How to Know When You Are Taking Enough Risk | Allison Schrager | TEDxSanAntonio

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Risk-taking is vital to the American economy and to our personal development. And yet, there is evidence that Americans are taking fewer risks. But it’s not that we’ve become more risk-averse; we often think we’re taking risks when we really aren’t. It’s become increasingly common to confuse risk management with risk avoidance, when in fact there’s a big difference between the two. Risk management reduces the chance of failure, but the possibility of failing is still there nonetheless; that’s the critical difference. Even more surprising: risk avoidance is often riskier than risk management. Allison Schrager is an economist, journalist at Quartz, and co-founder of LifeCycle Finance Partners, LLC, a risk advisory firm.

Allison diversified her career by working in finance, policy, and media. She led retirement product innovation at Dimensional Fund Advisors and consulted to international organizations, including the OECD and IMF.

She has been a regular contributor to the Economist, Reuters, and Bloomberg Businessweek. Her writing has also appeared in Playboy, Wired, National Review and Foreign Affairs. She has an undergraduate degree from the University of Edinburgh and a PhD in economics from Columbia University. She teaches at New York University and lives in New York City. This talk was given at a TEDx event using the TED conference format but independently organized by a local community. Learn more at https://www.ted.com/tedx <br> <h3>Auto Generated Captions</h3>

