No. 61 · Risk · Economics
De-Risking
You can keep most of the upside while cutting the risk of ruin.
In the Almanac
“The Venetian colleganza”, 1000s–1300s · “Toyota’s chip stock”, 2011–2021
Both stories in full, three ways to use it and where it misleads.
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Questions
What is De-Risking?
De-risking means reducing the uncertainty and potential downside of a decision while keeping its upside. It is not about avoiding risk altogether, but about managing it through diversification, hedging, testing and backup plans. Medieval Venetian traders spread capital across ships so no single loss could ruin them.
How do you use De-Risking?
Before a big move, identify what could go wrong and how badly. Spread your bets, test ideas on a small scale before committing fully, and build buffers such as savings or backup options. Aim to make your downside survivable while leaving room for upside.
When does De-Risking matter?
De-Risking is one of the 32 mental models for risk, the situations where you ask: What could go wrong, and what will I do if it does? Within that, it belongs to “Protecting yourself”, alongside Antifragility, Margin of Safety and Moral Hazard.
What is an example of De-Risking?
Two stories show it at work: The Venetian colleganza (1000s–1300s) and Toyota’s chip stock (2011–2021). Both are told in full in The Mental Models Daily Almanac, which has two stories for each of its 365 models.
Which mental models are related to De-Risking?
Margin of Safety, Preserving Optionality and Exit Strategy. De-Risking itself comes from economics.