Ever since February 2020 I’ve been very intrigued by the concept of uncertainty. Naturally, at that point in time, uncertainty was at an all time high. Nobody knew how deadly the Covid-19 virus was, how long would lockdowns last, how bad would the economy crash, or whether there would be a better tomorrow.
Needless to say, it was a point in time where anxiety and fear took center stage and dominated public discourse. Consequently, as someone whose nature has always been to be curious (something that has hurt me more than once in the poker table), I set out to try and predict what would happen to the world and to myself in the months to come. After a couple of days of going down rabbit holes and mapping out thousands of cause-effect relationships, I came to the conclusion that at the end, randomness and uncertainty will always win and that any prediction I had come up with would be a lucky educated guess at best.
Upon such realization, it became clear to me that what I needed to understand was uncertainty and how to deal with it. As such, after reading the whole Incerto series by @nntaleb (a couple times) and based on personal experience (i.e. bad decisions), I came up with the following principles to deal with uncertainty in practice.
Invert & Avoid 🔗
I’m a huge fan of Charlie Munger, a legend amongst legends who made a career out of applying “uncommon sense” and seizing favorable opportunities boldly when everyone else was afraid of doing so. As it turns out, one of Charlie’s most useful principles has been that of inversion and avoidance. When Charlie was a meteorologist in World War II, his primary duty was to clear pilots to fly, which really meant ensuring safe flights. In order to do his job well, Charlie inverted the problem. Instead of figuring out how to ensure safe flights, Charlie asked himself what he could do to kill as many pilots as possible and just avoided such conditions at all costs (which mostly meant steering away from cold weather and storms).
As it can be observed from the previous example, figuring out the worst possible scenario and its causes with the objective of avoiding them is perhaps the most useful method to find clarity under the face of uncertainty. To paraphrase Charlie “all you really need to know is where you are going to die so you never go there”.
Needless to say, executing this principle well requires diligence and preparedness. And being diligent and prepared is a function of hard work over time focused on the right things. As such, inverting and avoiding is simple but not easy. Regardless, it is definitely worth practicing.
Don’t Be A Turkey 🔗
Back in 2007, in his book The Black Swan, @nntaleb presented the Turkey Problem. Simply put, the Turkey Problem presents a turkey that is fed every day by a butcher. Every single day of feeding firms up the turkey’s belief that it is a general rule of life to be fed in a daily fashion by members of the human race who are looking out for its “best interest”. However, on the afternoon of the Wednesday before Thanksgiving, something unexpected will happen to the turkey that will make it revise its “statistically sound” belief.
In essence, the premise of the Turkey Problem (or the Problem of Induction in mathematics) is that it is not possible to predict unobserved events based on previous observations. In other words, just because all the swans you have seen are white does not mean that there isn’t a black one lurking around.
So how can we avoid being a turkey? For the most part, the answer lies in emulating what mother nature does. Basically, mother nature does not like leverage (debt), too big to fail interdependencies, or inflexibility. It instead likes redundancy, not having single points of failure, and adaptability. In other words, taking risks and being exposed to stressors is good for us so long as we can tolerate failure through redundancy, learn from it, and adapt, so that over time risk taking pays off.
Lindy Predictions 🔗
Us humans, just like animals, have been hardwired to love certainty. It is in our nature to transform heavy brainpower decision making into more instinctive or click and run (as Cialdini would say) decision making by virtue of our genetics and life experience. Let’s take birds as an example. If a male robin sees another male robin come into its territory, it will automatically get an urge to attack the intruder. However, experiments on robins show that it is not the intruder as a whole that triggers the attack, but a specific shade of red on the intruder’s chest that does it. This makes robins an easy and gullible target for hunters looking to drive robins away of their territory and take advantage of the situation. Essentially, the point I’m trying to make is that even though predictions have the potential to be useful, most are wrong, and some can be deadly. The trick lies in distinguishing which one is helpful and which one is only giving us the illusion of certainty.
