About bets and choices ..
.. and how they affect our lives
What do we associate with the word “bet”? Typically, people tend to think about horse races, lottery, playing poker, going to the casino, or buying stocks with huge upside potential. Hence, the term is connected to activities that obviously correlate with a high level of risk.
On the other hand of the spectrum, we consider to be “choices”: Well-informed decisions with little risk involved as we can more precisely than not estimate the outcomes of our actions.
I think that few people realize that this spectrum is far more black and white than gray. What do I mean by this? If we take it to the extreme, then choices that are directed by a high level of predictability are not real choices after all as they can be simply decomposed by a decision tree. Hence, they can be made more or less algorithmically, consequently rendering them trivial. In contrast to that, all other decisions that we take, involve a very high level of uncertainty and do actually represent “bets” in the terminology given above. We are just not conscious about them and how far-reaching they are.
To exemplify this, let’s consider some of the biggest bets that people usually take in life:
Let’s start with the simplest of all decisions: To continue doing things as they are. Maybe not very intuitively, but it contains a very serious bet: It is the bet that the “status-quo” is better than anything that could be done by a change in the course of actions.
The decision to believe in some form of higher being / higher consciousness (or in simple colloquial terms “God”) and the adjacent ideas of this belief such as afterlife, paradise or reincarnation. This represents probably some of the strongest “bets” that we can take as there is hardly any empirical data available, and uncertainty is therefore highest.
The decision to have kids is either driven by social expectations or by the assumption that bringing new human life into this world will result in additional happiness – an assumption that we take mostly subconsciously. While this may be true in a representative number of cases, there are all kinds of complications with children, ranging from miscarriage, to genetic illnesses, to accidents that can happen to kids at any age. Therefore, having kids represents a high level bet with a significant amount of uncertainty on the outcome. With advanced biotechnology the gamble regarding the genetic lottery is gradually reduced but known unknowns (such as which kind of people will have an influence on the kids) or unknown unknowns still remain: Very few people who had kids in 2005 would have predicted what role TikTok or social media in general will play in the development of their children.
The decision which person to date and eventually to marry represents another very important bet in our lives with far-reaching consequences. Depending on the society it may be that we are allowed to make this bet only once or it is even made for us (e.g. by our parents). Indeed, it represents a very interesting bet worth exploring in more depth: While on long time scales it is particularly hard to predict if a marriage will be happy, in fact before we decide to get married, in many societies the social norm is to date for a while before taking this decision. This allows us to get data for at least short- and mid-term extrapolation. Therefore, the uncertainty of this bet is not as high as some other ones. However, biology does not seem to play in our favor here. It equipped us will all kinds of biases that favor “maximal reproduction” that override our pragmatic view on this issue.
The decision which person to marry, can actually be extended to the decision of which people to hang out with. As this is often more driven by opportunity (and again social biases such as group coherence and belonging), often this is not regarded as the important bet that it actually is. We are strongly shaped by the people that we tend to spend most time with. Therefore, the influence of our peers on us cannot be underestimated and we subconsciously (or consciously) assume that whoever we decide to spend our time with has a positive effect on our lives.
For people who decide to move from one country to another (deliberately or not) in pursue of a better live, new career opportunities or closer relationship with a partner, this decision represents another important bet in life. Uncertainties are all around ranging from inexperience with an alien culture, to assumptions about the upsides of a potential career abroad or the tales of an open and non-restrictive social security system for everybody who arrives. I will not dive into this one further, as this represents the most obvious case of choice with high level of uncertainty.
There are two more important bets that all of us make pretty early in life:
The first one is the decision “to what dedicate our time outside of school”. It might appear a bit odd, that what young people do “outside of school” may be more relevant to us than what they do during “their main daily” occupation. Maybe it is a sign that something is broken with our school systems and most of us would agree but I attribute only a part of the problem to our school systems: While the school system provides some type of equal basic skills and knowledge to everybody, it is rather “the specializations” that have an outstanding influence on the course of our lives.
What makes this bet special is that we have only very limited influence over it. When we are (very) young, vulnerable and have basically quite a limited understanding of what is going on around us, this(/these) bet(s) is(/are) outsourced naturally to our “environment”: Our family, our neighbours and our friends; the sports clubs, art schools and young nerd meetups that are in sufficient proximity to where we grow up. As the learning rates at this time of our lives are the highest, these bets also represent some of the bets with the highest leverage. It might appear somewhat frustrating that we are inherently in very limited control of them.
The second important bet lines up right after: What to study (or which career path to take) and in particular where to do so. It is true that some prominent entrepreneurs dropped out of college and people who studied very technical things end up in management running large companies. Thus, you might argue that what you study is of no relevance. I would argue however that we should not underestimate the compounding interest of our activities: If we use 3 to 6 years of our lives to learn something that is only partially (or completely) useless for whatever comes after, it is significant chuck of time (5 % to 10 % of our lives at the current average life expectancy or 10 % to 20 % of our career-time) that goes to waste in first order approximation. In second order approximation, you might never know how things that you learned earlier in life may help you later. Life is full of surprises.
However, maybe even more important than “what to study” is the question of “where”. Paul Graham nicely explains in his essay [1] that different places tell us different stories and have a different vibe on us. I believe it is mainly by the type of people they attract and consequently, the type of people that you are exposed to. In order to prosper, it is best to be surrounded by people that bring out the best in you. These people don’t have to be automatically “likeminded”. In some cases that might be the right fit, in some cases it won’t be. The main point however is that depending on what people are around you, will have a large impact on your life. Thus, the real estate agent wisdom holds also true in this case: “Location, location, location”. Where you decide to spend the forming years of your career matters – a lot.
