Calculated Risk & False Dichotomies

A lot of modern-day talk in the business and personal development world is inundated with platitudinous advice and contradictory dogmas that you’re expected to take a side on. This is nothing new. Peddling simple answers to tough questions will always sell more books than telling people that there is no clear-cut path and that a lot of life is simply a balancing act that takes time and energy to figure out.  

Among the most popular dogmas and false dichotomies are: “it’s better to be an irrational optimist than a rational pessimist”, or “work smarter not harder” or “The Obstacle is the Way".

There is no easy path” is something that largely holds true but to assume that no effort can be wasted is equally naive to thinking you can bypass the need to work hard by being “smart”. To make a claim as simplistically formulaic as “The Obstacle is The Way” is also patently bunk when we consider that the reward for any given task is so vastly disproportionate to its difficulty, that the correlation is virtually non-existent.  

For instance, unless people are paying you to do so, trying to beat the market is a fool’s game, given the difficulty of the task, the time commitment required and the measly 2-3% difference in returns when people actually succeed.  Taking a year to learn a trade like plumbing might take a lot of work but when you run the numbers between that and obtaining a 4-year liberal arts degree, you’ll likely find a huge disparity between the median incomes and their associated cost (both in time and money).

It would be interesting to run a regression analysis between a fair metric of “effort” and lifetime earnings or ROI. I’d suspect the disparities to be so large that the correlation would be close to 0, thus proving my point.

The dichotomy between optimism and pessimism is particularly flawed because it all depends on the individual, not their “risk tolerance” (a dumb concept), but rather which side of the spectrum they tend towards. Too much optimism and boldness are what cause people to be naive and get wrapped up in multi-level marketing schemes or purchase overpriced timeshares. Too much pessimism can cripple you from taking action and cause you to fall into a cycle of self-fulfilling prophecies.

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