Risk Tolerance & The Workplace
So let's think a little bit about about risk tolerance for a second, okay? Um now the notion of risk is actually kind of interesting one and our world is full of psychological risks. There are two kinds of risks if you if you look at the people who study risk economists and decision theorists, there are two kinds of risks, one of which is uncertainty and the other of which is ambiguity. So, um think for example, about flipping a coin there's a risk if I said to you look, we're gonna flip a coin um, we're gonna bet five dollars on this if if it comes up heads, you get five dollars, if it comes up tails I get five dollars there's you could decide do I want to engage in that bed? Okay, that is a bet that is not at all ambiguous, you know exactly what you're betting on, but it's uncertain, I don't know how the coins going to come out, right? So I know exactly what the bed is, but I don't know how it's going to come out there's also, however, and ambiguity, which is I don't want completely ...
even understand the situation that I'm in right and so there's a risk for me in engaging in that situation because I don't even know what could happen, so, for example foolish me of several months ago I agreed to come to creative live on give a three day class and I didn't know exactly what I was getting into it the time, right? You know, and over time I learned a lot more about what the process was going to be, but I made a decision to do something under ambiguity that is, I didn't know completely what I was going to get, what I was getting myself into that's and we do that sort of thing all the time as well. We make a certain number of decisions without all of the information that we might need about what, what could go right or what could go wrong. Okay, so those are two different kinds of of risks, and this sort of risk, particularly uncertainty, can cause a lot of stress for us, you know, when you don't know how something is going to come out that's it credibly stressful? You know, if you think about some of the most stressful, um, situations in your life there, when you don't know what's gonna happen, people who've just had a medical test and they don't know how it's going to come out even positive events with uncertainty caused negative feelings, right? So I mentioned earlier that I I just moved to a new house when I put the bidding on the house there was a period of time where I was waiting for the for the seller to decide whether we were going to get the house and uh that was unpleasant here we were right in the prospect above potentially buying a really beautiful house that we were going we were eventually going to love and it was under was an unpleasant experience and it was unpleasant because there was uncertainty associated with it. Now the question is as an individual difference how much does that kind of uncertainty? How much does that kind of ambiguity really make you feel bad and to what degree does that bad feeling influence your actions? There are some people who are paralyzed by uncertainty and ambiguity they absolutely just can't act unless they know everything that's gonna happen and exactly when it's gonna happen I mean my mind my parents I'm talking about but my parents don't know what this is I should lie why dr freud and I didn't um but but my parents were wonderful travellers they they've gone all over the world but they plan every last detail of the trip and they go on wonderful trips um there's nothing there's nothing wrong with this, but they they need to know I think when they go on a trip exactly where they're going to go and where they're going to be and what they're going to do before they go, so the uncertainty I think it is a kind of a problem for them in ways where they they manage that by minimizing the degree of uncertainty minimizing the degree of risk that goes along with that there are other people I know who you know go on vacation on dh they start figuring out what they're going to do mohr less when they step off the plane and they're okay with that right and so um and then there are people that I know who for whom that kind of when there's any degree of uncertainty even if it's been planned out if they're at all worried about it they really won't do anything I you know my uh tell another so family stories right my grandfather he my grateful that never went anywhere on vacation he did he went to the same resort in upstate new york every six months for forty years right and that's it that was the only place he ever went um which I thought was kind of endearing when I was a kid um not quite sure how I feel about it now but it on dh so I um so anyhow I think that the thing about you is that some people I think really can be paralyzed by the prospect that there's some degree of uncertainty and so what this scale does is it looks at a variety of different kinds of risks that you might have in your life and asks you to what degree are you affected by those risks and to what degree are your actions affected by those risks? And if you think about the kinds of risks that you might engage in so that this is a questionnaire it starts on page twenty nine it continues on to page thirty three and this that it actually lists the kinds of risks that people face things like financial risks, ethical risks, social risks and recreational risks and these air different right? The reason that they asked these questions separately is that there are some people who are very willing to take social risks willing tto walk up to someone and meet them and get to know them or to stand up in front of a group of people not knowing what's gonna happen but might not want, for example, too bungee jump, right, which would be more of a recreational kind of a risk? Um, there are some people who are very willing to take financial risk it's who might invest in a in a business that you know, where they're confident about the the potential outcome but they don't know for certain what's going to happen and other