Taking Risks
Most people take few risks. I believe that the cause of this is a fundamental misconception between risk and reward. To examine this relationship, we need to divide opportunities into categories, depending on the magnitude of all possible positive or negative scenarios. This leaves us with three types of opportunities: Symmetric, Negative Asymmetric, and Positive Asymmetric. For the rest of the essay, I will focus on the last two.
Negative Asymmetric opportunities are those in which the magnitude of the feasible negative outcomes outweighs that of the positives. Think about driving drunk. In the positive scenarios, you will get home safely, your car will remain intact, and you will save transport money. However, if things go wrong, the likely outcomes include injuries, death, and even homicide. The negativeness of the negatives dwarfs the positiveness of the positives, thus the opportunity is Negative Asymmetrical. In general, we do a good job of avoiding these.
On the other hand, Positive Assymetric opportunities are those in which the magnitude of the possible positive outcomes is larger than that of the negatives. Think about going on a coffee date. On the negative side, you might waste an afternoon and the price of the coffee. On the positive, you could meet the love of your life. Starting a business, writing a blog, sending a cold email, and recording a song are all examples of Positive Assymetric opportunities, with little downside risk but huge potential.
Because of their low-risk and high-reward nature, we should be in constant pursuit of Positive Assymetric opportunities. Capitalizing on these opportunities then becomes a numbers game, whose returns will follow a Power Law distribution. This means that the total rewards of all of your attempts will be driven by a very small proportion of successes, accompanied by many failures. Since the rewards for successful attempts are extremely high, even a very low success rate translates into positive outcomes.
This also means that if you are looking to strike gold, you need to be willing to fail often. Unfortunately, we are terrified of failure, and this fear is what keeps us from embracing asymmetric opportunities and unleashing our full potential. And because of that fear, we tend to overestimate the magnitude of the negative possibilities, hence we see actions as riskier than they are.
To overcome this fear of failure, we need to start taking risks and start doing it often. By getting through the fear-induced paralysis, we will realize that failure is not as painful as it seems and that risks are not as large as we imagine.