Risk aversion and regret aversion

Risk aversion has taught us well over the centuries. We have learnt to save for a rainy day and are reminded of it by stories involving ants and grasshoppers. We guard ourselves with insurance, enforce stringent public safety standards, and impose stringent standards for medicines, cars and even financial plans. We realize how fragile our well-being is and have built excellent products and a culture centered around risk mitigation. We are masterful at capping our downside.

We do not hear often about regret aversion.

Regret is caused by our failure to distinguish between real risk and illusory risk. Real risks are what we should continue to guard against. Illusory risks feel like real risks, but like animals that mimic predators, are actually much safer. Most of us fear speaking in public or putting our creations out into the world.

A combination of software and the internet gives us an new playground to create, to share and to bust myths about what merely feels risky. Failure in the real world can cost several people’s lives or result in our being outcasts. Failure in most software is merely a couple of hours of downtime. Failure in starting an internet company gives us several lessons and a great story to trade in for a successful one.

If avoiding risk is capping our downside, avoiding regret is to uncap our upside.

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