people might only want to invest their money in, you know, in saving us savings bonds or something um, you know, there are people who are willing to take, you know, um ethical risks right there people who are willing to to do things that may be on the edge of the ethical boundaries and other people who really live their life on the straight narrow and these things don't all go together so for example, you could ask the question are entrepreneurs greater risk takers? Well um on entrepreneur is no more likely than anyone else to go bungee jumping for example right? So so just because you decided to form a business doesn't mean you feel like throwing yourself out of an airplane with the parachutes dropped to your back um but on entrepreneur has a certain degree of tolerance for uncertainty that's associated with certain kinds of financial risks now it's not there they're not reckless so if you actually look at the research literature on entrepreneurship it's not that entrepreneurs are reckless people who are just throwing themselves into things without any understanding in fact very successful entrepreneurs tend to have a very good sense of what they're getting into and so the situations have uncertainty but they minimize ambiguity right? So good entrepreneur is willing to really dig in and figure out what the situation is what is the market that I'm going for? What are the um what are the parameters of that market? So they've minimized ambiguity even though there's going to be whenever you start a new business there's some amount of uncertainty about how things are going to go you know businesses fail sometimes because of bad luck, right? The economy it takes a downturn justus you introduce your product or justus you introduce your product somebody else comes along and introduce is something else that makes your product obsolete despite your best into tensions, right? Bad luck can happen but if you if you minimize ambiguity aunt have a tolerance for that uncertainty than that that puts you in the category of a lot of really successful entrepreneurs so this this idea of risk tolerance is one that matters a lot um I'm about to talk about some of the profiles that air really interesting for elements of the workplace but before I do that I just wanted to see if there were any questions that came up. Yeah, so and similarly can you help us interpret the results of this one here? Yeah. So again, you know, I think that that there's a healthy middle for most of these kinds of things, I think that that people who are very low in their risk tolerance on any of these dimensions are paralyzed by risk they find risk really aversive they don't they don't want to act in situations in which there's risk people who are very extreme on the risk tolerance end of things can be a little bit too accepting of risk, right? So you know, um you know, there is a there's a there's a personality characteristic that that has been characterized as what's called impasse I m p a s s s and it stands for impulsivity, anti social behavior and sensation seeking um that is a that is a personality characteristic that involves being so so impulsivity involves a certain amount of openess to experience a very low need for ah very high need for closure so that that that gives you an impulsive piece of it you're you tend to be somewhat disagreeable which gets you the anti social component but the sensation seeking component has a certain degree of recreational uh and social risk associated with it um and so you know, if you combine that set of characteristics you know you get people who are you know, throwing themselves off of buildings with with parish she's on their back and stuff like that which you know I mean more power to it but um uh worries me a little bit we just had a question coming from task man and they say you talk of risk against the background of failure failure to win a bet for example but are there some people that are afraid of success and that is another kind of risk that's interesting are there people who are afraid of success? You know, I think that there that there can be people afraid of success in the sense that particularly folks who are on the the introverted end of things there's a danger in succeeding that people are going to start paying attention to you and notice what you're doing right so what is the outcome of succeeding and doing something the kind there is a certain amount of self self sabotaging behavior that you sometimes see in people that's often related to a fear of failure rather than a fear of success in the sense that if I sabotage my own behavior and so what air that's something if you think about the kinds of things that people do in self sabotaging for example in school there are students who will explicitly not study for a test and then fail right now why did they do that? Because if you if you're worried that you're gonna be labeled as a failure right um if you don't try then when you fail you can say you know I failed a course I failed but it's because I didn't try if I had tried I would have passed you know and so it gives you this ready made excuse for why you fail but a lot of times it's it is it is paradoxically the fear of failure that causes the self sabotaging behavior that you see in people right now we just had a clarification here could you to remind people what the impasse with that sure that impulsivity so the part of impasses impulsivity than the first a s is anti social and then there's two more esses so it's a weirdly spelled impasse that sensation seeking so impulsivity, antisocial behavior and said session today thank you and it's not a not a great characteristic toe having a lot of cases people with who are high an impasse are more likely to commit crimes, they're more likely to do dangerous drugs, they're more likely I mean, the most benign thing they're likely to do is to strap a bungee court to their legs and jump off a bridge, but but but they can also engage in a lot of other behaviors that are that are