The cycle of risk
Risk, as Dr. Rosen described, acts the same no matter the arena. It always follows the same pathway, meaning it can be deeply understood and, to some extent, mastered.
“People think of risk like it’s a danger or something you avoid,” said Dr. Rosen in a private interview with PulseBlueprint after his talk. “And I love the story of the word risk because I think it’s much more appropriate. Risk is something you take. It’s conscious. It’s a choice.”
During the talk and after in conversation with PulseBlueprint, Dr. Rosen outlined the 5 key elements to understanding and monitoring risk. Interestingly, only one of those steps actually involves taking risk. The rest are about self-awareness and personal comfort levels (which sounds a lot like overcoming fear and doubt, if you ask us).
Step 1: Risk tolerance and capacity
The first step to understanding risk and to know what your own tolerance and capacity is. Risk is fundamentally relative, meaning it looks better or worse depending on an individual’s circumstances.
For example, losing $1,000 dollars can objectively be looked at as a negative.
However, from a risk standpoint, it is significantly worse for someone who only had $1,000 to their name versus someone with $100,000 or $1 million.
That being said, someone’s risk tolerance may be the same no matter how much money they have. This would mean losing $1,000 would be equally devastating to the person when he or she had $100,000 as when they had $1 million.
Continuing this example, though, risk capacity is vastly different at each level. While an individual may have no risk tolerance to lose $1,000, the reality is they are far more able to when they have $1 million than when they have $100,000 or $1,000.
Figuring out risk tolerance and capacity is required before anything else because of how it interacts with the rest of the steps.