How much risk to take?
From a personal perspective, it makes sense to be risk-averse about most goals. Having ten times as much money won’t make you ten times happier, so it doesn’t make sense to bet everything on a 10% chance of increasing your income ten-fold.
However, if your aim is to do good, helping ten people is roughly ten times as good as helping one person, so it can make more sense to take high-risk, high-reward options.
This is especially true if you have a small amount of resources compared to the needs of the problem area you’re working on. In such cases, your individual resources are less likely to get to the point of hitting ‘diminishing marginal returns’.
In addition, Open Philanthropy has argued that, within philanthropy, the options with the highest expected impact also tend to be high-risk options. One reason for this is that non-altruistic actors are usually risk-averse, which means that higher-risk options are more neglected. Because of this, Open Philanthropy takes a high-risk, high-reward approach they call ‘hits based giving’.
This reasoning doesn’t apply when you face the risk of significantly setting back your field (as opposed to failing to have an impact). We believe that it makes sense to be more cautious about taking on large risks of this kind, and we cover advice on how to do that in the article on accidental harm.
We often find people are keen to make sure they have some impact, and thus don’t pursue high-risk options — even when they have higher expected value. Unfortunately, if the reasoning above is correct, this will often mean that these risk-averse people are giving up their best opportunities to contribute.
We recommend clearly separating your personal goals from your altruistic goals. With your personal goals, it makes sense to try to reduce the risk you face. However, once you’ve reduced your personal risk to an acceptable level, then you can pursue your impact-focused goals in a risk-neutral way, which means being open to high-risk high-reward options, and perhaps even seeking them out.
Here are some ways to manage career risks:
- Analyse the specific downside scenarios you face. It’s easy to have a vague sense that an option is risky, but when you spell out a realistic worst case scenario, it doesn’t seem so bad. In doing this you might also realise there are straightforward things you can do to reduce the risks.
- Create a ‘Plan Z’ — an option you can definitely pursue if all your other options don’t work out.
- Consider eliminating paths that might cause you to burn out or become very dissatisfied (even if you take the steps above).
- If you’re not in a good position to take risks right now, consider focus on building transferable career capital and financial runway until you feel more comfortable pursuing higher-risk options.
- Hits based giving
- Tim Harford on whether to pursue revolutionary or marginal change
- The concept of risk aversion
- Financial runway
This is a supporting article in our key ideas series. Read the next article in the series, or here are some others you might find interesting:
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