Psychologists define risk tolerance as a relatively stable characteristic, reflecting core personality traits. Risk tolerance is, nonetheless, subject to change, as individuals age, respond to recent events set in the context of their past and present life circumstances, their behavioral biases, and their assessment of risk and reward. And risk tolerance is domain-specific. The same person can have a high tolerance for risk in investments, while prioritizing safety when arranging a blind date.
In Worth the Risk: The Seven Myths That Keep Us from Taking the Chances We Need To Take, Allison Schrager (a senior fellow at the Manhattan Institute and author of An Economist Walks Into A Brothel: And Other Unexpected Places To Understand Risk) argues that Americans have become increasingly risk-averse, a development that portends diminished returns and higher costs for them and the United States. The world, she declares, “has never been safer, and there has never been a better time to take risks.”
Focused mostly, but not exclusively, on financial and investment decisions, Schrager’s book is adorned with thumbnail sketches of risk-takers, including Harland Sanders, the founder of Kentucky Fried Chicken, and the Wallenda family of tightrope walkers.
An informative and engaging examination of an important topic, Worth the Risk is provocative, but not always persuasive.
Schrager acknowledges daunting challenges to her thesis. “Without a common definition of safety,” she writes, “it is hard to know what should be considered risky behavior. And because risk is a nebulous concept, many of us define it based on emotion, not rational probability.”
Schrager speculates that the federal government reforms of the 1960s and ‘70s — Medicare, Medicaid, Food Stamps, school lunch programs, disaster relief, consumer and environmental protection laws — convinced many Americans that risk “was something to be reduced or eliminated.” In the ensuing decades, she indicates, the word risk has taken on “negative connotations.”
One might theorize, just as credibly, however, that the social safety net provides a financial foundation that encourages risk-taking.
Moreover, Schrager assesses alternative explanations of the decline in risk tolerance in passing or not at all. Americans over 65, who are less willing to take risks, regardless of macroeconomic developments in the United States, for example, now comprise almost 20% of our nation’s population, up from 10% in 1970. More than three-quarters of Americans, including a high proportion of 40-somethings, have grown more financially cautious in response to the Great Recession, the COVID-19 pandemic, inflation, rising health care costs, and the potential impact of A.I. on jobs. The growing unwillingness of Americans to start small businesses reflects a grim reality: 9 out of every 10 of them fail.
Schrager endorses claims that the risk aversion of adolescents that has manifested itself in declines in substance abuse, unprotected sex, crime, and dangerous automobile driving is due to “helicopter parenting” and social media use, which has resulted in less unstructured time with friends and acquaintances. She cites a study by cultural psychologist Yulia Chentsova-Dutton, which asserts that less exposure to risk at this age is changing brain development in ways that make it more difficult to deal with setbacks in adulthood.
And Schrager notes a recent phenomenon that doesn’t fit the thesis of rampant risk aversion: the decision of many Gen Z Americans to bet lots of money on sports contests and crypto stocks.
In the end, Worth the Risk is mostly hortatory. Shrager knows that a third of Americans do not have sufficient savings to sustain them for a month, but doesn’t think “anyone can argue that people with less means need to take fewer risks.” She seconds the proposal of psychologist Abigail Baird that the best time to train your brain to take risks “is when it’s still forming,” even though things may still feel unstable. Schrager exhorts her readers to “find the courage to change jobs more frequently.” She insists “you never age out of risk-taking.”
“Maintain a healthy perspective,” Schrager concludes. “The downside to risk-taking is probably not as bad as you think, because the world has never been safer. Odds are you will bounce back even if a risk goes badly. We have more options and second chances than any other time in history.”
What, then, should one make of Schrager’s paean to risk-takers and risk-taking? Perhaps Robert Oppenheimer had it right: “The optimist thinks that this is the best of all possible worlds,” he wrote, “and the pessimist knows it.”
