Risk Intelligence – What is it and How to Increase it?

You are wondering what “risk intelligence” means, aren’t you?

Dylan Evans — a British academic who has written several books about emotions and the placebo effect — explains it as the ability to estimate probabilities. It is an inner certainty that helps people make guesses. 

According to Dylan Evans, risk intelligence is about deep things, a mechanism working in an unfamiliar environment and limited information. It is about knowing yourself and your limitations. 

For example, when newcomers come to no wagering casinos and start gambling there, they may predict the odds of winnings, but may calculate them without even knowing it.

Most of us are bad at estimating probabilities. However, there is a way to fix this.

Who has High Risk Intelligence?

People with high risk intelligence are mostly horse-race handicappers, bridge players, pro gamblers, and weather forecasters. 

As a rule, these people have much in common. Mainly, they are all hard-working and disciplined. They can develop their skills only where it is an essential element. For example, in poker, blackjack, and sports betting. It is hard to track them down as such people are not sociable, they don’t want to come under the spotlight.

There is a study by Ceci, S. J., & Liker, J. K. called “A day at the races: A study of IQ, expertise, and cognitive complexity”.

In 1986, thirty middle-aged and old men — avid racetrack patrons, were being studied for a specific time. Fourteen were classified as horse-race experts, while the remaining sixteen — were nonexperts. The conclusion was based on their ability to predict the odds knowing the actual information about the horses taking part in races. The background of experts and non-experts was equivalent. 

Experts showed the ability to estimate probabilities by a sophisticated multiplicative model, which helped them to handicap races. Non-experts, in turn, used a simple addictive model and lost. 

What experts were doing, thinking about a particular horse’s chances of winning, was creating a complex linear equation consisting of several variables each of which related to previous horse performance in races. These variables included average horse speed, finishing position, etc.

Statistics showed the experts knew nothing about linear regression. They did it unconsciously. They had specific numbers popping into their heads. And that number was very close to the horse’s chance of winning the race. 

Difference Between an Ordinary Gambler and a Professional

In short, professional gamblers earn money, and the ordinary, as a rule, lose it. There is also an emotional difference between these two categories of gamblers: while ordinary players may make impulsive decisions and become problem gamblers, professionals know when to bet and when not. They evaluate the odds of winning each time. 

Problem gamblers may get a buzz from winning. It’s like an adrenaline rush and dopamine addiction. Expert gamblers, on the contrary, re-evaluate chances and may not bet if they are not sure they will be able to win. The pleasure for them is cognitive, not material.

Typically, expert gamblers do not have high IQ scores or a good education, but they are comfortable with numbers. That is why their risk intelligence is higher than average. 

How to Quantify Risk Intelligence?

Dylan Evans has created an online test that measures risk quotient or RQ. It consists of fifty statements: some are true, while some — false. You have to estimate the likelihood of a statement being true. 

An average RQ is not high (do you still remember that people are bad at estimating probabilities?) There are two ways to get a low RQ: one is by being too confident, and the other is by being underconfident. 

Can You Increase Your Risk Quotient?

In short, yes. You can do it. First and foremost, you should be aware of cognitive biases. Another way to increase your RQ is to start playing a prediction game. All you need is to estimate the probabilities of anything in your life: whether it is going to rain, whether your mum will call you today, and your partner — will come home before seven. 

To increase your RQ, you should know yourself quite well: know your strengths and your limitations. 

Main Mistake in Assessing Risks

There are two main mistakes concerning assessing risks. The first one is about the need for closure. It means you can’t stand uncertainty and want to get the answer here and now. Even if this answer is wrong. The other extreme is the need to avoid closure. It is the situation where you seek more details and information and get stuck in analysis.