Paul Buchheit: Evaluating risk and opportunity (as a human)

http://paulbuchheit.blogspot.com/2009/09/evaluating-risk-and-opportunity-as.html

by paul • 17 years ago

94 27 17 years ago

paulbuchheit.blogspot.com

riffer• 17 years ago

If I had to choose between going through life provincial, delusional or cynical, I would definitely choose some blend of delusional and cynical.

edw519• 17 years ago

I think the most common technique is to ask ourselves, "What is the most likely outcome?", and if that outcome is good, then we do it.

For those thinking logically, yes.

Many others (not hn readers, or course) ask themselves, "What is everyone else doing?"

  Marge: What on earth possessed you to get an earring?
  Bart: Milhouse has one.
  Marge: If Milhouse jumped off a cliff...
  Bart: Milhouse jumped off a cliff? I'm there.

[EDIT: Oops, I forgot the </sarcasm> tag. I keep doing that. Obviously, we all make many decisions by following the crowd. Those of us who pride ourselves in being logical would rather not admit it except for the most minor decisions.]

paul2• 17 years ago

Yeah, people don't actually make decisions logically for the most part, but to the extent that there is any about of reasoning (or rationalizing), there is some technique to it.

I updated the post :)

lsb• 17 years ago

Obviously, your reference frame is different from a 10-year-old's.

In Bart's mind: the most likely outcome of jumping off a cliff is that I'm with my best friend, and personal injury at my age heals really easily.

cperciva• 17 years ago

Many others (not hn readers, or course) ask themselves, "What is everyone else doing?"

Are you seriously saying that HN readers aren't prone to jumping on bandwagons? To the extent that the HN readership is a microcosm of the silicon valley startup culture, this seems profoundly inaccurate -- I can't think of any group more prone to imitation than silicon valley startups.

(Obviously there are some exceptions -- and the exceptions are the successful companies which we all hear about.)

brlewis• 17 years ago

I used to jump on bandwagons, but then I changed and started thinking all decisions through on my own, because I noticed that's what everybody else on hn was doing.

timr2• 17 years ago

I think about outcomes rationally, but these days, I tend to think about opportunity cost a lot more intently. Sure, if you tank a startup, you likely lose only your investment, and you'll probably learn a lot. Problem is, you've also just spent N years of your life doing little but working like crazy.

If you're lucky, you've got about 80 years to enjoy on this planet. You've got about 15 of those as a young adult. How much are they worth?

(And just to pre-empt the obvious reply: yes, you might enjoy working more than anything else. If so, more power to you. I'm only saying that you've got to take opportunity cost into account.)

daniel-cussen3• 17 years ago

You've got about 15 of those as a young adult. How much are they worth?

Most people have a shitty time their whole lives. Most people in history would dream of spending a year the way adult Americans do/did. My plan is to enjoy college and then dive into a startup.

timr2• 17 years ago

Ignoratio elenchi. I'm not suggesting that you do nothing with your life, just that you have to weigh the alternatives carefully.

(But as an aside, even today a huge percentage of the world's population lives in squalor. If this is your true concern, then I assume that you're going to address it with your startup? Otherwise, your argument is simply a justification for martyrdom. Noble perhaps, but not necessarily useful.)

lionhearted2• 17 years ago

> Sure, if you tank a startup, you likely lose only your investment, and you'll probably learn a lot. Problem is, you've also just spent N years of your life doing little but working like crazy. If you're lucky, you've got about 80 years to enjoy on this planet. You've got about 15 of those as a young adult. How much are they worth?

I have recently come to the thinking that a life in search of fun and happiness leaves one feeling empty in the longer term, where a life with intense focus on a cause you deem worthy will have plenty of fun and happiness along the way.

Now, most people are kind of in a borderland where they're not focused on something intensely purposeful, nor are they enjoying their life. It's a sort of limbo. But to get out of that, I think focusing on finding something worth striving hard for that will produce plenty of short term joy and enjoyment to go along with long term fulfillment.

iron_ball• 17 years ago

intense focus on a cause you deem worthy

Such as, to pick a startup at random, online ticket sales? Is that -- by itself, without any consideration of reward or profit -- worth the sacrifice? The answer for this, and for 99% of other startups, is HELL NO.

dhimes• 17 years ago

One of the problems people have is confusing happiness and pleasure. They are not the same. For instance, some of the things that give us great pleasure can cause us to be quite unhappy, and some of the things which are unpleasant help us be happy.

dejb• 17 years ago

I agree opportunity cost is important but you don't really have the option of not 'spending' your time anyway. So you need to evaluate the different ways you could spend that time otherwise you will just waste it. Maybe you'd want to give a higher weighting to fun and person fulfilment than just money, but the process described in the article would still work for this.

