The Strategy You Should Consider When Making Decisions
We are confronted with choices every day. Most are frequent and insignificant, like choosing what to wear or what movie to watch. Others are less frequent, more important and consume a lot of brain power to reach resolution — think choosing a career, what apartment to buy or whom to marry.
The last year was full of choices for me: I relocated from Switzerland to Romania, I left a corporation (Google) to move to a startup, I broke up from a long-term relationship, I invested significantly in stocks & bonds (the luckiest transaction being a speculative move on the Volkswagen stock, which I bought immediately after the scandal), I picked up new hobbies and activities (writing, networking).
Exposing myself to many changes naturally led me to search for a good, consistent strategy that I can use when faced with choices. There are multiple approaches possible, but I find one extremely compelling:
When faced with more options, prefer low risk, low probability of success, high reward.
This strategy works consistently for all types of decisions. For instance, when investing, one could bet a small portion of their portfolio (low risk) on an improbable event (low probability, high reward). Choosing between activities could be done in a similar manner. Writing is low risk (bad comments shouldn’t hurt much), but in case of the unlikely success, the reward is big. Dating? A very low risk activity in itself, so go directly for the ones at the top of their game (this phrasing is politically incorrect and doesn’t cover all the facets — I use it only to make the point clearer).
While the chance of success and the benefits are inversely correlated (the lower the probability, the higher the reward), risk is completely orthogonal—risk has nothing to do with the likelihood of the outcome. By risk I mean situations that threaten one’s survival, that are irreversible or that negatively impact one’s life for an extended period of time.
By this definition, paradoxically, startups are low risk—failing doesn’t produce irreversible harm. Most startup employees will still be employable even after they failed, so they will eventually make ends meet. For startups, it is only the probability of success that is low, but if you hit it, you hit it big. Becoming a hacker on the other hand is high risk — if one gets caught (which should happen with reasonable probability), they will get in jail. Getting out means passing through a tedious process of rehabilitation, and usually it’s very hard to get back from where you started prior to the conviction.
Dealing with low probabilities doesn’t make one a reckless gambler—as long as the risk is small and confined. There is also another fundamental difference between gambling and a low risk, low probability of success, high reward strategy. Whereas the former is dependent on the hope of winning, in the latter you can almost always assume failure. Since the risk is low, there shouldn’t be any adrenaline rush. This makes expectations very easy to manage. Surprises are infrequent: most of the time one fails, but this is a thing to be expected. There are no negative surprises either: you wrote an article and it did not go viral? That stunning girl rejected you? Fool to be to expect otherwise.
However, once in a while, there are surprises and there are wins. And they are big, and they are positive.
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