There is a constant in our life - risk. Some say the constant in life is change. In some sense, do they not both go hand in hand?

Some people know how to handle risks well. But most times, human psychology does not allow us to perceive risks correctly. Hence, we are paralysed into inaction like a stag staring into a headlight when exposed to risks.

At other times, the risks do not appear so intimidating. But that is not because we have understood the inherent risk and have factored that into the calculations or have found some way to mitigate the risks.

Many times, the reasons are surprisingly different.

The socialising effect on risk perception

If you have travelled in an airplane, you would have heard the airhostess warning you about the unlikely event of a water landing. It is terrifying to hear it for the first time. When you hear that everytime you fly and you have survived every single journey to hear it one more time, you start discounting the risk.

But, has the risk changed? Obviously, it has not. Catastrophic risk probabilities tend to be very small and can lull one into thinking the risk does not exist.

A IPO prospectus clearly spells out the risks. It even spells out how many court cases are pending against the company. When things are so upfront, people read, yawn, and move on. They are just thinking about how much can be made from this IPO - risk factors be damned!

This behaviour goes beyond humans. A lamb fed sumptuously for months, by the sword- wielding butcher, tends to discount menace of the sword the butcher carries with him every time he comes to feed it. It does not understand the extreme risk it is in, until it comes under the sword.

Risk taken by oneself looks less risky!

Speculation in stock market looks risky when others do and lose money. However, when one does it, it does not look risky at all; they even call it investment!

Ever had an experienced driver by your side, when you drive a vehicle? You would have heard them ask you to drive carefully, avoid the pothole ahead, slow down as you may hit the vehicle ahead, etc. It is annoying for sure. But this is another example of how risk looks different when another person is involved.

Risk mitigation by going along with the group

This is a classic group-think decision making method. For many people, this is an easy heuristic as they need not have to apply their minds to the problem at hand. They also feel safe and go with it, even if the decision involves a lot of risk.

That is why mobs do dangerous things, while individual members may never have indulged in them, on their own. Being in a group somehow seems to give a sense of security and lowers risk perception.

Risk seems lower when it involves marquee companies

How many times, we have accepted the terms and conditions, which run into four dozen pages without ever reading the first line!

There is a certain inevitability here - the company is not going to change anything for one person. Quite apart from that, we guess that a big, professional, marquee company will not do anything that jeopardizes the interest of the public at large and hence cannot be risky.

However, corporate malfeasance happens a lot. Also, most big companies are notorious for one-sided contracts which we simply accept, without ever reading it! The risk is there only that, we do not perceive it and think the company will not stoop so low as to put us at risk. How naive!

Risk seems lower when it is blended with normal stuff

In a typical contract, there are many adverse clauses that are conveniently placed innocuously, in the inner pages. Mostly, no one goes through the contracts properly; even if they do, by the time they come to a contentious clause, they get conditioned to think that it is part of a standard contract. Hence, the offending clause is devoid of the sting and we accept it.

Risk is a strange concept. It is as much a matter of perception as it is a reality. Many times, we tend to mistake one for the other, which is really the risk!