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Risk Is In The Brain of The Beholder

When you watch a professional sports team, you know you’re seeing the product of hard work, careful planning — and people who chose their parents carefully. Some of that speed of reaction and strength of limb was coded into the players’ DNA, waiting for the opportunity to be expressed.

When you see successful entrepreneurs or managers, people unusually successful at dealing with financial risks, you know you’re looking at the product of hard work and careful planning. But are you also seeing people whose innate hardwiring made them more likely to be winners at this particular game?

Probably.

The past several decades of research into human brains have included deep looks at how people deal with risk. Scientists say they have discovered neural pathways, maps of the mind, that seem to correlate with the kinds of people who deal well with, more particularly, financial risk.

These links are far from iron-clad. Even the very definition of risk gets pulled apart by academics. But there are some interesting experimental results that seem to show a natural range in daring behavior that may be as wide as the range of people born with the ability to catch up with a fastball.

Consider the role fear plays in how we approach risk. Could anybody jump from a plane, climb a mountain, or gamble the mortgage money on a business venture if they were paralyzed by fear?

Some neuropsychologists speculate that the very ability to feel fear is bound up in the amygdala, a pair of almond-shaped regions deep inside the brain.

A report in last December’s edition of the journal Current Biology reported the curious case of a woman referred to as SMwhose amygdalas had been destroyed. She now has no fear, though many of her other emotional responses are normal. Maybe the Mark Zuckerbergs of the world have amygdalas that push with a little less force than the rest of us?

Jane Joseph is Director of the Neuroimaging Division of the Medical University of South Carolina and part of a research team that has given people psychological tests, then scanned their brains while they played a variety of gambling-style games. The scientists looked at how test subjects dealt with ambiguity.

For people who test as “ambiguity-averse,” larger and larger portions of their brains light up on the scans as they try to figure out the best strategies, she says. It is as if they instinctively recruit more and more neural reinforcements in an attempt to think their way through the uncertainties associated with risk.

In a business environment, these people may be slower to pull the trigger. For the “ambiguity-tolerant,” that recruitment of more and more neurons cuts off—it’s as if these brains hit a point where they say “that’s as good as it gets.” They aren’t waiting for information that may never show up.

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Imagine a cheerful shrug and a leap into the unknown.

A different experiment examined a personality trait called “reward-sensitivity,” which combines thrill-seeking with a focus on winning rather than a fear of losing. It turned out that people who scored high on that measure also had a particular part of the brain fire up with unusual strength when presented with situations that had the greatest possibility of losing money, Joseph says.

These folks tended to win more than those who were less reward-sensitive. Joseph speculates that the reward-sensitive actually pay extra close attention when presented with a high probability of losing, compared with the rest of us. But their brains are wired so that the fear of loss won't tie them up.

Helen Pushkarskaya is part of Joseph’s research team and a research fellow at Yale University. Joseph, Pushkarskaya, and two other colleagues co-authored a chapter in a book about brains and business published last year titled “Neuroeconomics and the Firm.”

Pushkarskaya spotted an interesting difference in how people deal with different kinds of gaps in information that may divide entrepreneurs from managers.

Risk & You - See Complete Coverage
Risk & You - See Complete Coverage

Pushkarskaya defines “ambiguity” as a situation where probability of success or failure is vague but relatively stable. That’s the arena of the natural manager.

“Sample Space Ignorance” is where the probabilities are unstable and changing. And that’s an environment of risk where successful entrepreneurs must excel, Pushkarskaya says.

People who say they are more comfortable with the unstable uncertainties show a distinctive pattern of brain scans. Pushkarskaya speculates that pattern may indicate a “flexible adaptation” network set deep in the brains of successful entrepreneurial risk takers.

Another vital factor in dealing with risk is the ability to learn from mistakes. Ironically, whether you believe your abilities are innate or improvable may affect how well you do in learning life’s lessons.

According to a paper to be published in the November edition of the journal Psychological Science, brains of people who believe intelligence improves with effort gave off different signals compared with the brains of those who did not. And when given a task, the performance of the first group actually did improve more.

Whether the attitude causes the brain to work better, or better brains are associated with good attitude, the paper does not say.

“The results suggest that neural mechanisms…are intimately involved in growth-minded individuals’ ability to rebound from mistakes,” says the paper, produced by a team of researchers at Michigan State University.

Finally, there’s the question of what allows some people to push themselves into risk while others hang back. The Maryland State Lottery once used the slogan “You gotta play to win” and the imperative is just as true in business risk.

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Roy Baumeister is a psychology professor at Florida State University and the co-author of the new “Willpower: Rediscovering the Greatest Human Strength.” For Baumeister, willpower is to intelligence as the transmission is to a car’s engine: Without willpower, thinking can happen but can’t get anywhere.

Baumeister thinks the supply of willpower in the brain is as real as rocks, can be temporarily used up, and can be increased through practice, the way exercise makes muscles stronger. (Longtime fans of the superhero Green Lantern will understand exactly how Baumeister defines willpower.)

Taking a risk requires the willpower needed to force that first step. So even a temporary lack of willpower can affect our ability to take a successful risk, Baumeister says.

Risk & You - See Complete Coverage
Risk & You - See Complete Coverage

“In a recent study on trust that we have done, people whose willpower was depleted from a previous, irrelevant task rated it riskier than other people to trust someone,” he says. “In that sense, it takes willpower to take the risk of trusting a stranger.”

Baumeister describes Jessica Alquist as “one of my smartest PhD students.” She offers an interesting speculation about how draining one’s willpower battery would affect people differently, depending on how they already feel about risk: “I'd predict that people who are

risk-averse normally use self-control to push themselves to take little risks and people who are risk-seeking use self-control to curb their risk-taking,” she says.

“When depleted, I'd predict that risk-averse people would tend to pass up on very good odds and risk-seeking people would be willing to accept very bad odds.”