The more I read about probability and complexity, the more I respect the fact that risk isn’t something I can avoid. Risk is like oxygen, ever-present and necessary for life.
Ever-present because even the safest position can be lost. Might be improbable but it’s still possible. Necessary because risk is the seed for value. Whether it’s the risk of failure in launching a startup or the risk of rejection when asking someone for a date. Nothing ventured, nothing gained. Great companies and great relationships all started with some form of risk that someone confronted at the start.
When we think about risk, there is only the matter of choice. Some risks we can choose. But not all. And the more that we can understand how to identify and choose risks, the more we can mold a position amidst the uncertainty that makes us stronger. This is stuff that our featured book, Fooled By Randomness, begins to explore. Later reviews of The Black Swan and, more importantly, Antifragile, will expand on this in greater detail.
No One Could Have Seen It vs I Knew It All Along
Much too often, we associate risk with negative impacts. Every time I think about the classic idea of the Black Swan (i.e., the rare event no one thought would happen), I think of what unfolded at the Fukushima Daiichi Nuclear Power Plant from the 2016 earthquake. Except that wasn’t really a Black Swan to everyone. As early as 1971, the risks of the plant’s faulty systems were known to more than a few people.
So then I think about the impact of credit default swaps and how this, plus bad mortgages, triggered so much of the 2008 Great Recession. No one saw that coming either, right? Isn’t that a Black Swan? Well, not globally. If you read Michael Lewis’s fabulous book, The Big Short, you understand that there were plenty of people who understood the problem and some, in fact, bet on the collapse even as they tried to raise awareness.
Anyway, this isn’t about whether or not Black Swans exist. They do. There are Black Swans in every person’s blind spot. The key point is that it is a matter of perception and perception is individualized. Not everyone is always fooled. Even Pearl Harbor was anticipated by a number of people.
We do a disservice when we look at Black Swans and say “Welp, there was nothing we could do. It came out of nowhere.” Such an attitude belies our natural human hypocrisy. We say “nothing we could do” when there is a rare negative event. And we say “that’s how we planned it” when there is a rare positive event. It reminds me of a quote from our author:
You attribute your successes to skills, but your failures to randomness.
Success Is Risk. Failure Is Skill.
What if we reversed this? I think we should. It might feel like a forced attitude, a false narrative, but I think it’s more healthy to see much of our success as a result of luck, whether we like it or not. And a significant amount of our failures (outside the casino) should be seen as the result of skill. Or lack thereof.
In this light, failure can be seen as a product of skill in-development. Whenever we seek to develop a skill, we assume the risk of failure. We accept it. We’re going to fall off the bike the first few (hundred?) times we try to ride it. We are responsible for mitigating that risk by wearing a helmet. So that we fail wisely.
As another example, I wrote three books when I was younger. I tried to get them published. No agent would take me; no publisher would publish me. Was I just unlucky? Of course not. Bad luck played a factor but not for me. The bad luck was suffered by those who had to read those really bad manuscripts. How unfortunate that those agents and publishers had to somehow be chosen to have these mailed to their address.
Meanwhile, my professional career has far outpaced any statistical expectation that one could extrapolate from my beginnings. Why? It’s because I have been incredibly fortunate and that understanding helps me see how precarious the position is. I better work hard to keep it.
If one sees their good fortune as something they earned, they will likely feel entitled and disrespect the high degree of randomness that giveth and taketh away. From our author:
That which came with the help of luck could be taken away by luck. The flipside … is that things that come with little help from luck are more resistant to randomness.
So in my case, I choose to see the successes as good fortune and continue to work hard with the desire to earn them someday. To not be a fraud. Frauds are lucky. Frauds become unlucky. So when I receive good fortune, I see it as my responsibility to then improve myself to a point where I am actually overqualified for it, always aspiring to be one level better in my skills and virtues than what my material position would require.
I fail at that quite regularly. That’s the modest, acceptable failure that comes with developing skills that outpace my luck. It’s a good problem to have.
On The Upside
I think a lot about good problems. My pantry is one such example. Food everywhere and nothing I’m in the mood for. What an incredible, wonderful problem.
In yesterday’s article, I mentioned the term upside risk. This is a really important concept that relates to the notion of good problems. This idea permeates all of Taleb’s work and I think it’s the best way to approach uncertainty. The notion expands the idea of risk beyond mere probability of loss. It shows that there are positive risks, risks that carry an uncertain chance for gain.
Ever hit “rock bottom” in something? The liberating truth of such an experience is that you realize things can only get better from there. Risk becomes nothing but gain in these circumstances.
But you don’t have to hit rock bottom to view the world this way. This is why minimalism, as a mindset, is so powerful. It clarifies the reality that you have what you need and anything beyond that is a delightful, unnecessary addition. If you’ve protected yourself properly by actually owning those few things and insuring accordingly (house, health, etc), the downside is covered and everything else is basically upside.
No one gets in that position overnight. But it can be done. Anyway, it reminds me of another line from our author:
No rare event should harm me. In fact, I would like all conceivable rare events to help me.
So how does that happen? In terms of upside, I think it means recognizing your acceptable minimum—be it possessions, reputation, income, relationships, nest egg, or any other such thing—and viewing everything above that as something that is welcome but not required. Everything else is the stuff of speculation. This is creeping closer to the idea of the barbell strategy but we’ll save that for another day.
Those things, that precious few, are prioritized and protected. Everything else is treated differently.
This can be applied to pretty much anything. Let’s take me for example. I recently saw a massive surge in readership on my website. Completely unforeseen. I celebrate it as a delightful, mysterious circumstance. It’s found money. And I initially gripped it really tight. Please-oh-please don’t go away new readers.
Then I remembered that a rare event cannot harm me; it must only help me. How can I make that possible in this case? By viewing that readership as an broader test on the true goal: can I deliver the most valuable thing they read all day? 51% of the time? If so, then I can really celebrate by ratcheting up the standard. Because that’s the goal. Regardless of how many readers there are.
It’s not that I don’t care. I’m very happy about the surge. Again, found money. It’s just that what I want to protect isn’t the volume of readers but the quality of the work. Everything else that happens is pure upside. The risk I choose is quality. I am risking quality today with this article. Is it good? Helpful? Let’s find out. The reward (readership, accolades, whatever) is welcome, deeply appreciated, but sort of ignored in a way.
So you, Dear Reader, are nothing but good to me. Others aren’t so fortunate. When others seek to keep your attention, you become a source of potential loss to them. That might not sound like a big deal but I think it is. Someone seeking to not lose your attention behaves very differently than someone who simply welcomes it.
Choose what you’ll risk and the rest will be reward.