less benign and and, you know, you see this and I mean there's there's lots of potential dangerous behaviors people could engage in I mean, so it's so to what degree, for example, is someone willing to get in a car when they're drunk and drive home right? And it turns out everyone is more willing to do it, then they claim that they are, which is an interesting thing, largely because when I asked you the question, are you willing to drive drunk? I'm usually asking you in a setting like this first of all, there's a social component to it second of all, even when there's no social component because you're writing the answer down yourself, you're probably not drunk and stranded at that moment and so so what happens is right there you know, if I put you in a way I can get a much more honest answer if I put you in the context of saying it's two a m your twelve miles outside of town you have to it's going to take a half an hour to get a cab and you're gonna have to drive back the next morning to get your car are you just going to get in the car and drink people go, you know, maybe right? And then on top of that, uh, the alcohol itself actually makes you believe that you that the risks are less serious than they actually are. So so? So we will engage in certain kinds of risky behaviors in circumstances even when we believe we have a lower risk tolerance so situations can matter. Yes, can you talk about how one thing that I was worrying about when I was taking the test is kind of like you said about the drinking driving I might answer a certain way, but I was worried that well, maybe in the rear life would turn out differently. Yeah, yeah, well, you know, that's a great question whenever we give these kinds of personality inventory is we have to recognize that they are not that they are fallible tests and they're fallible for two reasons one because we're asking people to to create a self report for something which they may not want to admit to, or they may not really understand themselves completely, but the other thing is, we are asking people, uh, these questions outside of the context in which some of these behaviors air going to occur, and what I say I'm going to do isn't always what I actually do in circumstances. So we know from decades of work in psychology that the best way to get people's attitudes that is their statements about their behaviour to match their actual behaviour, is to match the situation in which you asked the question as closely as possible to the situation in which they're going to engage in behavior. This is really important for businesses, it's the reason why focus groups are a disaster, right? So companies run these focus groups in which they sit down with people in trying to understand why they're going to behave the way they are, and sometimes multi million dollar product decisions are made on the basis of these kinds of focus groups, but very rarely when you're asked to buy a product or vote for a candidate or engage in a service. Are you sitting in a room with twelve other people talking about it right? It's, usually a very different circumstance, and so if you measure people's desires and their behaviours outside of the context in which the behavior is going to occur, you are going to get answers that don't really match what people are going to do and that's a problem that's it that's a potential problem in in some of these personality inventories interestingly, for things like risk, there are some behavioral measures of risk that get used in the lab that in certain cases are a little bit more accurate than some of these surveys if you look on google if you're good don't multi task if you're at home but but but if you google the balloon analog risk task um which is called the bart but it's not the same part that they have here in san francisco so I had to take to say google the bart but but the balloon analog rhys task and it's an interesting it's an interesting task in the experiment what you do is you you're you're told you press a button and you're going to get points that translate into payment later and every time you press the button the balloon blows up a little bit more and each time that you press the button there's some chance the balloon's gonna pop and so what you're trying to do is to maximize your payoff um over the course of the experiment and so when the balloon pops you get nothing but you get more and more of them or you blow it up and and that's a measure of how riskier you likely to be so, you know, obviously the beginning, you're just learning, when does the balloon tend to pop? Although some people never learn that right, some people just are too conservative all the time the balloon never pops, but they never maximize the amount of pay off that they get and that's a that's an interesting measure that seems to be related to people's tolerance for taking other kinds of risks outside of that particular laboratory setting. But notice that that's an actual behavior you're not asking people how risk tolerant you are, you're actually forcing them to do things that involve taking risks, and there are there are a few other laboratory tasks that people use that kind of similar to that. But, you know, this is a pretty good question here as questionnaires go, but it does have the issues that you were describing so let's let's take this into the workplace, then for a moment. So, um, I'm gonna talk about a couple of different profiles here this first one where I talk about the expert generalised this is actually the profile that characterizes a lot of people who are extraordinarily innovative in their settings, ok, so the people who are good innovators, they have a wide range of knowledge they know a lot about a lot the the idea of an expert generalised actually seems a little bit paradoxical right? Experts are supposed to be really deep and no a particular thing really well, how can you be an expert generalist? Well, there are people out there while they may have a particular domain of expertise