I decided to see if science could tell us anything about business risk taking and why some leaders take more risks than others. There are a lot of strategies for how to evaluate business risk, but is there a science behind it?
Surprisingly, not only is science there, but the findings comes from an unexpected place: the teenage brain.
If you have raised or are raising teenagers, it might be hard to believe that they can teach you anything good about risk taking (like when our fifteen year old's friend decided to try snowboarding down a double black diamond run on his second time ever even standing on a snowboard).
Maniacal snowboarding aside, there might be something there, though.
In writing her book, Kayt Sukel, author of The Art of Risk, talked with some of the leading brain researchers in the world. They talked about new research about the brains of teenagers and how they differ from adults, particularly in terms of how they make decisions.
If you are interested in brainy things like the prefrontal cortex, the amygdala, and the insula (all regions of the brain in case you needed a refresher like I did), there's plenty more science detail in her book. I'll keep this article to plain English simply to keep my own frontal cortex from overheating.
Here are three key findings that could help us take more calculated business risks:
1. Teenagers perceive significantly more upside to risks and minimize downside when compared with adults (it's in their brain chemistry).
What does this actually mean?
It simply means that, contrary to popular belief, teenagers do think through decisions, but overestimating the upside creates the motivation to actually try something new and take a risk. As adults, our brain chemistry changes to put the upside and downside in better balance but with the consequence of making it harder to try something new.
Temporarily and purposely putting upside and downside "out of whack" again like a teenager might motivate us to take a bigger business risk.
2. Teenagers have fewer "gut feelings" than adults because gut feelings are actually learned through experience over the years.
Why should you care about that?
There is a lot written about trusting your gut. There are different perspectives on whether you should do it or not, but many adults swear by their guts. I have to admit that I'm one of them, claiming that my gut is always right.
The result is that as adults we let our gut drive quick automatic "yes" or "no" responses based on an accumulation of experience. Teenagers don't do this and ironically spend more time thinking through situational decisions than adults because they haven't developed that gut feel.
So the automatic gut response we adults have learned to rely upon might actually be working against us in terms of really evaluating and thinking through a situation. It might be getting in the way of taking the business risk because of our predisposed automatic response.
Maybe we could suspend the gut for a minute and think it through like a teenager. It's a radical notion but might be worthwhile.
3. There is a relationship between age and perceived self-efficacy, and it gets lower as you get older.
What does self-efficacy mean?
It is simply a personality trait related to how much you believe in your ability to accomplish a goal.
This doesn't mean that you don't believe in your abilities or knowledge as you get older, but it does mean that sometimes you are less inclined to deal with the stresses associated with achieving a particular goal especially if that goal is a big stretch or risk.
One of the key researchers Sukel spoke with from Radbound University said that in lab experiments with adults:
"...people are almost too risk-averse. We use lotteries...and we find that if participants would just be willing to take a few more risks, they would make a lot more money."
To boil it down to one key point, as Sukel herself says:
"It would appear that...our decision-making (is) a bit too automatic. It can lead to us doubting our own self-efficacy, even in an area where we have ample skills and ability."
So maybe the next time you are evaluating a business risk, you could temporarily suspend some of what makes you a more evolved thinker as an adult, exaggerate your perceptions of upside potential to get you out of the comfort zone and move away from automatic gut feelings to make some just slightly riskier business decisions that could have great upside payoff.
Even if you're not quite ready to take those risks yet, go read Sukel's book. It'll make you think for sure.