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Tuesday, November 14, 2006

Is the reward worth it? Or is the risk too much? Make a decision!

Can't make up your mind? Need to see some solid, quantitative evidence before you can decide which pair of pants to wear? If so, Lifehack's Tony Clark has put together a helpful Excel spreadsheet (download here) that you can use to get a better understanding of the risk versus reward ratio of a given decision. For instance, if you're a stock trader, that ratio should be an ever-present concern. Even if not, for particularly tricky situations where there are too many variables to keep track of mentally, a spreadsheet can help clear away the doubts.
How do you use it?

When you have a decision to make, begin by listing all the rewards the choice offers, then choose a weight for the reward. I like the weighted approach because though you may end up with the same number of rewards as risks, the overall weight is what will determine the choice. Once you have listed the rewards, do the same for the risks.

As an example, let say you’re trying to decide whether to go skiing this weekend. You’d begin by listing the rewards - such as fun, seeing friends, etc. - along with a weight on a scale from 0-5 on the importance of each reward. Next you’d list the risks - you can’t ski, breaking something, death, etc. - and the weight of each risk. The worksheet uses a simple calculation to determine the outcome, and displays a message along with a simple bar graph of the results.


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