A method that has proved helpful for determining if a prediction can be trusted is if such a prediction conforms with the Lindy Effect. Basically, the Lindy Effect states that the future life expectancy of anything (i.e. a technology, idea, product, etc.) is proportional to its current age. In other words, if something has been around for a long time, it is likely to be around for an even longer time. For instance, I could not tell you if the best song of 2022 will be listened to 100 years from now but I can guarantee you that the Ode To Joy by Bethoven will still be listened to 100 years from now. I could not tell you if the future holds flying, electric, self-driving cars but I would be willing to bet that we will have bicycles.
If we apply this concept to companies, two good examples are Amazon and I would argue Square (disclaimer: this is where I currently work). Amazon is pretty obvious, their main strategy is to offer low prices and fast delivery. Something that customers have always wanted and always will. As for Square, its strategy is that of making it easy for merchants to participate in the economy by providing simple, cohesive, and intuitive commerce solutions with low barriers of entry. The combination of simple, cohesive, intuitive, and easy to set up commerce solutions is something merchants have always wanted and always will. Therefore, as long as these two companies keep executing well against their strategies, they are likely to stick around.
Note that Lindy predictions are a heuristic based forecasting technique, which means that they won’t always work. However, they should always help provide clarity during uncertain times, specifically when evaluating technology or innovation potential. Ultimately making risk vs reward tradeoffs is up to you, but it’s always good practice to keep Lindy predictions in mind when presented with decisions involving the new and the old.
Get Lucky 🔗
Don’t be fooled, luck plays a bigger role in life than most of us are comfortable admitting. We like to think that everything good that happens to us is because of our superior insight, boldness and ability while everything bad is because of unforeseen events. Although there is some truth to this, the reality is that resulting outcomes happen due to a mix of pure luck and preparation in arbitrary relations. However, while there is no formulaic approach to getting lucky, the good news is that there are ways for us to increase our chances of getting lucky. In order to understand such ways we will resort to the four types of luck that we can get according to @naval:
- Blind Luck: This type of luck is when something completely outside of our control just happens in a way that benefits us. Like winning the lottery for example
- Luck Through Persistence: This luck happens through the creation of many opportunities through perseverance. The more you try something, even if the probability of a good outcome is slim, the better your chances of getting a positive outcome. An example of this can be found in sales, you might need to make 1000 prospect calls to get 1 customer
- Luck That Can Be Found: Let’s say that you are very skilled in a field. Because of this, you will be able to spot a lucky break in such a field when others are blind to it. This alludes to Seneca’s point that luck is when preparation meets opportunity. An example of this can be found in Warren Buffet, whose whole career was built on finding opportunities to buy good companies at very cheap prices and putting his money where his mouth is
- Luck That Finds You: This is the hardest type of luck to get but the best one. In essence, it is when someone else’s luck becomes our luck and we capitalize on it. An example could be being the best underwater welder around the Gulf of Mexico. Now, let’s assume that through blind luck or persistence an oil company strikes oil in the Gulf of Mexico and finds itself in need of a competent underwater welder to help weld some pipes. All of a sudden, someone else’s luck just became the welder’s luck. This is an extreme example, but it is one that portrays the point well, which is positioning ourselves in such a way that luck becomes attracted to us. Obviously this requires a tremendous amount of skill and network effect, hence its easier said than done, but by no means impossible
At the end of the day luck is being in the right place, at the right time, with a good enough solution. Therefore, to maximize luck you must try to be everywhere, all the time, with a good enough solution. As such, anything that helps you get closer to that optimal maximum will improve your chances of getting lucky.
Final Thoughts 🔗
Uncertainty is the only certain thing in life. It is something we all need to get comfortable with and learn how to deal with in our own way. I always refrain myself from giving unsolicited advice (except for via-negativa advice, i.e. things to avoid), but I’m OK telling people what it is that I do or try to do. While I try to follow the four principles outlined above to the best of my capacity, there is nothing better than being humble and acting with humility when we are up against uncertainty. I try to do as Rudyard Kipling said in his poem “If” and treat triumph and disaster just the same. In this world of immense complexity, it is impossible to know for a fact whether something is good or bad. Something good today might yield very negative results a few years from now and vice versa, something bad today might yield amazing results tomorrow. The only thing that has worked for me is to keep my head down while trying to do the best I can with what I have where I am.