I ended my list of examples deliberately with a topic that is related to career or in a broader context to the field of “professional choices”. This is where I would like to take your attention next to.
Without any doubt, the following assumption is a strong simplification of a much more complex world, but most of us have usually three particular roles during our professional lives: Investor, entrepreneur, and employee. Sometimes we are in these roles sequentially but most of us are in these roles simultaneously as most employees are invested at least in some kind of asset: Owning a house or an apartment, makes you basically a real estate investor. Many people with regular jobs are somehow invested in the capital markets, either through private retirement insurance or directly owning financial products. Even owning a car makes you an investor somehow (into a bad kind of asset mostly).
Of course, investors just as entrepreneurs are usually also employed somewhere (at a hedge fund, a VC firm or some private equity fund) but their rights and obligations are still somewhat distinct from people who consider themselves “employees” of a company. Thus, I think it makes sense to clarify what I mean by each of the three roles: As investors I consider people who are paid for making decisions about investing in businesses that are not listed in public markets, thus venture capital (VC) and private equity (PE). Then, they/their fund owns stock in the business but they are not involved operationally. As entrepreneurs, I consider people who start (or join) new companies (or other types of ventures), run them as managing directors, and own considerable stock in them. As employees I consider people who are responsible for any kind of work that is necessary to run a company (or any other type of venture) successfully. They do receive a paycheck for doing so and do not own sizable stock in it.
So what is it about these 3 roles and their connection to bets? Naïvely one would think that the type of bets that people in each of the roles do and that impact their success in their field are quite different. Investors bet on companies; entrepreneurs bet on business opportunities and what do employees actually bet on at all?
However, if we look in depth at what drives the success of people in each role, they are mainly betting on the same two things:
1) An opportunity in a growing market
2) The right people
It is probably the most intuitive to see this for the investor role. Almost, any venture capital investor will say that the most important thing that they consider when looking at investment opportunities is the quality of the founders (point 2) and their ability to execute. Also, in any pitchdeck we will find a significant number of slides explaining the market and the details of the intended business (point 1).
In the case of the entrepreneur, it might come as no surprise, that she places a huge bet on the business opportunity that she envisions. However, in most cases one person alone is not able to built a huge and successful business. Thus, an entrepreneur makes a couple of substantial bets on people: First on her- or himself, secondly on her or his cofounder and after that on the employees that are hired as the first 10 to 100 employees have a huge impact on the course of a business: Each person contributes over 10 % to the business success and not < 0.01 % like in a large corporation, at least 1000x more!
It may be least evident in the case of the “employee” that in this role, we also bet on people as well as growing markets. Why so? Maybe you read my previous text regarding automation [2] which explains the market bet in more detail: If you join a company with steady growth, you can expect at least a secure job and regular salary increases. If you have ambition, you can move up through the hierarchy quickly as new positions open up regularly in a growing organization. In contrast in a business with stagnating or even declining revenues (and/or profits), you will probably face reoccurring cost-cutting measures and very few to no opportunities for career advancement. Similarly, the people factor is no less relevant. Your colleagues will have an impact on your own performance. Your direct supervisor as well as people one or two levels higher up in the hierarchy will have an important impact on your career advancement. The information asymmetry is somewhat similar on both sides but probably a bit to the disadvantage of the employee as the employer knows more about the employee through a drilling hiring process than vice versa.
We are conscious about these bets when we are in an investor role but way less when we think as an employee. However, as employees, we are investing something that is more valuable than money (until now): Our time. We cannot hedge it properly in the same way that investors can hedge capital by having multiple bets at the same time. Our time, and even more so, our attention capacities are limited. Thus, it is important to remind us that when we are not financial investors, we as employees (and as entrepreneurs) are “time investors”. Thus, we should be conscious of the bets which come implicitly with our choices.
I have to admit that I make a crude assumption here: We have a plentitude of options to choose from. However, in reality the option pool seems rather constrained by a handful of real opportunities and therefore our decisions are rather driven by the limited opportunities that we have rather than by consciously and carefully placed bets. However, the relationship between choice and opportunity is not orthogonal but rather intradepedent:
We are unable to spot all the opportunities that are theoretically available to us, because we cannot be at the same time at more than one place. Even at this place we can give our attention only to a limited number of things and people. Our choices influence the opportunities that are ahead of us. On the one hand side, they guide our attention and select the things that are not “filtered out” [3] subconsciously so that we are able to spot them. On the other hand, choice guides our activities and our activities are the main factor by which we learn particular things and skills that are prerequisites to make the most out of opportunities.
After all, all of us have some room for choice – larger or smaller, depending on many things, ranging from where we were born, to where we live, to our mental, physical and financial conditions. But within these boundaries, we can be aware of the bet that we intrinsically place by the choices that we make.
I don’t want to say that you can’t have a great and fulfilling career just following what is available and what appears like fun. Many people follow this path and live fulfilling lives. However, if you care about your impact in the world, it’s good to keep in mind the quote by Eric Schmidt that is often attributed to Sheryl Sanders: “When you are offered a sit on a rocket ship you don’t ask which sit to take”. I would consider it to be good advice to be consciously looking for our personal rocket ships in order to spot them.
[1] https://paulgraham.com/cities.html
[2] https://www.hyper-exponential.com/p/when-does-the-workforce-like-automation