear-180966992/ sees all these as a reason to fear, and factors like context, distraction, and social learning affect that perception. Meanwhile, our higher level “thinking” brain can send a signal that the situation isn’t, in fact, threatening our safety.
Humans are drawn to stability and perceived certainty. An MIT Professor demonstrates this by showing a graph of 4 different investment options and their returns. With a raise of hands, his audiences consistently choose the investment with the least volatility to stock increase ratio, though the results of what they vote for turn out to be rather surprising.
Being able to reduce the amount of fear associated with risk-taking behavior can help lessen the emotional resistance to taking calculated risks.
11 Tips For How To Take Risks (The Smart Way)
Have A Support Team
Whether you’re in a high-profile leadership role for a business, running a house full of rambunctious kids, or living on your own and making decisions on how to manage your life, having the right kind of support is crucial to being comfortable with risk-taking.
- Emotional support: Whether or not you’re new to taking calculated risks, it can be a stressful experience since, by its nature, it includes uncertainty and the risk of failure. Bringing in a group of supportive people to help encourage you as you make your decision can offer a place to manage emotions, reduce stress, and express concerns and fears.
- Practical support: Some forms of risk-taking include making decisions in areas that you’re unfamiliar with. Bringing in outside expertise lets you gain advice on opportunities and untapped resources you may not have considered. You can also identify potential risks and how to mitigate them. Over time, you will likely gain enough understanding in some areas that you no longer need some forms of practical support.
- For example, if you decide to start your own company because you’re very good at editing YouTube videos, you may find that you need to draw up contracts for your clients. You could do vast amounts of research to become well-versed in contract law, or you may find it more valuable and economical to hire a lawyer to draw up several templates you can use.
- Accountability: Being accountable to another person for your goals can increase the likelihood of following through on your commitment. According to the American Society of Training and Development5https://books.google.com/books?hl=en&lr=&id=mHTEkvyjaLwC&oi=fnd&pg=PR1&dq=astd+study+on+accountability&ots=Tl_zG176Yi&sig=qGr1ndwsihxE_Pd2ko0WhPtsuJk#v=onepage&q=astd%20study%20on%20accountability&f=false, the chance of completing a goal if you plan to do it is 50%. By committing to another person, the percentage goes up to 65%. Having a specific appointment with that person raises the percentage to 95%,
- Diverse perspectives: Having a support team can provide other perspectives. You can make more informed decisions by hearing different opinions and asking for alternative solutions to the challenges you are facing.
Try This: Make a list of five people you trust to help you make decisions. You might email or call them and say, “I’ve been thinking about making some decisions in my life that are out of my comfort zone. I’d like to have a few people I know I can trust to bounce new ideas off of as I’m figuring this out. Can I reach out to you when I need some help?”
Reframe Definitions of Success and Failure
Success is being able to accomplish an aim or purpose. In society today, we usually identify success in terms of producing something tangible or measurable. Failure, on the other hand, is anything besides success.
By reframing the use of “success” and “failure,” you can create definitions that allow for more opportunities to succeed and a more positive view of failure.
One option is to be more careful about what you are defining as a successful outcome. For example, let’s say you’ve never run a marathon, and doing so is your new goal. If this is your definition of success is finishing the race, but you’ve never run more than a mile, “success” is a long way off.
If you reframe your goal to be “I’ll go running 4 times a week, and add one song to my playlist each day to lengthen the time of my run,” You’ve now set yourself up to have success 4 times a week instead of once in a few months, while still pursuing a long-term goal of a marathon.
If you audition for a lead role in a musical but are cast as a supporting character, is that a failure? Do you pack up, go home, and never audition again? Well, that depends on your definition of success and failure.
Think about how these different definitions depend on your situation and affect your mindset:
- A successful audition is getting a lead role
- A successful audition is getting a role
- A successful audition is remembering all my lines and music
- A successful audition is doing my best performance yet of my monologue and solo
- A successful audition is getting up on stage for the first time in my life
If success is achieving something, failure is, by definition, everything else. That covers a lot of territories.
What if a failure, rather than the negative connotation of “not having success,” could be viewed instead as an acronym of a “First Attempt In Learning”?
“Failure is not the opposite of success – it is the stepping stone to success. For an entrepreneur, that is perhaps the most important lesson.”
This quote by Arianna Huffington, co-founder of The Huffington Post is an excellent example of reframing failure.
Try This: Think of something in your past you considered a failure. How could you reframe it as a stepping stone to success? For example, maybe you didn’t get a job you were hoping for, but that rejection motivated you to rewrite your resume to reflect better your skills, which got you a different job in the future.
If the idea of taking risks starts to make your brain warp and melt over the vastness of the implications, don’t worry. Take a deep breath and know that you can start small.
The risk tolerance is similar to a muscle. Building your comfort requires time, consistency, and an appropriate load for your current abilities. Atomic Habits recommends developing habits by simplifying the goal to a task that can be completed in 2 minutes or less.
For example, if you want to start running more, begin by just putting on your running shoes every day.
Here are some ideas of low-stakes activities you can consider to build tolerance for risk and the skills needed to make calculated decisions.
