Would you risk it all for a little more?
In this example we put people's appetite for risk to the test with a fun experiment that tied risk to reward. Even in this simple example, we saw a range of responses. People's capacity for risk is determined by many factors, such as life experience, friends, family and even personality traits.
We also know the amount of risk people are willing to take is normally inherent and difficult to change. For example, when air bags were put into cars, fatalities decreased by 63%, but this was not as much as experts had forecasted.
This was because drivers, knowing that they had an air bag, started to go a little faster, thereby increasing the likelihood of crashes. This kept their overall safety risk level the same. 1,2
When it comes to the level of risk we're willing to take, there’s no 'one size fits all' solution. Likewise, when you're making financial decisions, it's important to understand your own risk profile and what that means in terms of a likely reward.
There's no right or wrong answer, but getting the right advice can help you to make decisions that you're comfortable with.
1 Shepperd, Carroll, Grace & Terry, 2002
2 Safety facts: airbag statistics. Arlington, VA: Insurance Institute for Highway Safety, Highway Loss Data Institute, November 2000. (http://www.highwaysafety.org/safety_facts/airbags/stats.htm)