I am fascinated by risk and how people measure it.  

Initially I am going to draw on research by neuroscientist Michael L.  Platt, professor at Wharton at the University of Pennsylvania.  I am also going to try to differentiate his work on gambling versus my assessment of risk in both business and personal terms.

Platt makes five key observations:

Risk-taking evolved as a survival tool
Modern betting apps are built for speed, amplifying impulsive decision-making
Celebrity endorsements reduce caution
Narrow equilibrium just enough wins to keep you in the game
Psychological vulnerabilities tied to loneliness and impulsivity

Platt also states that testosterone in men makes them more likely to “desire luxury goods and take wild gambles.”  That may explain why men buy 70% of the luxury timepieces.  After all, status isn’t cheap.  Platt’s main research focuses on gambling and casinos but the problem of risk is systemic across all decision-making processes.  

I have a friend who is a private banker.  He is terrific.  The bank he works for (in my humble opinion) is second-rate in customer service.  He tells me that he is often head-hunted and could make more money at another institution but he has a family and a mortgage and does not want to take the risk.  That is not an unreasonable point of view.  Many of us prefer the devil we know rather than the one lurking outside a different conference room.  I make no judgments.  I am simply telling a story.  

This dilemma is universal.  Leave this spouse for a better one or a better job or a better house or a better …  Again, in fairness, we are a capitalist society, so we are always free to shop our value and roam for a better deal.

Another friend (yes, I know it is amazing that I have more than one) is president of a big company ($800 million in revenue).  He goes to the recent board meeting and points out that there are several losing operations that should be jettisoned so the company can focus on growth in areas where they excel.

The board members nod and appear to agree.  But they are afraid of giving up the few million in revenue by cutting anything.  What will replace the gap?  Of course, a new focus on the right things will drive new revenue.  But initially there will be a gap.  

There are countless stories of great companies shedding nonessential divisions to focus on the best ones.  Seems obvious.  But they stalled.  Discuss at next board meeting.  Kicking and cans.

The key is how to assess risk.  Let’s go back to gambling.  Billy Walters, probably the greatest sports gambler in history, wrote a book, “Gambler: Secrets from a Life at Risk,” which is required reading if you feel the need to put some risk in your life.

To just break even, you need to be right 52.38% of the time.  Billy was at 57%.  Just five little points was all that was needed to make multiple millions.   

Now, move from sports betting to the more mundane art – poker.  There are a dozen great books on the subject.  But again, “only about 2-5% of poker players make significant money.”  I have another friend, a general contractor, who plays every Tuesday, and loses $100 most nights.  About the same as a fancy dinner and a movie.

Now, let’s look at the problem of scale.  A friend and I are considering some litigation.  We are unhappy at a certain behavior by a venture investor.  How good is our claim? Is it a worthwhile contingency play or pay the lawyer by the hour?  Even if you win, will you ever get paid? 

Over 40+ years of deal-making, I have looked at a lot of risks.  My confession is that the single most lethal risk is the risk of waiting too long.

I have known the right answer frequently, but I hesitated or I rationalized or I hoped or I couldn’t for a hundred reasons.   Think back on your best and your worst decisions.  They all had an element of risk.  

You can’t pick your parents, but after your first good yelp out of the womb, the rest is on you.  

Measure risk wisely.  Suffer the small losses for the biggest wins.

Rule No.  837:   Flush beats a straight — most of the time.

Senturia is a serial entrepreneur who invests in startups. Please email ideas to neil@blackbirdv.com.