How to avoid selling ourselves short

We love certainty, but it can often limit our potential.

Over the past 20 years the Australian ASX 200 has delivered returns of approximately 9.8% p.a.

Bonds, which are a safer investment of capital, have delivered roughly 6% p.a. over the same period.

Both choices have their merits in the right circumstances.

But when it comes to making choices about what risks to take, we tend to aim for higher certainty according to Nobel Prize winning psychologist Daniel Kahneman.

That's because most of us subconsciously overweight the comfort of avoiding risk and loss. He called it the Certainty Effect.

What this means is when faced with a decision that has an uncertain outcome, we can subconsciously limit our potential by taking the easy and more certain option.

I've seen it in action plenty of times when business unit leaders negotiate with the company CEO over targets for the coming year.

If you want more from your yourself or your team, here's how to counter the certainty effect:

1. Slow down your thinking

When the stakes are high, hit the breaks and slow down your thinking and separate emotion from fact. Create a process that deliberately takes in objective information before decisions are made.

2. Use data to create new perspectives

Compare your situation with relevant data, statistics, or case histories. This helps counter the bias to safety and lowball targets.

3. Collaborate with others

Involve trusted people not emotionally invested in the situation. This helps open your mind to alternative ideas.

We can't eliminate our core programming to seek safety over the discomfort of risk and loss.

But we can put safeguards in place to make sure we don't play it safe and rob ourselves of potential.