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Recently, Elon Musk saw a billion-dollar rocket blow, up, his car profits decline 20 % as a result of price declines, and his Twitter investment lose about 50 % of its purchase price. What is most impressive about Musk is that he considers all of this part of the learning process. The chairman of Nvidia earned $ 7 billion in one day as his chip stock went up over $75. These and other entrepreneurs strive for out of the box opportunities with little fear of risk.
On the other hand, Tess Wilkinson-Ryan recently published a book “Fool Proof” which argues how our behavior is frequently directed at avoiding being the “sucker” Specifically, the fear of being suckered affects the behavior, risks and relationships that we pursue. Similarly, Annie Duke has a great book called “quit” which outlines some, of the conditions to just walk away. She argues that success does not lie in sticking to things. It lies in picking the right things to stick to and quitting the rest.” In particular, probability, risk, resource requirements, and value are key factors that may not be considered when evaluating when to quit.
These two approaches of caution against failure and strive for outlier opportunities represent different approaches to strategies that are too often managed by emotion rather than logic and facts. For example, there is a big difference between buying a few lottery tickets with low risk and investing all your retirement funds in high-risk investments
These arguments are evident in any discussion of the potential and concerns about A.I. First remember that A.I. is in its early stages so there is no consensus about the potential or how dangerous those systems might be. Intelligent machines could supercharge progress in virtually all human endeavors, from drug discovery to space exploration. On the other hand, researchers are concerned about a future in which an A.I. that outperforms humans in various domains (but doesn’t share their values) is prone to catastrophic accidents or misuse.
Some suggestions to mitigate the dilemma
- Understand and maximize goals and needs. The simplest technique is to understand the needs and goals. For example, short term versus long term, quality versus quantity, volume versus price, and the environment are issues that should affect your decision making
- Manage probability better. This can provide greater opportunities, including both value and probability of success. For example, when lotteries increase, the odds of winning remain constant, but the value of winning increases dramatically.
- Keep your perspective in check. As uncertainty and change accelerate, probabilities can also change. For example, many analytical efforts are reduced by the volatility of 2019, 2020, 2021 and 2022, which need to be considered together. Getting excited or depressed about one year is erroneous. In general, the four years together provide a more positive and reasonable perspective than just one year.
- Don’t be afraid of losing. Many studies have shown that we are about twice as likely to avoid losses than pursue gains. For example, we will trade stocks with gains twice as fast as selling stocks with losses despite tax advantages for selling losses.
- Reduce bias as much as possible. The greatest detractor from effective decision-making (which can be intentional, random, hidden, or even unknown) is bias. Probably the greatest source of bias is our own set beliefs, experience, and reliance on a “we have always done it that way” mentality. Thus, we simply ignore information or facts that are different than our own. Another factor is incomplete or wrong information. However, when we eliminate bias, we increase our probability for success.
- Be more open. Organizations need to be open to measurement and feedback. Observing, understanding, and sharing financials, operations reports, and sales reports are the first step. Take advantage of simple research studies, which social media can provide. These are worthwhile tools to use regularly. A management style such as the “walk around” and asking simply, “How are you doing? Is there anything you need?” can be priceless.
- Remember that mistakes are often the best way to learn and grow. One of my favorite phrases is, “If you aren’t making mistakes, you aren’t trying hard enough.”
Environmental and external influences can greatly affect risk as well. Inflation, oil prices, and supply shortages are causing great disruption today, but they will also create opportunities. Electric cars, the chip shortage, and logistics are areas where unknown opportunities will emerge.
In summary, I frankly believe with the exception of issues like safety, we can afford more risk and pursue more outlying opportunities. In particular we underestimate the upside potential of an effort. Winning the lottery, a sporting event or profiting in the stock market can simply have more gain than we consider. How good is our information, what are the consequences of mistakes, and how much risk can we afford? We generally are overly concerned with the consequences of mistakes than the potential of risk. Some well know recommendations:
“The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man.”George Bernard Shaw
“Because the People who are crazy enough to think they can change the world are the ones who do. “ Steve jobs
“You miss 100% of the shots you don't take. “
-Wayne Gretzky
“What would you do if you weren’t afraid?” — addressing the self-doubt that still holds many women back. Sheryl Sandberg
Related: Is Anyone Even Listening?