How much risk people and companies take on is one of their defining characteristics. Risk is inevitable. How much a company tries to avoid risk, versus embracing it, has a major impact on their long-term prospects. Some cultures are also more risk adverse than others.

In Denmark, the Danes have a custom of leaving their babies outside of pubs while they eat, even on subzero days. In the USA, this would get you thrown in jail for child endangerment. In Denmark, this is not only not criminal, it is recommended practice, with parents and scientific papers saying it helps the babies sleep better and longer.

The Danes also encourage their children to engage in “Risky Play”. This includes things that would get you jailed in the USA, such as playing with sharp saws, heights and fire.  The belief is that the children learning to handle these things in a low stakes environment and lightly supervised will help them better handle these things when they encounter them in the adult world. For instance, growing up my friend had a pet snake. I disliked this snake and avoided it. When one day we found a coral snake in his backyard, my only answer was to run. Since he had played with his snake extensively and knew how to handle it, he was unafraid to get a long stick and move the snake to the nearby woods. My avoidance of snakes only made me more potentially vulnerable to them.

One topic we all experienced was how overnight COVID-19 changed people and companies’ perception of risk. Things that were not seen as risky, such as going to a crowded baseball game, suddenly became viewed as extremely risky. The entire risk landscape shifted overnight. In particular, many businesses that opposed employees working from home were suddenly thrust into a world where for the business to survive, employees had to be allowed to work full time from home.

In case after case, including almost the entire dining industry, companies very reluctant to make even minor changes to their core products or delivery methods turned and made major changes that would have been undreamt of just a month before. Dine-in establishments suddenly switched to food delivery as the COVID restrictions meant their traditional business model would no longer work. I saw one company go from overengineering the security of their product, a process requiring people to show up at a specific place at a specific time with very tight controls enforced by expensive hardware, to allowing customers to use the product in their living rooms in their pajamas on the web. In both situations, the risk to the business was far greater if they did nothing, as they would have been out of business, and so they made changes that would have been unthinkable shortly before.

As humans, we don’t think much about these risk tolerances, but they are a driving factor in every business and every life.

My girlfriend is from Ukraine, a country with a challenging past few decades, including both armed and discreet confrontations with its neighbor, Russia. She once asked me why anyone would bother with investments. Why put your money in the stock market when you can spend it? Keep in mind that this is a woman who lost everything, twice, due to Russian invasions. Her tolerance for risk with her finances is much different than mine, just due to her situation and past experiences. As an American, I have every reason to believe my savings, and the accrued interest and capital gains, will be there in five, twenty, and fifty years. Her experiences tell her otherwise.

One place where risk tolerance is well studied is in Finance. The data is very clear, the longer the time until you need to get your money out the more risk tolerant you should be. If you are close to retirement then your risk tolerance should be low, if you are just starting out it should be higher. This is because, over time, higher risk investments typically pay back more but the returns are more volatile, so if you have a longer time until you need the money the more time you have to regain any losses.

We should think more about what we find risky and why. We should consider whether that level is still appropriate for our lives and businesses. Understanding risk tolerance is fundamental to navigating life’s many decisions, from how we raise our children to how we manage businesses in crisis. Reassessing our own risk boundaries is not just advisable—it’s essential for adapting and thriving in an ever-changing environment.