in which they're really deep, they have this wide swath of knowledge in which they know a bunch of stuff. Now in order to get to that point where you have that expert generalised character, what does that mean? It means you have to find everything interesting and then when you find something interesting, you have to want to learn about it and then you have to spend the time looking about it looking into it. So what does that mean? It means you need to be open to experience, which means everything that you see seems really cool to you. And then having discovered that there was this thing that was really cool, you want to read about it and you want to you want to learn about it and you want to watch documentaries about and you want to engage with it and the more willing you are to do that across the way a wide range of circumstances the more that you developed this profile and it turns out people who do who do develop this profile tend to be moderate toe low and conscientiousness because they're spending time reading about stuff that doesn't seem obviously relevant right when they ought to be doing stuff that's on task, okay? And that's actually, one of the interesting things about conscientiousness is that people who are highly conscientious may very well talk themselves out of doing certain things because it's not relevant to the task at hand. All right? If I am constantly focused on what it is I'm supposed to be doing right now, then I don't necessarily have a conversation with somebody over the water cooler about what they've been working on lately. You unnecessarily pick up knowledge about something that doesn't seem obviously relevant to me as an instructor, right? My least favorite question in the world is this going to be on the exam? And I don't like that question because my answer to that is who knows, right? Because the exam the rial exam is not the test, I'm going to give you a tte the end of the semester, the rial exam is the one that you get to face in the rest of your life. Is this information going to be relevant to that? I don't know, I hope so, and and who and and and the problem is if you don't learn it, you'll never know whether it was on the exam. Um because because the world is never kind enough to say remember that thing that you got that one day in class and you decided not to pay attention to it go find that out now because if the world were that kind you could go and look it up the problem is it's it's that the world asks its questions obliquely it asks them in a hidden way right and so and so it's on ly if you happen to have learned it that you did you realize oh, I'm glad I learned that piece of information right? The expert generalists um they just learned stuff and then it turns out later that some of that was really valuable and in retrospect you can tell a story. One of the things I say about about innovation in science and discovery is that we love to tell stories about innovation and science and creativity and things like that but that story is on ly obvious in retrospect when things were happening nobody knows they're being creative nobody knows that they're doing great signs nobody knows that they're making a discovery until afterward and then you look back out in the cold well I came out really well let me tell the story of what happened right but in the moment it's much more ambiguous than that and you have to have, you know, a tolerance for that kind of of ambiguity in the situation I'm sure that it may depend on the situation, but question here from valerie, they say I'd love to know what careers are great for expert generalist. Is there any sort of pattern you see with people have these tendencies? Yeah, yeah, so expert generalised often have to fight the system a little bit, uh, big companies, um, expert generalists are really great in any setting in which there's a commitment to some degree of innovation. So if you have a company that wants to innovate that the expert generalists are great because they recognize, oh, here's somebody else who's really working on the same problem you're working on, or this problem that you're studying is almost exactly like this other thing that someone's doing right organizations that don't have a commitment to innovation tend to tend to misuse their expert generalists. Um, so but, you know, the other thing is that expert generalists tended to a little bit better in larger organizations than in smaller ones if they're working for the company, because small entrepreneurial ventures tend to be focused on getting that product out the door, and so they tend not to be as interested in the broader kinds of innovations. We're expert generalists can if they want to be maurin entrepreneurial space the expert generalists could do really well in a consulting role where they're going to step into a company, look at what's going on in that and then recognize all the ways that what that company's doing is parallel to what's happening in other places to make recommendations for howto bring together sources of knowledge so, um a different profile that's also really valuable so if you don't have this profile, don't fret that doesn't mean you're not employable managers people who are great in management roles these tend to have a different profile good managers tend to be reasonably high in emotional stability because you don't want a manager who's flying off the handle all the time um good managers tend to be reasonably high at least moderate uh if not hae an extra version because as I said, I was saying earlier and a manager needs to be able to let other people within an organization know the great things that are happening inside of their group that's how you get resource is that that's how your group manages to get recognition it's how you're the people who work for you get promoted and get their career path moved forward a good manager unlike someone who's in the expert generalised role needs to be reasonably high in conscientiousness partly because the manager's