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How Taking Risks Affect Decision-making

Updated September 12, 2021

Risk is something that we regularly face and sometimes avoid in our everyday life.

According to Oxford Learner's Dictionaries, the word "risk" means the possibility of something bad happening at some time in the future. In other words, risk indicates a situation that could be dangerous or have a bad result.

Taking risks is a core part of any business. But it’s not always easy for every organization to take risks all the time, especially for new organizations or startups as they have a comparatively limited amount of fundings.

But the truth is, most of the business decisions an organization has to take are somehow related to risks. You’re talking about a new marketing campaign, there are risks in it. You’re talking about buying a new piece of equipment to overtake your competition, there are still risks in it. Almost all significant business decisions are somehow different forms of risks.

There is even a concept in finance called Risk-return Tradeoff. The higher the risk is, the higher the potential return is. 

However, there is a tendency to avoid risks in general people. As we have seen in the example mentioned in the book, people, in general, are supposed to prefer a sure bet over a potential chance to win even more money. I myself have watched several videos where random people are asked if they want a bet or a lower but sure amount of reward. In most cases, they prefer the sure bet even if the value is lower, and even though the gamble is mathematically worth twice as much.

However, honestly speaking, every organization requires taking risks, both in the short term and in the long term as well. So even if it might seem unfavorable or inconvenient for employees or managers to take risks, they must develop a mindset that is ready to take risks for the better interest of their organization.

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