Why Do People Take Speculative Risks?
Some people like the adrenaline rush when they watch a highly competitive match or when climbing a mountain, such as Mount Everest. In other cases, some people prefer to put all their “eggs in one basket”, hoping to maximize on the potential gain. Man is meant to take risks. Even mundane activities such as driving to the place of work are risky as accidents can occur unexpectedly. The house in which one lives can collapse when an unexpected tremor occurs. It is on this basis that some people take speculative risks.
Every human being hopes to live a better life than he or she lived yesterday. Even extremely depressed individuals who regularly contemplate suicide and hopeless individuals who see no need to carry on with life turn around their intentions when they find something to live for. Man thus strives to do as much as possible to attain a better life. Taking extreme risks becomes an option. Speculative risks can result in good returns but they can also result in terrible losses if the outcome happens to be unfavorable. Investment in the stock market is a good way in which some individuals expect to reap big within a short time. Every investor expects that the stock market will jump soon and he will reap heavy profits. Heavy profits translate to the accumulation of more wealth, resulting in better life and an increased ability to purchase more goods and services. Businesses that specialize in stock market investment look forward to reaping big and gaining more profit in the short and medium term.
Gamblers are another category of speculative risk takers. Speculative risk has a long history. During the Gladiator games held in Rome many decades ago, some individuals could bet on some “gladiators” winning contests. In such cases, monetary gain was the main motivation. It is the expectation of every casino gambler that he will emerge victorious in an attempt to get rich quickly within a short period of time. Walking into a casino and taking the chance to bet can result in heavy losses if the bookmaker fails to win. However, some bookmakers like the adrenaline rush of waiting for the outcome. As adrenaline flows fast during gambling in anticipation for a victory, the bookie feels a fresh boost of energy fill him. The thrill associated with such risks drives the habits adopted by such individuals.
In a way, the mental and emotional charge associated with speculative risks is another factor that motivates individuals who take such risks. For bookies who bet on major soccer leagues, for instance, the 90 minutes seem too long. An individual who has staked $10,000 on a single soccer game stands to gain or lose a lot. He can hardly wait for the 90 minutes to end. The hope that he will win and win lots of money motivates him to continuously gamble.
Furthermore, a wealthy individual, such as Bill Gates, can afford to speculate with large sums of money without necessarily risking his well-being. If he wins, he becomes richer but if he loses, the loss will not affect him as much as it would for a poor person. In this case, such speculative risks are driven not by the desire to exponentially grow one’s financial status but for fun and pleasure.
In conclusion, speculative risk is fueled by hope and a desire for better life. A couple of reasons pointed out in this paper explain why some individuals eventually adopt speculative tendencies in the long run. However, no speculative risk taker places his money in an activity or event which he is sure to lose. Thus, monetary gains stand head and shoulder above all other reasons that motivate individuals to engage in speculative risk activities.