Risk vs. Reward

Posted on September 25, 2023

The Foreseeable Future

Sprinting at the things that hurt the most

I took some time off school during COVID (2020?) and it was a great decision. I was able to work on some cool projects, hang out more with my friends, learn a lot, and get some real world experience. I’m going to do it again, but this time I’m going to do it even better. I’m going to take a year off and run at the challenges and things that hurt the most. It’s going to suck and be painful but I’ve come to the realization that this is how I’m going to grow and become the person I want to be in the shortest amount of time.

I have always had this tendency to sprint at things. Sometimes it works out well. Other times I fall on my face. But in all of these times I come out feeling like I jumped a few steps ahead. As the pain on my face subsides, I’m left with invaluable lessons — lessons that I would have never learned if I had not sprinted and fallen in the first place. I am going to sprint some more. I will sprint at the things that hurt the most and I will get hurt. But I will get better. And faster.

Setting Goals

When you’re in school, setting goals is easy. Take the toughest class. Get good grades. Find the “best” extracurricular. Work hard to become its leader. Secure the best internship. Find a good job. Rinse and repeat until you graduate. But what happens after you graduate? From what I can see there are two paths.

The first is the path of least resistance. You get a job. You work hard. You get promoted. You work harder. Repeat. You get married. You have kids. You work harder. Repeat. You get a bigger house. You get a nicer car. You work harder. Repeat. Then you die. Hopefully you did something meaningful along the way. This is the path that most people take. People find joy and fulfillment in this path. I don’t.

I don’t want to wake up one day and wonder: “What the fuck am I doing?” That is my biggest fear - not death but a meaningless existence. I don’t want to die without finding something worth dying for. I know that one day we’ll all be ripples in the infinite ocean of time. But I want my ripple effects to be bigger and persist longer. This goal means that sooner or later I’ll have to run off trail.

This other path is the banal cliché of the ‘road less traveled’. However I’ve never come to appreciate just how much this road sucks. There are no more classes. No more grades. No more extracurriculars. No more internships. No more jobs. There is no more rinse and repeat. There is only you and your goals. You have to set them. You have to work towards them. You have to achieve them. But you never know if your goals are ever “right”. It’s easier to see what is the “right” thing to do when you’re on the well-traveled path. “You should be promoted within 1 year.” “After 5 years you should’ve left the firm for a higher job.” “You become a partner in 10 years.”

However this other path affords no such benchmarks. There is no one to tell you what to do. There is no one to tell you what is right. There is no one to tell you what will work. You have to do it all yourself. And that’s the hard part. You have to trust yourself (or even trick yourself) into believing what you are doing is the right thing - even when things are burning down around you.

But it’s not all gloom and doom; there are always silver linings if we look for them. You decide what you want to do. You decide what you want to learn. You decide who you want to be. And you are ultimately responsible for your own successes and failures. Perfect and total responsibility and ownership of your life. That’s the silver lining. That’s the goal. That’s the path I want to take and I’d rather start sooner than later.

The Coming Year

A year is a lot of time. I don’t want to waste it. There are so many things that I care about and want to do but to do them all would be to do none well. I have to pick and choose. I have to prioritize. I have to focus. I have to say no. I have to say no to a lot of things. My plan for the coming year is to focus on a specific goal, sprint with it to its end, and then move on to the next goal. I have specific goals noted but for an overview, I want to:

  1. Spend more time learning how to think and thinking

    I have felt that school has generally made me a very narrow-minded thinker. Like an assembly line worker, I think of the next task to grasp and then work on that task soullessly until it’s completed. Rarely if ever do I stop to focus on the bigger picture of why this task matters in the first place and why this task needs to be completed the way it is. This is all to say that I want to become a better higher level systems thinker because that is ultimately how you escape the assembly line.

  2. Build dope shit

    This is simple. I have kept a running list of cool shit I want to work on when I have the time. This running list has gotten too long. I need to start executing on and crossing off some of the items on this list. I believe that some of the things I build will be cool enough for others to care about and use.

  3. Write more

    I have never been a good writer. Writing is an extension and/or representation of your thinking. I think that by becoming a better writer, I can become a better and more clear thinker. And vice versa. Becoming a better thinker will also afford a multitude of many other benefits like being a better communicator, having others understand and believe in your ideas, and becoming a better leader.

  4. Learn many of the things that I’ve placed on the backburner

    I believe that people should always be learning. School provides a great environment to do that. However, I’ve come to realize that some of the things that I really want to learn can’t be taught in a classroom (or can only be taught at an extremely slow pace). In light of this, I believe that taking some time off will give me the time to really focus, accelerate, and master these curiosities.

Maybe as I write more of these blogs, you’ll get a window into what I’m working on specifically. But for now, I’ll have to leave you in the dark about what I’m working on.

Risk and Reward

A while back, I had this inkling of an idea revolving around risk and reward. Specifically I had read somewhere that you should always go for opportunities where the risk is dramatically overshadowed by the reward. This makes sense but paints risk in a negative light. Minimize risk. Maximize reward. However I believe that this approach is too narrow and doesn’t capture the full picture. In fact - for some - this mindset might even be detrimental. But before we get into that, let’s first define risk.

