MORGAN HOUSEL

A risk can be defined as an effect of uncertainty on the objective. It is a different outcome from what you expected and can address, create or result in opportunities and threats.

• Risk is not an expected adverse development. If you expect the outcome, it is not a risk.
• ...

Prior knowledge of an event’s outcome anchors the mind towards a certain kind of interpretation of how the event will unfold.

This makes the individual confirm the outcome to fit their existing expectations. If the outcome is entirely different from the expected result, t...

• Understand the different outcomes that could happen (both positive and negative)
• Calculate the expected return or loss of each outcome
• Attach a probability to each outcome
• Understanding the magnitude of the return or loss
• Multiply the probability by the magnit...