The Source of Fear

If the idea of throwing caution to the wind makes you break
out in a cold sweat, you’re not alone. Taking risks is hard
because we detest losses—so much so that we’ll go to irrational
lengths to avoid them.
Loss aversion is the idea that losses loom larger than
gains. We’re more upset by the loss of $100 than we are
happy to win that same amount. Princeton psychologist
Daniel Kahneman and Stanford psychologist Amos Tversky
determined that, when it comes to money, fear is actually
2.5 times stronger than greed or reward. Their study of
how people manage risk and uncertainty won Kahneman
the Nobel Prize in Economics in 2002, seven years after
Tversky’s death.
“Fear usually dominates greed,” says Dr. Richard
Peterson, a psychiatrist and Stanford trained neuroeconomics
expert. “It’s an adaptive trait. Our ancestors wouldn’t
have lived long if they saw the grass rustling and they didn’t
assume it was a lion and run away.” Loss aversion drives our
red light. It makes us hold onto loser stocks when we should
sell, it drives us to throw good money after bad, and it compels
us to continue paying for gym memberships that we
never use.
The part of the brain that is most responsible for loss
aversion appears to be the amygdala, which stores fearful
memories. The role of the amygdala can be seen in a research
study, in which people with a damaged amygdala, as well as
those with an intact brain, were asked to make a series of
bets. In each one, the subjects could choose to invest a dollar
or abstain.
Study participants with intact brains invested 60 percent
of the time. When they lost money in a round, they didn’t
invest in the next round. But people with damaged amygdalas
kept on investing after a loss. They realized that the best
way to recoup the loss was to stay in the game. They invested
83.7 percent of the time and had significantly better results
than those with intact brains.

The Big Five Traits

The big five traits are:
1. Extraversion: Those with high scores are sociable and
fun-loving, while those with lower percentage scores are
introverted or reserved.
2. Openness: Those with high scores are imaginative and
accommodating to change, while those with lower
percentage scores are more traditional, practical, and
conforming.
3. Conscientiousness: Those with high scores are disciplined,
careful, and organized, while those with low
scores are disorganized, careless, and impulsive.
4. Neuroticism: Those with high scores are anxious, insecure,
and self-pitying, while those with low scores are secure and
self-assured.
5. Agreeableness: Those with high scores are trusting and
softhearted, while those with low scores are suspicious,
disagreeable, and self-interested.

Embracing Risk

For those who aspire to improve their ability to take entrepreneurial
risks, the Innovative Brain research from Cambridge
offers important lessons. First, not all risk taking is haphazard.
Entrepreneurs, who as a group have an advantage in risk
taking, routinely take risks to realize rewarding outcomes.
The study found that entrepreneurs are not only good at
taking risks, it’s what separates them from others as a bunch.
Their edge isn’t connected to intelligence, Ivy League pedigrees,
or decades of business experience. The researchers
did, however, find a defined link to physiology. Impulsivity
or a bias to action, when combined with a personality that
is adaptable and capable of flexible problem solving, gives
people who take risks for gain a particular edge.
Impulsivity left to its own devices can be dangerous, leading
to poor decisions that could negatively affect all aspects
of a person’s life (e.g., drug abuse or deviant social behavior).
But when counterbalanced with an adaptable personality,
the impulsive person knows how to make the best of any situation.
The result is a winning combination of risk seeking
and adaptability that enables entrepreneurs to profit from
uncertainty.

Risk, the Other Four-Letter Word

Ask a psychologist, a priest, or even your mother what
he or she thinks about risk, and be prepared for the same
unimaginative responses: risk is undesirable. Risk takers are
deviants who wear leather jackets and drive too fast. They
spend too much and show up to work on Mondays—if they
have jobs—with black eyes won in a bar room brawl. When
risks can’t be avoided, they should be worked around. With
enough research and contingency planning, an upright citizen
can steer clear and go back to coloring within the lines
in no time.
But some risks can be rewarding. In fact, researchers who
study risk taking believe that your ability to become the next
Steve Jobs is determined in large part by your comfort level
with risky decisions. For aspiring business owners watching
from the sidelines, taking a cue from those who know how
to take gambles can hold the key to getting in the game.

Instinct and Entrepreneurship

Self-made entrepreneurs use their instincts to successfully
take risks and generate wealth without plans, pedigrees, or
formal business training. Consciously, they may not know
exactly how they’re doing this. But through careful observation,
it’s possible to find patterns in the way they act. By tapping into
our own instinct, we can use the power of our
physiology to help us take the risks necessary to make millions.
This book will help you understand how our mind, behavior,
and brain chemistry affect our actions, especially our
ability to take risk. It offers a framework you can use to start a
business that will leverage your unique physiology and talents.
Through the stories of self-made entrepreneurs we will
discover the traits, habits, and actions that allow them to
seize opportunities, take rewarding risks, and design their
days to create cycles of productivity. By talking with experts
in the fields of neuroscience and behavioral psychology,
we will learn how those who might not be naturally gifted
entrepreneurs can still use their brain chemistry to drive
themselves toward success.
For all entrepreneurs, some habits and mindsets come naturally,
while others require more practice. By highlighting the
little things that can make a big impact, anyone can adopt the
outlook and work habits of an instinct-driven entrepreneur.