Temperament for risk

Consider this quote from the official USAF policy letter on risk:

Accept risk when benefits outweigh the costs. All potential benefits should be compared to all potential costs. The process of weighing risks against opportunities and benefits helps to maximize unit capability. Even high risk endeavors may be undertaken when there is a well founded basis to believe that the sum of the benefits exceeds the sum of the costs.

An excellent article at investment house leggmason.com discusses the temperament required for rational risk taking. Oftentimes, meta-investing or philosophy-of-investing articles tend to be meaningless fluff. This one is not, as it offers broadly applicable business and life lessons, if you can deconstruct the core of the article from its investment roots.

Like daily prayers to Mecca, there's the obligatory synecdochic references to Omaha, but they do have a context: Warren Buffet, the most successful investor of our current era, will retire and he's seeking his replacement. He's set forth his criteria and considers "independent thinking, emotional stability, and a keen understanding of both human and institutional behavior" highly important in the successful applicant. In a word, temperament. This launches an interesting discussion of how temperament affects risk taking strategies.

Read in the context of my background in the space business, it's insightful in the way it brings forward the human element of risk, or perceived risk, and its role in our decision making.

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