Barack Obama enters the White House this week with the entire world watching and with expectations high. He is popular and he has made many promises to many people. President-elect Obama has a lot to lose.
In How the Wise Decide we talk about the phenomenon of loss aversion. Individuals are so worried about the possibility of losing that they fail to take into account the relative probabilities of winning and losing and the relative magnitude of the gains and losses. Loss aversion leads individuals to fear loss so much that they run from the sight of risk.
Obama cannot let loss aversion and our country’s fragile position drive him away from risk. Many options that might look risky at first – trillion dollar deficits, investing hundreds of billions in alternative energy, diplomacy vs. force with our enemies, solving the nation’s entire infrastructure problem now vs. only tackling a piece of it – could actually be lower risk in the long run vs. not pursuing them. Obama must foster an environment where he creates and entertains seemingly risky options to find the ones that will produce the best long-term results for our country. If he fears risk, he will lose out on many potential solutions that can make our country great once again.
Over three years, we discussed overcoming loss aversion and using risk to one’s advantage with the 21 major leaders in our book. Based on our research, here are the five practical rules for conquering the fear of risk that Obama must pursue:
(1) Identify what really drives the risk. When Obama is confronted by what seems to be a risky decision, he must ask himself two questions: What are the one or two factors really driving the risk? What information do I need about these factors to determine how dangerous the risk actually is?
(2) Reward people for taking smart risks. Obama must reward people for making smart decisions, not solely on the outcome of their decisions.
(3) Test the waters before taking the plunge. Not all decisions need be made quickly. Sometimes it pays to let a concept simmer for awhile, experimenting with an idea before you fully commit to it. Obama should use experiments as they limit downside risk but not upside reward. If the experiment fails, he will have minimal losses and will have learned something. But if the experiment works, he can refine the concept and roll it out with significant rewards.
(4) Create a risk tolerant environment. People have a natural aversion to being ridiculed and seldom are willing to propose seemingly outrageous solutions to problems. Yet those outrageous solutions may contain seeds of a whole new approach to tackling a tough problem. Obama must show his team that he is open to this kind of creative thinking. This is the time for bold and creative solutions. He can do this by awarding people for bold ideas and holding no holds barred brainstorming sessions.
(5) Ask “What would it take?”. Good is the enemy of great. That old maxim gets talked about a lot, but seldom is much done about it. Good is easy, great isn’t. But the leader who can encourage his people to figure out how great is attainable can reap huge rewards. Obama must ask the people around him “What would it take to [insert tough goal]?” Challenge people to think big – it may surprise him how often people know how to achieve greatness, but are just too worried to speak up.
Don’t be concerned with losing President-elect Obama and don’t shy away from risk. Show that you really are different from other politicians and presidents and think boldly about our country’s future.
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