A major driver in financial markets is the Risk / Reward Ratio. The greater the risk the more reward you want to see and vice versa. This is an obvious metric when evaluating a stock position, but yet, not followed well by most people.
The same occurs in our decision making process in life. Some people take way too many risks, with little chance of reward. The ratio is not a good one. Yet we take the risk anyway. The opposite is true as well. Many people expect lots of reward but take little risk. Does not make sense from a R/R Ratio standpoint – so why do they expect all the reward?
This ratio is critical to understand, like a law of physics. Great reward comes from great risk. Simple.