Trust = 1 - Risk

June 15, 2024 (6mo ago)

A Metaphorical Play on Decisions

In examining decision-making, we can conceptualize a relationship where Trust equals 1 minus Risk. This equation highlights how trust and risk are interconnected in various scenarios. By exploring this relationship, we can gain a deeper understanding of how we make decisions and how we can optimize our decision-making processes.

To understand this relationship, we must recognize that every action involves some level of risk. In high-pressure situations, quick decision-making is crucial for success or survival. The longer an agent takes to decide, the higher the risk and the lower the chance of success. Conversely, making quick decisions can demonstrate strong agency and reduce the risk of failure.

Consider the example of a firefighter responding to an emergency. The firefighter must make split-second decisions to save lives and minimize damage. Hesitation or prolonged deliberation increases the risk of negative outcomes. In this context, trust in training, equipment, and fellow team members reduces perceived risk and enables swift action.

Everyday tasks also illustrate the trust-risk relationship. Pouring milk into your coffee involves minimal risk because most of us trust our ability to handle a milk bottle. This low-risk scenario requires little deliberation. However, consider the decision to invest in the stock market. This involves higher perceived risk due to market volatility and uncertainty about returns. Investors must trust their knowledge, research, and financial advisors to mitigate this risk.

Another example is the decision to undergo a medical procedure. Patients often face significant risks, such as complications or side effects. Trust in the medical professionals, the effectiveness of the procedure, and the healthcare system reduces perceived risk and aids in making informed decisions.

Research shows that people approach high-risk, high-reward decisions differently from those with potential losses. For instance, prospect theory, developed by Daniel Kahneman and Amos Tversky, suggests that individuals are more sensitive to potential losses than gains. This theory explains why people might avoid risks even when potential rewards are significant.

A study by Paul Slovic and colleagues on perception of risk found that individuals’ willingness to take risks varies based on their trust in the entities involved. For example, people are more likely to accept risks associated with medical treatments if they trust their healthcare providers and the pharmaceutical industry.

The risk an agent is willing to take often depends on their trust in their abilities. This trust-risk dynamic is a linear transformation, meaning as one increases, the other decreases. While statistical probabilities play a role, many decisions are based on intuition and self-trust.

In business, leaders often face high-stakes decisions that impact the company’s future. Successful leaders typically have a high level of trust in their judgment and experience, allowing them to take calculated risks. This trust is built through experience, knowledge, and a track record of successful decisions.

Understanding trust and risk as measurable variables in decision-making can help us navigate interactions more effectively. The more knowledge we have, the less risk we perceive, and the more we trust our decisions. By recognizing the interplay between trust and risk, individuals and organizations can make better-informed decisions, reduce uncertainty, and improve outcomes.

A more mathematical approach to these questions can be read in Analysing the Relationship between Risk and Trust by Audun Jøsang, and Stephane´Lo Prest.

P.S.

Constantly evaluating the risk of every action leads to a poor quality of life. Indecision often stems from low trust in one’s abilities. Trust yourself. This doesn’t mean ignoring potential dangers but rather balancing awareness with confidence in your skills and knowledge.

Trust yourself and you don’t have to risk anything.