How Not to Be a Sloppy Second Guesser
A short explanation of how risk management actually works.
Join me on a simple thought experiment to understand how risk management works. You can then apply these principles to your own life to make better decisions.
The Umbrella Decision
Let’s imagine you’re heading out for a walk. How do you decide whether to take an umbrella with you? Under what circumstances would you second-guess your decision?
How you feel about your decision depends on two things: what you knew before you left the house, and what happened outside until your feet once again cross the threshold of your door.
If it’s a sunny day with a clear forecast, you have no trouble leaving the umbrella at home. The idea of taking it never crosses your mind.
Similarly, if it’s already pouring out your decision is easy. We call it a no-brainer because you don’t have to think.
Seen this way, it’s clear all the magic happens amidst uncertainty. It’s not raining now but it might rain later. You make a judgment call in the face of not knowing whether you’ll need the umbrella or not.