The main problem I can see is not giving enough weight to the most likely average cases.

jamesbritt• 17 years ago

"You've got about 15 of those as a young adult. "

I'm in my 30th year as a young adult. I plan on keeping it up for another 30.

I am my inner child. :)

paul2• 17 years ago

Yes, opportunity cost is super-important and is probably under-appreciated. In the startup example, you should definitely be considering the worst case (and best case!) opportunity cost since working on one startup (or other job) largely precludes you from working on something else.

dbul• 17 years ago

You can very roughly divide techies into a few groups: people who would rather work for a salary, people who are ambivalent about a salary job and starting a startup, and people who have made it their mission to start a startup.

For the first, there is probably some satisfaction in helping people's XML-based loan transactions reach the bank, etc. Y Combinator is perfect for the second group -- they can give it a shot and if they fail, hey, they'll probably have a great story to tell their interviewer. The last group probably realizes the odds are against them, but with enough attempts they think they'll make it (and if not they loved doing it anyway).

I'm definitely in the third group. The way I evaluate risk and opportunity is I imagine what kind of a life I could live: As an employee I could have a positive effect on thousands of people who need the utilities I'm building for them. As a researcher I might accomplish something on the order of curing Polio.

But I have too many things I want to do and it requires capital to get them all started. Otherwise, it would take many lifetimes to do them without capital. I want to experiment with creating projects that have a positive impact on society. So for me the risk is minimal considering if I don't try to create a successful startup, I'll be miserable. I'm just not the type of person who can settle for a job. Sometimes I wish I were, but I'm not.

sujaym• 17 years ago

I think the "IF" part from "If I'm comfortable with the worst-case outcome, then I can move without fear and focus my attention on the opportunity" is the most important part.(Assuming I have clearly evaluated the risks) People probably take it for granted that they are comfortable or focus more on avoiding the worst-case outcome than focusing more on the opportunity.

mr_luc• 17 years ago

This is your human lint:"its," not "it's." Second paragraph, '20 percent of it's value.'

/me goes back to reading.

Edit: okay, finished. Great observations.

> "[...] These things all raise the expected value (in my mind at least), so if they are mostly true, and I'm excited about the best-case outcome, and I'm comfortable with the worst-case outcome, then it's probably a good gamble."

'If I'm excited about the best-case outcome ...'

This can be a big problem for some people.

I like difficult things, but I'm excited by freedom, and the "best-case" outcomes for a lot of my really 'ambitious' ideas just don't sweep me off my feet. If the best outcome is lots of money for lots of work, for instance ... well, I do lots of work for no money at all right now, but is it worth shouldering that "moral weight" that I hear doing an ambitious startup entails?

A best-case outcome for me is one that I produced without committing myself to do so. Maybe I'm just a coward, or maybe I've just been burned by committing myself too rapidly in the past.

I'm doing a startup, but it's really just a small business with some friends that happens to run custom software. Maybe it'll turn into something more, but I'm not committing to that!

;)

juvenn• 17 years ago

"...[E]ven if you're ok with dying, that outcome may cause unacceptable harm to other people in your life."

nostrademons2• 17 years ago

I try to think about the best case, the worst case, and the most likely case, and also how easily each of those cases are avoidable.

For example, the worst case for starting a startup isn't that you learn a lot. It's that you continue the startup well past the point where you're learning anything, chasing a dream that was impossible to begin with, passing up other opportunities that would be far more productive.

But this outcome is fairly easy to avoid, and entirely under your control. You just have to take stock periodically and have the courage to call it quits if it becomes obvious that you're on a fool's errand. Basically, re-evaluate risk and opportunity at each step along the way to see if your upside is still the upside you thought it was, and if any further risks have accumulated to the downside.

llimllib• 17 years ago

> But this outcome is fairly easy to avoid... You just have to take stock periodically and have the courage to call it quits if it becomes obvious that you're on a fool's errand

It's only "easy" in the same sense that it's easy to make money on the stock market; you just buy low and sell high.

yters• 17 years ago

Another thing ppl dont do is think about their historical peer group. In their immediate peer group what they are doing might be considered daring and pushing the boundaries. But, they don't stop to consider that such things have been done innumerable times before, and they are in good company.

Plus, I'd rather use my life on some fringe theory with potential high payoff (intelligent design) than stick with the crowd. I'm only one life out of billions, and most don't take the risk to expand humanity's horizons, and most spend their lives pursuing pleasures. So, I'm not hurting anything by being risky, and the potential loss of pleasure is only one iota out of a vast sea of pleasure experienced throughout the ages.

Paul Buchheit: Evaluating risk and opportunity (as a human)

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