What is your risk level (part 1) update

             Let’s try a thought experiment. Suppose you have an opportunity to make $1,000 by investing in a pool. However it costs $250 to participate in the opportunity. Let’s further suppose that the likelihood of making $1,000 is one-in-four times that you participate. Each time you participate you will lose your  initial participation fee of $250. Would you participate in this investment opportunity? If you knew that once in every four times you participate you will make $1,000 would you try. What if you thought that you might be successful on one of the first three times you participate? You may be from $250 to $750  ahead. You could then stop investing and take your increase. From a statistical perspective you would be indifferent on your chances of recouping your costs. You know that regardless of what happens, you can recoup your funds if you participate four times, assuming that the investment opportunity is really as you are told.  However how would you react if you had an investment opportunity that would return $5,000 one in every four times you participate but the participation fee is now $3,000. How do you feel about participating now? If you are not successful  the first time you invest you will lose $3,000 but if you invest again and the investment is successful you will have only lost $1,000 ($3,000 cost x 2 less $5,000 payout). But if you are unsuccessful you will have lost $6,000. Do you take your $3,000 loss or try to reduce your lose by investing in the pool the second time. Of course if your investment is successful on the first investment you have $2,000 in net funds over your initial cost.
              Now assume that instead of $1,000 as the potential investment earnings it is $1,000,000 and the cost of investing is $250,000. How do you feel about your investment earnings? Do you feel a bit more reluctance? Realize that the actual statistical odds have not changed but you may not feel as comfortable about this investment because you can’t afford to have to pay the cost more than once. Risk can relate to financial, economic, emotional, physical or mental situations. At what point are you uncomfortable with the level of risk in a particular situation? Or in other words, what is your risk level, are you risk adverse or risk tolerant?

             In the financial world advisors will suggest that you invest your money in a mixture of stocks and bonds. This is to spread your financial risk. You don’t suffer a devastating loss as the stock market falls but you don’t get the full benefit as it climbs. You hope that you get some positive benefit but it will be less than the possible maximum. There are ways to potentially blunt the impact of market gyrations. As in all situations, solutions can be complex or simple, wildly profitable or financially devastating or even breakeven (and you have potentially been on an emotional rollercoaster for no real benefit).
             In world building, the development of backstories, or story lines there is an opportunity to add depth to characters, groups, societies or races by developing and incorporating risk tolerance (or lack of tolerance) or risk reaction components. Characters or groups don’t usually weigh the odds of an action with a mathematical formula but they could subconsciously be influenced about how they perceive risk. The level of risk a character may be willing to assume will affect their reaction to situations. Is a character a rogue with a devil may care attitude (risk taker) or are they cautious and unwilling to expose themselves to danger (risk adverse). Will a risk adverse character get trapped by their failure to act or saved by their caution. As you consider character development consider the risk reactions for that character. How will they react based on their risk aversion or risk tolerance? How might they stay consistent, what would cause them to change their willingness to assume or shun risk. How or why might their risk reaction change. You can ask similar questions of groups, societies and races.