Two Types of Risk

This is my first post in a LONG time. I”m starting to see the light at the end of the school tunnel and hope that this is not the last post for a long time

I’ve been thinking about risk recently. Not the board game (although that is awesome), but the kind that people take when they do something new or uncertain.

Being in business school has made me question what risk really is. There are many people in business school who plan on entering the financial sector – something now nearly synonymous with risk. Yet, at the same time I find that many business students make highly risk averse career choices. How to reconcile this difference? How can someone enter a massively risky industry, yet at the same time be making a risk averse choice?

It strikes me that there are really two types of risk and – at least to my knowledge – the English language has only one word to capture these two very different ideas. The key difference is agency. Risk without agency – which I will henceforth call Type I Risk – is really just gambling. One has no influence on the outcome and gets a thrill by throwing caution to the wind. Risk with agency – I’ll call Type II Risk – is really vastly different. Type II Risk is a willingness to try something new while remaining in control of the ultimate outcome.

For example, I have a near complete aversion to Type I Risk. I get no enjoyment from gambling and I will never, ever jump out of an airplane. On the other hand, I’m relatively comfortable working on a startup after school even though it means I will leave business school in a significantly less secure financial position that I had when I entered.

Obviously every person has their own risk profile and I’m not attaching value to one or another type of risk. However, realizing that there is this gap has really helped me to better understand myself and communicate with others about the future.

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