What is life? It is a series of risks one must undergo to learn, explore, and build something for itself. How can life be enjoyed without risks? All the facts that are involved to spend your life have a number of calculated and sometimes uncertain risk, which either allows you to fly or to sink in different matters of life and this float and sink is called an experience with experiments and based on these experiments we learn and dig in deep to build our life successful in every aspect. When you fall, you make specific approaches to fly, gathering all the confidence and hopes, and when you fly, you are obsessed with playing with more terms to maintain the pace or to soar even higher. This float and sink are two wings of human journey, which are referred to as risk and Reward, and the social psychology to it vary from person to person depending upon the way they approach the thing in their life. And from there uproots the journey of reward theory.
The journey of life is a set of uncertainty and gain-loss theory.
Any change that leads to loss, danger, or failure is a risk, and sometimes by
risking things, we can have a fruitful basket of results too, which are called
rewards that are gaining more. Human mind is a powerful blessing and when it
comes to any decision making it always play safe, counting on all the definite
concerns but sometimes despite of all the possible notes undertaken that may
lead to failure we may not have success and projectile in descending, but
that's not the failure actually it's the collection of experiments from where
we learn and become confident to have success in the future or other regions.
Life is a coin with two different sides, and one is the
determination to achieve your goals and establish your dream world by taking
calculated measures known as risk and with the hope of getting much more than
invested for which a term is used called Reward. This upgraded world is the picture
of the risk and reward definition. People from different fields and mindsets
risk their assets to make their belongings double known as Reward, i.e., in every
and any area of life risk to reward factor plays simultaneously. Business,
markets, and the economy of a country work on the principles and functions of
risk-reward theory and experiments. And often leads to rewards definition and
psychology.
If we interpret this term in economics, we can state that
the word efficiently plays an important role when investing. This ratio is used
to calculate the return of an investment an investor should have with the
amount of risk he is ready to afford. An investor calculates several times
before investing, what is the probability of getting his assets double to shine
without having a failure or minimizing the failure. Every domain of finance
collaborates with risk to decide whether an investment should be made or not,
one must calculate the potential Reward against the risk as well as his
tolerance level before stepping forward.
Risk vs. Reward:
Risk and Reward are the two wheels of investment that work
simultaneously. The higher the risk, the greater will be Reward if precise and
calculated measures are taken. In both personal and business affairs these two
factors play together for achieving the target and help investors decide the
margin of profit and loss for the productivity the perspective of every
individual.
Regarding this ratio
is different, and so the Reward that an individual gets is according to it.
There are three major investment areas where this ratio is extensively used
which are
● Stocks
● Bonds
● Mutual Funds
These three investment domains play a dominant role in
gain-loss trading, and therefore, this ratio helps investors incredibly in
determining their profit scale while risking their money. While investing, what
thoughts surround investor minds? The chance to lose money or the possibility
that he might achieve much higher than expected or he should accept more risk
to play more efficiently, or he has hit the bottom line and should take his
money out of it before going into further loss. All these concerns can have a
clear picture and reliable answer by this risk-reward ratio.
Risk and Reward Psychology
The human brain is an extraordinary blessing, but sometimes
the complicated stuff and process make its network weak, and thus, they tend to
make errors. Different thoughts are responded in a different manner depending
upon the situation it undergoes. Still, often it tries to apply the same
solution for two various problems, which can result in the right decision for
one but does not work for the other scenario, and at that point, it is a
complete mess. This is a natural psyche of the human brain, and fear is the
most active element that plays this messing role in making the situation
critical.
Analysis, sorting, reaction, decision making, and controlling
are the fundamental elements of the risk that a human brain needs to go in
every domain of their lives. The mind remains positive and productive until the
errands run according to its calculated results; still, if it loses at some
point and starts to descend the graph leading to failure, fear develops of
losing everything. So for a human brain to decide for the next project to be
fruitful, it extends all the negativity in its mind of suffering, knowing that
there is an excellent margin of gain and rise. So risk and fear are running
parallel in the human mind, and this race, one tends to push others and so when
the problem arrives, one of the factors wins either fear or risk.
Risk and Reward ratio is beneficial in making
the investment, growing business, and in running everyday life affairs, but
control on stress, good tolerance, efficient decision making, balance, and
understanding of the situation is very important. Life goes on with the
experiments. Sometimes you fall you pass. When you give, you step ahead, but
when you fall, you learn, and this is the stage where you develop your
experiences, and based on these experiences, you may have success in other
projects of your life i.e., good Reward comes with excellent and reliable risk.