Risk attitude is defined as a chosen mindset with regard to uncertainties that could have a positive or negative effect on objectives based on perception. It is about the positioning of your plan in order to achieve a goal. Risk attitude is variable and is changeable depending on the situation and stages in the business where one is.
Risk attitude is not measurable but that does not mean we can’t do anything. It comes very close to risk appetite, its willingness, or desire of individuals to take the risk to achieve a specific objective.
We have three types of Risk Attitudes as stated below:
1) Risk Seeking Attitude
This is the type of person who loves and enjoys risk. They don’t worry too much about repercussions if the risk materializes or not, they are more focused on the benefits they are going to get. This group of people is mainly optimistic and they always hope for the best. Risk seekers always want to maximize the most and the best on a business deal.
2) Risk-Averse Attitude
This is a type of people who do not like uncertainty, they intend to take the path that is more certain even if it is least rewarding. They are mainly pessimistic. Risk Averser’s mainly want to maximize the minimum risk out of an outcome. They would rather take the project with a lower return in order to minimize the risk.
3) Risk Neutral Attitude
This is a group of people who are quite calculative and they weigh all pros and cons before deciding to tackle a project or not. They always want to minimize their regret level in case the outcome is not favorable.
Why is it important to know our risk attitudes?
The choices we make determine the outcomes we will have on our projects or business. Our attitudes to risk determine the returns we will get. Risk attitude is important because it influences our behavior towards a certain decision-making criterion we are faced with at a certain point in time. Understanding your risk attitude on different projects will enable one to be more decisive and be able to plan better.
Author: Talent T Manyonga