role is to enforce the rules within the organization and partly because you need to rely on a manager getting stuff done um I've had I've worked with people who are in administrative roles who are low and conscientiousness it's really frustrating they tend to say yes to everything but not follow through on anything and so it's very difficult tohave people in managerial roles when they're not hi ng conscientiousness and and to follow up on what I was saying earlier about narcissism narcisse is narcissism is really dangerous in management role, so you know that the narcissus tend to suck energy from the people working for them but not really to promote than that they create environments that are not really that pleasant to work toe work in now I should point out right that for example, if you find yourself managing other people and there's a fascinating thing about management it's actually one of the reasons we created this human dimensions of organizations program at the university of texas is that if you look at the way that many companies promote people to management is that they find people who were really good at whatever it is the business does and then they promote those people to manage people. So for example, you know, companies that employ a lot of engineers will take a bunch of engineers and then pick one or two of the move been really successful and say good now you're a manager and people get to be engineers often because people aren't their favorite things in the world, it's devices that are cool and, you know, processes and systems so now you get to manage people and they don't know about people, right? And so that can become a, you know, a bit of a problem. So? So if you find yourself in a situation where some of these characteristics don't fit, you it's useful to understand one of the reasons it's valuable toe understand these personality dimensions is because now you can use this to say, ok, I've probably developed habits over the years that are going to get in my way in this role, what can I do to shore myself up? So if I'm not the most conscientious person in the world, can I surround myself with people who are really conscientious, who will help me get stuff done? So for example, I I run this this master's program I'm like moderate and conscientious is I'm not low, but I'm not hi. I have somebody who sends me an email every couple of weeks to remind me to fill out some administrative forms that have to be done and to approve people's time sheets and things like that, because I will simply never remember otherwise. And it's important to have people who are in that role for you because they're goingto help to shore up some of your weaknesses if you're the kind of person who is really emotionally unstable and you find yourself in a management role very important to have your own quiet space you can go to to go to your happy place to calm down before you have to deal with someone who's done something that really annoys you and so the idea is generally get to know these personality characteristics get to know the habits that they've created in you use that information than to help you to figure out what do I need to do to work mohr effectively in whatever role it is that I've taken on in my life because it's not that your your your your personality characteristics are not a life sentence what they are is elements of your motivational system that have driven you towards certain kinds of behaviors away from certain other kinds of behaviors and they've created habits in you if you find yourself needing to overcome those habits than all of the kinds of procedures of habit change we've talked about are open to you but you need to understand where those habits came from they've come from your personality characteristics you're going to need toe work against them to some degree to help you develop that new set of habits and it's doable yes where have you seen um, expert generalists become successful managers, expert generals becomes successful managers. Yeah, right. So the expert general's profile has certain things that can be very good for management and certain things that are not so good. The very good part of it is that an expert generalised really is going to understand what's going on in there in there unit. And so to the extent that someone reaches a fairly high level within an organization in which they have to oversee what's going on in multiple places, the expert generalised has a real advantage there because they really do understand a wide range of what's happening. Okay, so that's that's great. Um the of the willingness to think things through is a mixed blessing because you can't overthink things. And so the expert generalised thie expert generals that I have seen that have been successful have people with them telling them when it's time to get moving, right, to stop thinking and start acting and the expert generalists. Generally speaking, neto have some of those people around them who who will take care of the low level details of the job. You know they're not going to be really high and conscientiousness, they need someone to tell them when they're skirting the edge of the rules. Whatever those are and they need someone who is making sure that some of the very low level stuff that's happening is getting done in a timely fashion, right? And if you if you get that combination of support, then the expert generalist and can be really effective particularly when what they're doing is essentially orchestrating something happening across a range of the business, so expert generals aren't necessarily going to be great as the managers of a very small work group, but they could be really great as people who are in that kind of conducting role couple of other things to think about imagine that what you're trying to do is to think about influencing other people can you can people's personality characteristics affect the way that we influence other people? They can, um things like need for cognition influence the way