Risk Taking
Over human evolutionary history risky behavior has, on balance, paid off, which is why human nature is so risk-seeking in the first place. The question, then, is this, if evolution wants us to take risks, why does our risky behavior so often lead to disaster?
Consider how people are designed to take successful risks. Risky behavior evolves if those who take risks tend to acquire more resources than those who don't. The more these resources benefit risk-takers' survival and reproduction, the greater risks they'll take.
The best risk-takers are those who have some advantage—like a special talent, or a piece of information—that allows them to succeed where others fail. In this sense, the riskiness of their behavior is illusory, because their advantage makes it less of a gamble for them than it would be for others.
To be favored by evolution, a behavior must be adaptive not unfailingly, but merely on average.
When risk-taking goes wrong, it often happens at a group level, rather than on an individual level. Our risk-taking psychology evolved to prevent us from behaving maladaptively as individuals, rather than to protect us at any higher social level.
Some behaviors that helped cause the credit crisis—such as betting that housing prices would rise indefinitely—were not perceived by individuals as being risky at all, because they conformed to what most everyone else was thinking and doing. Because they appealed to human herd instincts, these actions felt prudent to individuals, even though their consequences were ultimately devastating to national economies and to many segments of society.
Risk-taking will always be an important route to innovation and success, in investment banking and in many other human endeavors. But our risk-taking psychologies are fallible, particularly in modern societies, and knowledge of these limitations will improve our odds of success.
Psychology Today
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