- Try a new hobby
- Travel to a new place
- Ask for feedback from someone you trust
- Go out to dinner at a new restaurant
- Start a conversation with a stranger
- Start a side project of something you’re considering doing full-time
- Speak up in your next office meeting
- Talk about what you want to do or achieve
- Journal about what holds you back
- Visualize what you want in great detail
- Pick a mantra to recite daily focused on growth and taking chances
- Make it a time-limited bucket list
For more ideas, take a look at Want to Change Your Life? Use These 13 Science-Backed Tips
Try This: Write down three low-stakes activities you want to try and give yourself a deadline to try them.
Define Your Goal
Now it’s time to take on a more substantial risk. Hopefully, at this point, you have some wins under your belt, either by redefining what you consider a win or increasing the number of new things you’ve tried.
With this experience, evaluate the opportunities in your life. To quote Alice in Wonderland:
Alice: Would you tell me, please, which way I ought to go from here?
The Cheshire Cat: That depends a good deal on where you want to get to.
Alice: I don’t much care where.
The Cheshire Cat: Then it doesn’t much matter which way you go.
Knowing where you want to end up is crucial for knowing what steps you’ll need to get there. This can apply to your life’s career, personal, social, spiritual, and physical aspects.
In discussing how to make decisions that involve risk, Jeff Bezos said, “I had to project myself forward to age 80. I don’t want to be 80 years old, cataloging a bunch of major regrets of my life.”
Try This: Write down a goal you want to achieve. For example, you may want to run your own company. Is it a side gig you do in off hours or a full business with dozens of employees? List out some of the decisions you’re likely to face as you pursue this goal, especially ones that involve risk.
Get The Facts
Now that you know where you want to end up, it’s time to figure out how to get there! As we said before, the difference between risk and calculated risk is understanding the probability of success and making decisions that minimize negative and maximize positive outcomes.
Gather as much information as you can in a reasonable amount of time. For example, if you’re deciding whether to keep renting an apartment or invest in a home, you might consider the following:
- Price (upfront, mortgage, insurance, etc.)
- Location (distance from work, school, church, gym, etc.)
- How long you plan to stay
- Upfront costs
- Flexibility in design and remodeling
- Maintenance responsibilities
- Importance of home equity
Decisions about changing careers, moving locations, and pursuing education all have their own list of factors that need to be considered.
In business decisions involving potential investors, having a clear understanding of the finances and production numbers is crucial for success. In a “Shark Tank” study, we found that entrepreneurs who were clear about numbers and reasonable with equity split were about twice as likely to succeed—only 32% of ‘yes’ deals had math problems, compared to 64% of ‘no’ deals.
Try This: For a risk you are considering, write down all the questions you can think of, and then begin researching to see how many answers you can find. For example, if you want to start investing money, research the historical data from at least 3 companies or funds you are considering. Consider making a spreadsheet or writing down your research answers.
Consider Your Resources
Having a clear understanding of your resources can be the difference between a wild risk and a calculated risk. These can include time, money, support, education, talents, energy, and physical assets.
For example, imagine you’re a manager of a team that is constantly overwhelmed by work demands, and you are at your physical and emotional limit. Let’s take stock of your available resources:
- You may have coworkers or direct reports who have the time but lack the education to take over some of your work.
- You may see if there is enough work to justify hiring a new employee.
- Maybe there is an up-and-coming employee who is well suited to be promoted into an assistant manager role.
- You may have resources at HR to help train employees on improving time management skills to improve efficiency in the office.
- You also have all the education and training you’ve developed from your time working in this role. Those skills could be transferable to another role in the company or another company that is a better fit for your career goals and work-life balance.
For some of us, it’s easy to start considering resources and options only to fall down a rabbit hole of endless possibilities. If that’s true for you, consider reading 8 Powerful Ways to Tap Into Your Intuition (That Work!).
Try This: Think of a time you had to make a decision that had some risk to it. Write down what resources you ended up using, and also consider what other resources you had available to you at the time. You may find you had more resources and options than you realized.
Make Your Pro/Con Lists
A pro/con list can be a valuable resource for organizing all the information you’ve collected. Being able to see options side by side allows you to compare and contrast while also making it easier to identify what priorities are most important for you. It will also allow you to see patterns that might not have been apparent earlier.
You’re a college student trying to decide between two internships. After you’ve researched your options, these are your lists
|Paid||Not in my area of interest|
|On-Campus: will be around friends||Housing costs for the summer|
|Potential for job next fall|
|In line with potential career||Unpaid|
|Summer with family||Long commute|
|No housing costs||Have to make new friends|
|Name recognition for resume||Have to move to another state|
Which internship is better? Well, that depends on your values. If you’re someone who puts a higher value on stability, internship A seems like a good fit. If family and new experiences are higher priorities for you, internship B would probably be better.
In most cases, it’s a matter of two good options with different opportunities and outcomes. The hard part is not knowing what those outcomes might be.
Try This: Create a pro/con list for something on your mind. It could be as simple as eating in vs. going out to dinner. The more you do it, the better you’ll get at analyzing the tougher decisions using pros and cons.