that people listen to messages that you're trying to promote people were very high and need for cognition tend to listen to the details of the message. The message that you're giving to people people low and need for cognition tend to want to know which stars is is is hawking your product writes a celebrity endorsements and and and things like that become really important for people who are kind of lower and need for cognition for things um other personality characteristics that matter openness to experience influences how likely people are who want to try something new right, so if you've never done an online lecture before and you're high and openings to experience, you sees something like creative live you think this is really cool, and if you're kind of close to experience, you're thinking, I don't know, I know this is gonna work. Can I sit at my computer all day? Is this really gonna be so fascinating? Um, you know, extra version matters in terms of people's willingness to spread messages, the extroverts in the world of the ones who like to have information, nobody else has that they want to spread to other people, the introverts, if they get that piece of information, nobody else has aren't necessarily going to broadcast it to his larger group of people. And finally, things like conscientiousness influence how likely people are to comply with the use of products. Um so why do we care about all of this stuff? There's a lot of value and understanding other people's personality remember that we have a particular set of characteristics that we walk through the world with justus I said earlier, I didn't even know I had an accent until I moved somewhere else. You don't even recognize a lot of your own personality characteristics until you begin to learn about them. As you begin to learn about them, one of the things that you learn about is not just about yourself, but about the ways that other people differ from you, and this is really valuable because it helps you to understand why people's reactions aren't the same as your own, which allows you to recognize that sometimes people do things that get them in trouble when they do things to get them in trouble. They have probably developed a set of habits on the basis of their personality characteristics, and if you could begin to identify those, then you khun, you can now develop strategies for interacting with those individuals because you can understand where it is that their reactions air coming from okay, that helps you to identify where the problems we're going to be, and what you can then do is to is to really create a little script, a little plan for how to interact with people who are reacting to you in ways that would be different from the way that you would interact. Okay, so it's really great to begin to get to know the people around you and here's a nice thing, all of these characteristics that I've talked about, you can identify them in yourself, you can actually do a pretty good job of identifying these characteristics in other people around you. Okay if you were to take this ten item personality inventory and picked five people who are close to you in your life and rate them along those dimensions you would do a pretty good job of of determining the characteristics that other people have a cz well so once you become aware of these dimensions you could begin to look at people and say oh you know this person is really agreeable I need to be worried that they're not necessarily giving me the feedback that I need or you know this person is is not so open to experience I need toe think about how I'm going to introduce changes to them right and so if I get to know the people around me I can develop strategies for interacting with them that make it more effective at getting people to work harmoniously get people toto work in a way that is effective with me um if it turns out that that that that what we've done this morning has been so darn exciting that you just can't get enough of this and you want to know more then there are some things you khun d'oh uh yesterday I talked a little bit about my book smart change um I have I have a mini book called smart called habits of leadership three dollars wherever e books are sold um and it talks a little bit about the relationship between personality characteristics and your ability to lead and he's really focused on taking the issue of if personality creates habits in you then how can you make use of that when you're trying to both lead effectively and influence other people to work with you in effective ways uh, enough of the plug and uh and now finally just to summarize where we went so we talked about several other dimensions now to really expand on our understanding of personality so we'd started with those big five dimensions we added to that need for cognition and need for closure how much do you really need to think about stuff? How much how likely are youto exist in that thinking mode rather than that doing mode we talked a little bit about narcissism how much do you really draw your self esteem and the energy that goes into that from the people around you we'd like to be sort of in the middle of that and not at the extreme and finally we talked a little bit a little bit about risk tolerance to what degree can you operate effectively in an environment in which the outcome isn't that well understood? And you know again we'd like to be in a situation in which we aren't paralyzed by risks but in which we have probably aren't throwing ourselves headlong into trains either we'd like to be sort of in the middle there and that and and so if we find that were paralyzed by risk? Are there things that we can do to minimize some of that ambiguity and to give ourselves a little bit more confidence to engage in situations where the outcome is uncertain? And if we tend to throw ourselves headlong into risk, maybe it would be useful to tether ourselves to someone else. Who's. A little bit calmer to keep us from from going off the edge.