Uncertainty
Uncertainty around an event or a decision is a complex, evolving indeterminacy of the many ways in which the future may unfold. It is a collective expression for the interplay of the 3Ps of Decision Making:
Possibility – The myriad uncountable, unpredictable possibilities in which future may unflod
Probability – The variable likeliness of these various events
Payoffs – The impact or outcome or consequence of the events unfolding.
The future is a multivariate function of a complex interaction of uncountable, unpredictable agents. Look at the contingencies in the statement – there are multiple variables – you can’t even count how many; the behaviour of these variables are intertwined, they create cumulative causation; the result is an emergent phenomenon. This 3P framework sums the complexity – there are multiple & uncountable possibilities, each having different & dynamic probabilities, each having a different payoff. The collective expression is Uncertainty and the butterflies in the stomach are testimony of the span of uncertainty.
Failure
Failure is simply lack of success…an endeavour that doesn’t thrive. It is the unfolding of an event which has negative payoff. Failure is a subset of the first P in the 3Ps model – possibilities. A set of possibilities are successes, the balance are failures.
Risk
Risks are simply the potential payoffs of downside possibilities. It is the estimated impact or the consequences of certain decisions or events that have unfavourable outcomes.
Ruin
Ruin is ominous. It is the worst of 3rd P in the 3Ps model. It is the impact, the payoff, in which the destruction or disintegration beyond recourse.
URFR
I have a hand drawn chart where I have extended the 3Ps model to illustrate the URFR.
Please excuse my evolved drawing & writing skills. To compensate, let me give you a quick tour of the chart. We start from the leftmost point, which is the present moment. The future may unfold in a multitude of ways. Some events are successes; they are shown above the X-Axis as S1, S2…Sn. They have their corresponding Payoffs as PO1, PO2…POn. These are the potential rewards. Other events are failures; they are depicted below X-Axis as F1, F2…Fn. They have corresponding payoffs as POI1, POI2…POIn. These are the potential Risks. The largest amongst these payoffs, are ones which are irreversible ruins.
URFR – Four dreaded words
Uncertainty, Failure, Risk & Ruin – these are four dreaded words which are often used interchangeably colloquially. But, a closer look will tell you that you need not fear all four of them.
Uncertainty is a given. Even if we don’t feel it, it is always lurking out there (think Earthquake!).
In “The Beginning of Infinity”, David Deutsch writes,
“For instance, why do we expect the sun to rise tomorrow morning? Because in the past (so the argument goes) we have seen it do so whenever we have looked at the morning sky.”
So, no matter how certain it looks, we can’t take anything for granted even for a moment, even if it is Sun rising in the east, leave alone lesser probable things like your job, your investment, your girlfriend staying your girlfriend & not your friend’s! It is impossible to imagine a state without uncertainty.
“Sometimes the probabilities are very close to certainties, but they’re never really certainties.”
– Murray Gell-Mann
Uncertainty is the first step in any natural progression – creating possibilities. Nature does not deal in predicting the successful outcome a priori. Rather, it deals in creating possibilities, letting them play out in a self-emergent way. This process of creating potentia – umpteen potential outcomes creates uncertainty. There are always multiple adjacencies at the onset of every event or decision…hence the span of Uncertainty!
Uncertainty is not good or bad...it is.
Failure is an obvious fall out of potentia. Nature deals in creating possibilities. Obviously, only one or a few of them play out, the rest fail (think Earth amongst billions of planets across the Universe!). Seen in this light, failure is a necessary evil. No progression can ensue without Trial & Error – error being an integral part of the process. Failure is the cost of making progress.
Fear of failure is what keeps us from trying. It is what prevents us from stepping out of the cave. If we don’t step out of the cave, we’ll be safe inside, but we’ll not get to see the places. If you avoid failure, progress or success avoids you. You rust in a remote corner. The quest for certainty (by avoiding failure) is a certain way of lacking progress. If Sapiens never stepped out of their caves, or even before that, never stepped down from trees, I wouldn’t be typing this on my laptop, you wouldn’t be reading this on yours!
Uncertainty is not good or bad...it is. Failure is not bad, but a necessary evil.
Risk is the currency in which the cost of progress (failure) is estimated. It is the quantified potential impact of encountering failures. Size of failures & size of risks are two different concepts and are not necessarily correlated.
- Small failure may have large risks, if you are excessively leveraged. If you’re overspeeding, even a minor bump on the road can cause a major accident.
- Large failure may have minor risks, if you can nip the failure in the bud. If a mountain climber loses his grip, he falls to the last trad gear anchored a few feet below, containing the damage to minor bruises only. Don’t fret large failures, if the risk is small.
Uncertainty is not good or bad...it is. Failure is not bad, but a necessary evil. Risk is what you track, while treading Uncertainty.
Ruin is a payoff of failure, beyond recourse. You don’t exist (or something of similar magnitude) beyond ruin. The game’s over at the occurrence of ruin (think Russian Roulette!). It’s one risk too big & too many. The most fundamental rule of evolution is survival. All the butterflies in the stomach related to uncertainty, all the fear of failure exist because of the atavistic subconscious knowledge that there is no game beyond ruin and that it is better to be safe than sorry. The most cliched, but apt statement is one from Charlie Munger:
“All I want to know is where I’m going to die, so I’ll never go there.”
That’s all there is to treading uncertainties. Play as many games as you can, for you don’t know, a priori, which games can give you big wins. Just don’t abruptly end the game with an irrevocable ruin.
Jeff Bezoz summed it up so well.
“To invent you have to experiment, and if you know in advance that’s going to work, it’s not an experiment. Most large organisations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there. Failure comes part and parcel with invention. It’s not optional. We understand that and believe in failing early and iterating until we get it right. When the process works, it means our failures are relatively small in size (most experiments can start small), and when we hit on something that is really working for customers, we double-down on it with hopes to turn it into an even bigger success. However it’s not always as clear as that . Inventing is messy, and over time, it’s certain that we’ll fail at some big bets too. The difference between baseball & business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score 1000 runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.”
Uncertainty is not good or bad...it is. Failure is not bad, but a necessary evil. Risk is what you track, while treading Uncertainty. Ruin is the only thing you fear and avoid...whatever it takes.
Here’s the thing:
Life is a gift. Nature is abundant with possibilities. Take full advantage of the abundance. Don’t hesitate to try. Just keep an eye on the risk and nip it in the bud, if it looks like taking you to the precipitous ruin.
Don’t fear failure, fear the ruin. Failure is an option, ruin is not. No progress is possible without failure; no progress is possible with ruin.
Don’t venture into the path, that has even an iota of chance to ruin. As Nassim Taleb says, “When there’s a chance of a ruin, probabilities won’t matter.”
Definitely venture into ones, where the risks are known and contained and rewards are unbound.