Embrace A Growth Mindset
Being able to learn from all experiences, good and bad, is a highly effective way of improving your decision-making abilities. A growth mindset6https://hbr.org/2016/01/what-having-a-growth-mindset-actually-means is a belief that one’s talents can be developed and improved.
Those with a growth mindset often have higher achievement than their fixed-mindset counterparts because they are more focused on finding new ways to succeed than keeping up appearances. A growth mindset is also shown to increase a person’s willingness7https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5836039/ to attempt new challenges.
What’s more, research8https://www.researchgate.net/publication/367127251_Creating_something_new_from_past_experiences_-_The_meaning_of_change_in_repeated_narratives shows that reviewing past experiences can help you gain insights about your identity, transform views of past challenges, increase agency, increase motivation for occupational commitments, and accentuate competence and importance.
Imagine for a moment that you saw risk-taking only as an opportunity to try something new and learn. Pretend that the potential for something going differently than you expected isn’t a failure, but an experiment for you to attempt and then evaluate. How would that change the way you view risk-taking?
Obviously, this could be taken to the extreme and create dangerous situations if you never considered the potential consequences of risk-taking. But taken in conjunction with the rest of the steps, allowing yourself to see risk-taking as an opportunity to learn and grow is a powerful mindset for creating new experiences.
Try This: Roleplay with a trusted friend or family member as though you have already taken the calculated risk you’re considering, and achieved your goal. Perhaps it’s asking for a raise or asking someone out on a date. How did future you grow and develop in order to accomplish the goal or take the risk?
Give Yourself Time
Once you’ve collected your information and come to your decision, give yourself permission to take a step back and mull it over.
Research indicates9https://time.com/20707/improve-your-decision-making-skills-by-doing-this-one-simple-thing/ that even as little as a fraction of a second on immediate decisions gives the brain time to sort out relevant information from distractors.
For larger, more complex decisions, taking a few minutes or sleeping on it offers a similar opportunity for sorting through the many factors in play.
In “Shark Tank,” Business Kevin O’Leary often discourages people from leaving the room to discuss a deal by saying, “bad things happen when you leave the Shark Tank.” However, our research found that of the ‘yes’ deals, 17% of the people stepped out of the tank, while only 5% of the ‘no’ deals stepped out.
It’s important to note if you are already risk averse, this can easily turn from a helpful tip to a dangerous pitfall, so if you’re more likely to end up procrastinating rather than considering thoughtfully, give yourself a time limit to ponder your options.
Try This: Pick a decision that needs to be made, such as where to vacation. After gathering your information and making a list, write down your decision. Set it aside: at least 30 minutes for a small decision, but no more than 12 hours. At the end of that time, read what you wrote, and if you still agree, consider the decision finalized.
Lead By Example
Employers, managers, and leaders affect attitudes toward risk-taking in work environments. A leader who talks about and encourages smart risk-taking but rarely pursues calculated risks is sending mixed messages.
The CEO of Netflix discussed how the company began as highly process-oriented in an attempt to minimize opportunities where people could make mistakes. According to him, “the problem is, we were trying to dummy-proof the system. And then, eventually, only dummies wanted to work there.” Over time, Netflix changed its core values to open communication, robust information sharing, and creating an environment where smart people are encouraged to discuss differences of opinion and take risks.
The key is to create an environment that demonstrates and encourages risk-taking and allows for smart failures and best attempts. As discussed earlier, taking risks may lead to a “first attempt at learning,” True success may only come with repeated strategic attempts.
Encouraging and rewarding smart failures and best attempts will show employees that calculated risks are valuable and important. But there is a difference between smart failures (a calculated risk with a less-than-positive outcome) and mistakes (misguided or wrong attempts). As a leader, be able to identify and discuss the difference with your employees.
Try This: Offer a reward (such as lunch or a gift card) to an employee who took a calculated risk that didn’t succeed on the first attempt.
Think of the Benefits
While it’s human nature to focus on the challenges and downsides to risk, the ability to take calculated risks can have some profound benefits.
Benefits of risk-taking include:
- New opportunities for growth and experiences
- New skills and personal development
- Changing internal dialog from “I’ve never taken risks” to “I can take risks because I’ve done it before and learned from the experience”
- Increased self-confidence, self-esteem, and resilience
- Improved decision-making for repeated practice
- Developing greater innovation and creativity
- Potential for higher rewards in goals, financial gain, and personal satisfaction
- Overcoming fear, building inner strength, and better managing future adversity
Learning to take calculated risks is a skill that can and should be developed over time and through regular practice. Begin by gathering a support team and redefining how you view success and failure.
Exercise your risk tolerance by starting small, then prepare for larger opportunities by defining your goal, collecting information, considering your resources, and making pro/con lists.
As you experience positive and negative outcomes, embrace a growth mindset and give yourself time to ponder your decision.
As a leader, demonstrate calculated risk-taking through example and encourage the behavior by rewarding smart attempts, regardless of the outcome, always keeping in mind the short and long-term benefits of calculated risk-taking.
If you’re ready to tackle risk-taking, but looking for a way to be more confident as you present your risky ideas, check out How to Be More Confident: 11 Scientific Strategies For More Confidence.