Entrepreneur risk is an odd thing, I think.
So here goes.
Which would you want?
- $5 million profit with a 20 percent chance of success
- $2 million profit with a 50 percent chance of success
- $1.25 million profit with an 80 percent chance of success
I had first thought to look at the expected value. But they are all the same:
- $5 million * .20 = $1 million
- $2 million * .50 = $1 million
- $1.25 million * .80 = $1 million
However, if this is correct – the only difference in these options is the chance of success.
If that’s the case, who wouldn’t want the safest bet?
Of course, maybe I am taking too much for granted.
Maybe only entrepreneurs think like this?
In one representative study of over eight hundred Americans, entrepreneurs and employed adults were asked to choose which of the following three ventures they would prefer to start: (a) One that made $ 5 million in profit with a 20 percent chance of success (b) One that made $ 2 million in profit with a 50 percent chance of success (c) One that made $ 1.25 million in profit with an 80 percent chance of success The entrepreneurs were significantly more likely to choose the last option, the safest one. This was true regardless of income, wealth, age, gender, entrepreneurial experience, marital status, education, household size, and expectations of how well other businesses would perform. “We find that entrepreneurs are significantly more risk-averse than the general population,” the authors conclude.
-Adam Grant, Originals