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Risk perception is the subjective judgment that people make about the characteristics and severity of a risk.
As I’m writing this piece, a friend of mine and his wife are discussing the cancellation of a holiday to the hill station.. But my friends’ problem is this that an accident took place around the place he wanted to visit a few days back and killing 12 tourists. Now, my friends think that hill roads are too risky to travel on. They are too risky, aren’t they? Well, compared to what?
Human beings perceive and calculate risk in a very non-linear fashion. This may have been OK till prehistoric times but in the modern world, our perception of risk means we are often unable to take the correct decisions in everything from where to go on a holiday to where to invest our money. Savings and investing decisions are almost entirely about how we absorb and process risk-related information and how we balance this out with rewards and gains.
As it happened, when my friends told me about this recent crisis, I had just read an article titled ‘Rare Risk and Overreactions’. It says that human brains are not very good at probability and risk analysis, especially when it comes to rare and unfamiliar events. We tend to exaggerate spectacular, strange and rare events, and downplay ordinary, familiar and common ones. Our brains are much better at processing the simple risks we’ve had to deal with throughout most of our species’ existence, and much poorer at evaluating the complex risks society forces us to face today.
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