In the most basic sense, risk is represented by potential for harmful events and reward is the potential for beneficial events - usually with financial implications. For example, if you invest $1000 in an investment (i.e. stock, house, etc.), you could lose all of it. The risk is losing $1000. Now you also know that that investment was could make you 10x or even 100x your initial investment in just one year. The reward is making $10000 or $100000. The risk is losing $1000. This would be a good decision because the reward significantly overshadows the risk.

This previous example takes an extremely narrow scope of the risk and reward by evaluating only the most likely events. However we can infinitely expand the scope of risk and reward. Consider the 10% chance that the intel you got was wrong. Consider the 0.01% chance where your insider trading is uncovered and you face jail time. Consider the 5% chance that the intel was right but you still lose all your investment. (If you wish to be even more pessimistic, consider the 0.000001% chance that you get hit by a bus and die before you can cash out.) Consider the scenario where for some unexpected reason it takes 10 years for you to make your desired returns. Further consider that you exit the investment 9.99 years in, right before the 0.01 year after which its return skyrockets. Even within the confines of financial risk and reward, there are so many variables that we can’t account for. Humans are naturally extremely bad at evaluating risk and reward. We are even worse at evaluating the likelihood of events.

We can further expand the definition of risk by considering things that are not purely financial. Consider the relationships that you burn. The opportunity costs of not doing something else. The time you spend on this investment. The time you spend thinking about this investment. The time you spend worrying about this investment. And so forth. These abstract risks further exacerbate our abilities to definitively evaluate risk and reward.

To resolve this dilemma and make sure we don’t spend an eternity evaluating decisions, we have to narrow our scope of risk and reward to the most likely outcomes. We assume that every other reward and risk (i.e. the black swan events, abstract objects) cancel each other out to be net neutral. (This simplification is useful but can be extremely dangerous when wrong.) This is the imperfect decision making process that we all use to evaluate risk and reward. Then - if we’re smart - we’ll make the decision that maximizes reward and minimizes risk. But I believe that this is an impossible problem. Reward is a derivative of risk. To maximize reward thus requires one to maximize risk. And vice versa. This is the fundamental tradeoff that we all face. We can’t have one without the other. We can’t have your cake and eat it too.

Maximizing Risk

I recently read “Thinking in Systems: A Primer” and was intrigued by the systems-level approach of thinking. I further realized that I can apply this systems-level thinking to my perspective on risk vs reward. The risk-reward system is shown below Risk-Reward System It’s a rather basic system but I think it frames and encompasses my position on risk and reward. You can see that there is an incoming flow of risk which adds to life. This means that as we take more risks (in whatever form), we end up with more life. This life is then drained by the rewards that we reap. This means that as we reap more rewards, we end up with less life. In this depiction life is the challenges, adversities, and suffering that we go through. These undertakings are what make us grow and become better. It echoes the adage that life is suffering. In the opposite manner, rewards are what reduces our quantity of life. It makes us comfortable and complacent. When taken to an extreme, it makes us weak and lazy. It can also be seen in this diagram that as we accumulate life by taking on more and more risk, the outflow of reward also increases and thus reward also increases.

All this is to say that if we want to maximize the amount of life we live as well as the rewards gained, we need to maximize the risk that we take. As we take more risks, the rewards that result are often more valuable and more meaningful. We recognize the sacrifice necessary for the reward. The life that results is all the more fruitful and fulfilling. This is the path that I want to take. I want to maximize the amount of life I live. I want to maximize the amount of reward I reap. I want to maximize the amount of risk I take. (As a side note, a similar dynamic between risk and reward plays out at the societal level. As society takes more risks through innovation, we increase human progress (as the core resource) and thus increase the amount of rewards like extended human life, more wealth, etc. As we accumulate more progress, the rewards also increase. So do the risks. We need to take bigger and bolder bets to continue to progress and repeat the cycle.)

What’s Missing

Ultimately my simple model of risk-reward will never be fully encompassing; there are just too many components to risk-reward and life to fit into a small diagram. For instance, one can easily incorporate the idea of risk aversion in the model. Risk aversion is the idea that people are more likely to take on risks that are smaller in magnitude. This could be incorporated into the model as a feedback loop from the resource of life to the inflow of risk. As we gain more and more life, most people are more and more adverse to taking on new risks. Furthermore this model is at odds against the traditional belief that one should minimize risk and maximize reward. Doing so would mean reducing life through minimized risk and further reducing life through maximized reward.

I wanted to put this model out there as a window into how I think about risk and reward and how that motivates my decisions for life. It would be naïve and narrow-minded to think that this is the only model out there or even a correct model in the first place. It’s just my model and one that I currently resonate with. I’m sure that as I continue to run and fall through life, this model will evolve in its own manner.

As always I hope you had as much fun reading this as I had writing it. We’ll see where this goes.

Currently Reading 📚: Elon Musk