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Science and Research

Weighing Risk Versus Reward

The Dimensions of Decision-Making

Whether you’re picking out your sports bracket or stock portfolio, there is a certain decision process that occurs. The reality is, you gamble every day. When you step foot into your car or go to work, you are balancing the value of something, or its worth to you, against the risk connected to it. These concepts stem beyond psychology, and affect economics, finances and, yes, choosing your sports bracket.

The Dimensions of Decision-Making

Northwestern Medicine Psychiatrist and Neuroscientist Hans C. Breiter, MD, explains that when you make decisions, you’re unconsciously factoring risk versus reward and evaluating many dimensions of reward. While it might seem like a straightforward thought process, Dr. Breiter’s research suggests that everything you do is driven by a constant stream of mathematical formulas.

One of Dr. Breiter’s five research fellowships involved close work with Danny Kahneman, who won a Nobel Prize in Economics for developing prospect theory, or the psychology behind how you choose what is rewarding, and how you weigh that reward against risk and uncertainty.

Prospect theory helps explain how you unconsciously distribute your likes and dislikes for objects in your environment. Your unique fingerprint of how you make choices in the world is determined by prospect theory combined with factors relating to economics and neuroscience.

In essence, decision-making can be described mathematically, and choices tend to remain consistent despite ‘noise’ in the world around you. “Math is the core language, by which we describe what we see in science, use what we see to make predictions and build off of successful prediction to engineer things,” Dr. Breiter says. “People tend to be surprised that what our minds do in making choices can be described with the language of engineering.”

Risk Versus Reward

How you may perceive something as a reward may seem like a simple, linear process between extremes of liking and disliking, but there are a number of biases such as loss aversion that make choosing more complicated. Dr. Breiter refers to five processes by which we decide what we like and dislike. These involve:

  • The relative amount of something. You might base your decisions on comparisons. For example, when you choose a small coffee versus a medium one.
  • The deficit of something you feel. Are you cold and need warmth, or thirsty and need fluid?
  • The risk associated with the reward. The Markowitz model reflects your choices as balancing liking against the risk associated with what we want.
  • Group versus individual assessments. Prospect theory balances rational choices against irrational ones, and group assessments against individual ones.
  • Liking in the context of your memory of past choices. This perspective brings together the other four dimensions and is referred to as relative preference theory. It can be applied to both individuals and groups.

These five processes involve almost the entire brain to make complex choices. Together they provide a fundamental frame for what is emotion, and our emotional experience of the world.

The Fine Line of Addiction

If you’re not careful, the five processes of calibrating reward can form a path to addiction. “Our society has short-term reward focus,” says Dr. Breiter. From fandom during your favorite team’s sports series to quarterly reports, American culture tends to be motivated by short-term profits, which trigger positive responses.

Dr. Breiter suggests finding a healthy balance. “Enjoy one play-off game, then allow yourself to be surprised by the next one,” he says. He encourages participating in daily calming activities, such as meditation or yoga. This helps your brain focus on staying in the moment, which will reduce unhealthy risk-taking.

While common practices like following your favorite sports team or scrolling through digital media seem simple and harmless, your brain is making complex valuations based on your unique make-up. While quick rewards can be tempting, be sure your brain incorporates a longer-term vision when you’re making decisions.

Hans C. Breiter, MD
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Professor, Feinberg School of Medicine
  • Primary Specialty Psychiatry
Does Not Schedule or Accept New Patients
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