The Lehman bankruptcy, which occurred a year ago today, was the nadir of a financial crisis brought on by excessive risk-taking throughout the investment industry. Naturally, reigning in risky behavior has been in vogue since, and regulators are hard at work trying to do just that wherever possible. Sometimes, however, the problem is not too much risk, but too little. Indeed, research confirms that individuals are hard-wired to avoid certain risks at crucial times—even when, in so doing, they impose costly economic penalties on themselves.
In other words, at key moments people refuse to take chances that will make them money. Behavioral finance has a term for this – risk intolerance.
And, believe it or not, some of what we know about risk intolerance comes from research into two unlikely topics: the games of blackjack and golf.