Making Better Decisions Means Being Aware of Your Risk Tolerance

When faced with an important decision, how much information are you likely to gather before making that final call?

That, researchers have found, depends on whether you’re more focused on the reward for making a good decision or the risks of making a bad one. And there can be a marked difference between how much information you’re likely to gather and how much you should gather.

The more reward-oriented you are, the more likely you are to accept risk and plunge ahead with a quick decision. But if you’re naturally risk-averse, your first inclination is to gather all the information you can before making a call – and that can mean getting far more than you need.

Either approach can work against you, if you’re not careful.

Promises of big rewards and ignoring risk can compromise your ethics

Focusing on rewards without thoughtful evaluation of any risks can leave you vulnerable to exploitation.

If you’re dissatisfied with your current job, and you run across a listing that seems a little too perfect, proceed with caution. You might be stepping into a “churn and burn” environment, where new employees are lured in with lofty promises that will never be kept.

Focusing too much on rewards, whether promised or imagined, can also make you susceptible to “breadcrumbing,” being strung along at work with promises of advancement, salary increases or other incentives. But no matter how much extra work you take on, or how many compromises you make to “get along,” the timeline is still stuck on “soon” or “when the time is right.”

You can even talk yourself into bad decisions – such as fudging your Key Performance Indicators or claiming others’ work as your own – if you think the rewards of those ethical (or even legal) lapses outweigh the risk of getting caught.

Risk-averse thinking can negatively impact your career

“Paralysis by analysis” refers to the mental gridlock that can set in when people get too focused on examining every possible concern from every possible angle.

Often, researchers found, it’s because they view the decision not merely as a choice, but as a responsibility with negative consequences for bad outcomes.

So, for example, when they’re asked for input on a project, they start worrying about what could happen if their recommendation causes the project to fail. They want to make a call based on the best possible information, but the fear of failure makes them question that information and keep looking for more.

After extensive research and loading themselves with more information than they really need, they’re still afraid of giving the wrong input.

Just as you can talk yourself into making bad decisions when you focus too much on the rewards, being too afraid of failure can lead you to avoid good choices, such as asking for more responsibility or exploring advancement opportunities.

This can even happen when the people who chart your career – managers, supervisors and even company leaders – have expressed confidence in you and your ability to grow within your organization.

This risk aversion is more likely to hold you back than any mistakes you make in good faith while taking on a new role or responsibility.

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Need more help with decision-making? Learn how to Defeat Decision Fatigue and Stop Overthinking

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Three tips for overcoming indecision

If you struggle with being too reward-focused or risk-averse, what can you do to mitigate those tendencies when you’re faced with a big decision?

1. Seek input from a trusted colleague:

   Someone who understands you, the work you’re doing and what you’re facing. Ask them to be a sounding board for your concerns. Sometimes just communicating your thought process out loud to someone else can help you.

2. Learn from others’ successes or failures.

   For example, if you’re being recruited to a new job with a lot of high-reward promises, check business-review sites such as Glassdoor. If the company has a good employee rating, that’s a good sign. But if the reviews are mostly negative – especially if those bad reviews involve the company not living up to its promises – then it’s probably best to pass.

3. Run a risk assessment on your concerns.

   Rate them from 1-5 on both likelihood and negative impact. Be realistic from both perspectives. In other words, don’t assume that nothing can go wrong – but at the same time, don’t assume that every consequence could be catastrophic. If that assessment identifies risks which are low in both likelihood and impact, then move forward. But if you find high-likelihood, high-impact risks, stop and look for alternatives.

Biases toward chasing rewards or avoiding risks do exist. We all have them. But the more you put these tips into action, the more you rewire your brain to recognize and overcome those biases. Over time, you’ll develop instincts you can trust and the confidence you need to make the right decision.

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