Risk vs. Variance

There's a distinction between risk and variance. Just because something is higher variance does not mean it is higher or lower risk. Risk is the chance of loss or harm, variance is the spread of the range of possibilities. A set of outcomes that were spread across positive and neutral outcomes would have variance, but no risk.

Risk vs. Uncertainty

These words are too often used interchangeably to refer to situations in which the future is unknown. However, there is a fundamental difference between the two that must be understood for the rest of this book to make sense.

One distinct type of risk is risk of ruin, the chance that it could end whatever game it is your playing. For example in poker that could be betting all of your bankroll. In life if could be having all of your money in an investment that could go to zero.

One form of risk that can paralyzing is opportunity cost. When you say yes to something, what are you missing out on?


What Every Entrepreneur Needs to Understand About Risk