The True Nature of Risk Aversion: Sahil Bloom on Uncertainty vs. Risk

In a recent LinkedIn post, Sahil Bloom delves into the common misconception of risk aversion, arguing that what people truly fear is not risk itself, but rather the inherent uncertainty that accompanies it. Bloom suggests that individuals often label themselves as “risk averse” but are, in fact, willing to embrace risk as long as the potential outcomes feel predictable.

“Most people say they’re ‘risk averse.’ But that’s not quite it. They’ll take plenty of risk… as long as the outcome feels predictable.”

Distinguishing Risk from Uncertainty

Sahil Bloom highlights that this fear of the unknown often leads to seemingly paradoxical behaviors. According to Bloom, people may opt to invest in a “safe” stock only after its value has already significantly increased, or start a business only after a similar venture has proven successful. Similarly, career changes are often delayed until a guarantee of success is in place. Bloom posits that the underlying fear is not necessarily the prospect of loss, but the lack of knowledge about what might happen.

The Fear of the Unknown

Bloom elaborates on this point, stating that the apprehension stems from not knowing:

• Not knowing if they will be the exception to failure.
• Not knowing if they will appear foolish to others.
• Not knowing if they will later regret their decisions.

This fear of uncertainty, as outlined by Sahil Bloom, can be a significant barrier to personal and professional growth. He points out that the desire for predictability often overrides the potential for significant reward, leading to missed opportunities.

The Paradox of Learning and Growth

The core of Sahil Bloom’s message revolves around a crucial paradox: to achieve significant gains, one must often accept the possibility of loss and the discomfort of not knowing. Bloom suggests that true learning and growth come from experiencing these situations firsthand, rather than merely contemplating them.

“Sometimes you have to pay to learn. You have to lose money in order to make money.”

He emphasizes that every successful investor or entrepreneur has faced setbacks that ultimately provided invaluable lessons. This experience, Bloom argues, is the essence of having “skin in the game.” It’s not just about financial investment, but about personal commitment and the willingness to face the consequences of one’s decisions.

Overcoming Uncertainty Through Action

According to Sahil Bloom, uncertainty cannot be eliminated through sheer intellectual effort. Instead, it is resolved by confronting it directly.

“Because uncertainty doesn’t disappear from thinking harder. It disappears from living through it.”

Bloom concludes that hesitant decision-making, driven by fear, ultimately stifles progress. The adage “scared money doesn’t make money” is extended to suggest that “scared decisions don’t spark growth.” Sahil Bloom’s analysis encourages a re-evaluation of how individuals approach risk, advocating for a greater acceptance of uncertainty as a necessary component of achieving significant success.