I went to graduate school to become an
economist I think the last thing I ever
expected to come from that would be that
I’d end up with a pimp as a mentor see
it all started a couple years ago when I
went to the Moonlite bunnyranch
the famous brothel just outside Reno
Nevada I went there to do a story on
negotiation skills because it turns out
the brothel actually offers negotiation
training because there’s no set prices
the women there negotiate every
transaction now going in I was terrible
negotiating that’s what drew me to this
story whenever I’d have to negotiate for
a new job it filled me with so much
anxiety because I would think of ask me
too much my boss would think I’m pushy
or aggressive or maybe just looking for
the job that actually came me what I
want but mostly I think was my anxiety
was that I just had this fear of hearing
no every time someone said no to me it
felt like this little micro rejection
and then I’d somehow even feel guilty
that I put this other person position
where they had to say no to me I just
couldn’t fathom how a good relationship
could start with a no and so in the past
I deal with this recently a lot of
people do which is if I took a job I
just take whatever they offered me I’d
read all those magazine articles I said
that’s not what you’re supposed to do so
it turns out a brothel is a great place
to learn how to negotiate because I mean
think about it the women there negotiate
and then do something like way more
intimate than I ever will do with my
co-workers so given my fear of hearing
no you can imagine my surprise that the
woman kept saying the same thing saying
Dennis says it takes six noes to get to
a yes six knows I mean I hear no once
and I want to crawl into a hole so I
asked this Dennis the brothel owner
Dennis HOF the late great Dennis HOF
Dennis liked to describe himself as
America’s most successful pimp but he
also is probably the world’s best life
coach because we
that down and we got to the bottom of my
issue with no I was like how could a
relationship rise if it starts with a no
he’s like I can but then he said
something that changed my life
he said if you’re not hearing know
regularly you’re not asking for enough
now there’s a certain irony to all of
this because I’m an economist who
studies retirement finance and that is
effectively the study of risk because
planning for retirement risky you have
to make a decision we don’t know how
long you’re gonna live or what’s gonna
happen to the stock market and I have
read all the important papers and I have
worked with the best most eminent
economist in my fields but it was
actually this guy who really drove the
point home of what risk is about cuz you
take a risk for more like you invest in
stocks instead of bonds cuz you’re
hoping you’ll get a higher payout even
if you risk losing money
you know you might work for a start-up
instead of the government cuz it could
be the next Google anyway there’s a
better chance you might just lose money
so I’ve spent my whole career studying
risk how to manage it how to identify it
but when Dennis told me why hearing no
was so important like a light really
went on for me because I realized anyway
I was studying risk my fear of know is
keeping me from taking any sort of
meaningful risk in my life and I don’t
just mean negotiating I mean in my
personal life and my career I wasn’t
getting any of things I wanted cuz I
haven’t this paralyzing fear of no and I
guess in some ways that’s not totally
surprising cuz even if you’re a risk
scholar like me you get a lot of mixed
messages about taking risks I mean
you’re told
if something’s risky you shouldn’t do it
we often portray risk takers as these
reckless irresponsible people but really
risk-taking is a super critical life
skill you’re not gonna get anything of
value in life if you don’t take risks
like you’re never gonna have a
meaningful relationship or intimacy
unless you risk rejection you’re never
gonna have thrive at work unless
sometimes you raise your hand to do a
task you might fail at I want to be
clear here I’m not one of the some of
these talks from telling you like go out
and fail and take whatever risk comes
your way like no I mean what I know from
my research is
a real science tourists taking and it’s
not a matter of black and white take
risks or don’t be risk taker or not
there’s a huge gray area and that is the
field of Risk Management and that really
comes down to two different things
it’s one choose the right risks don’t
just take every risk that comes your way
and that is it once so simple and so
hard is you have to know exactly what
you want because you take a risk to get
upside but that upside better be
something that actually means something
to you is what you want so if you’re say
renegotiating your salary that might
feel like a risk but be clear if that’s
really what you want do you really want
more money maybe you want more work/life
balance maybe you’re just looking for
more recognition being clear on what you
want a negotiation increases the odds
that will go well even if you’re
thinking about jumping out of an
airplane I mean be clear on what you’re
hoping to achieve there maybe it’s a
rush of adrenaline maybe that’s enough
for you maybe it’s some sense of
achievement and once you’re clear on the
risks you want to take next is risk
management and that involves taking just
the amount right of risk and no more
because risking downside is the cost of
getting more but there’s really no need
to overpay so I was surprised when I was
in a brothel learn that the women gave
up fifty percent of those hard
negotiating earnings to Dennis and I was
like 50 percent sounds like a lot why
don’t you just work on your own and keep
all that money and they’re like no no no
that’s just too risky because if I work
on my own after work illegally and I
risk all sorts of things violence and
arrests I’d rather give up 50% of my
earnings and now I’m safe oh that still
sounded like a lot to me but it’s hard
to get that risk Ward balance just right
and after my time in the brothel I
thought well maybe I also have a lot
more to learn here and I should take
more risks so I developed this whole new
life philosophy that I should be hearing
more nose than yeses I actually because
I’m an economist put a number on it it’s
like I should be hearing no 60% of the
time and that’s how I know I am pushing
it and taking enough risk and then I
decide to travel the country and meet
risk takers in all different fields does
he see how they think of risk management
and to start a lot of these people said
man I don’t want to talk to you because
I don’t know how people don’t want to
talk to more
mr. journalist and I’m both and every
time they said no it’s still really
stung a little they’ll take a deep
breath like it’s okay because they said
no and that just means you asked for
enough and they’re not ask again I’d ask
you something a little different and I
started to get a lot better at asking
and eventually people started saying yes
and I developed all this upside I
learned more about risk management than
I ever would have staying at home
looking at data and I met all these
extraordinary people I met army generals
and I met horse breeders and criminals
and even big wave surfers when I went to
their annual risk conference yeah I
believe it or not big wave surfers that
guy goes to an annual risk conference
just like pension actuaries and the rest
of us he also sits in windowless
conference rooms looking at PowerPoint
slides although as you can see look how
informal the dress code is there’s not a
closed toed shoes in this room so you
probably don’t look at this guy in a
wave and think that’s a prudent risk
taker but actually there’s more to it
than when you see on TV like when you
see a big wave surfers on TV there is
like yeah man if a wave star just got a
surfeit hmm but that’s not actually
what’s going on here for example big
waves travel in sets say five big waves
one after another and that first wave
might be that big ultimate perfect wave
but a prudent surfer will not take that
wave because if he wipes out then four
big waves are gonna be barreling on him
and he has a higher risk of drowning
he’ll wait for the fourth or fifth wave
and might be a little smaller might be
less perfect but it’s a lot safer this
is actually what we call in financial
economics hedging it’s giving up upside
and in exchange reducing downside risk
it’s less risk but you still get stuff
this is also at play it turns out in
brothel negotiations though women don’t
just come out and ask for tens of
thousands of dollars they hedge a bit
they’ll usually offer a menu of them say
services that they’re willing to provide
all the different price points and this
reduces the odds a customer will get
offended and just walk out now
obviously surfing a big wave like this
is never a safe thing to do you can’t
make it risk-free and some brothel
negotiations fail dennis actually told
me that having failed negotiations is
just as important as having successful
ones because just like if no one ever
has broken your heart if you’ve never
lost money in markets you’ve never
failed at a job or you’ve never wiped
out in a wave if you surf or if
negotiated on your way if none of those
things have happened to you you’re not
taking enough risk but the risk takers I
met they’re ok with that because they
take risks often and taking risks
regularly means you get better at it you
pick the right risks and you take enough
risk and your risks will go well more
frequently but even still sometimes you
just got to here no you have to here now
because that’s how you know you’re
taking enough risk
[Applause]

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