As one pursues a goal, it is imperative to keep doors open in case unexpected events or opportunities occur. This is what we will refer to as optionality (coined by Nassim Taleb), which increases the chance of a desired outcome by narrowing the range of possible outcomes and asymmetrically expanding the upside.
Definitions
- Optionality: having multiple random choices with low downside.
- System: combination of realized options resulting in a specific outcome.
- Deterministic: system with a certain outcome based on current state (i.e. predictable).
Keep Rowing
Contrary to the popular adage "Burn the boats", utmost care should be taken to select options that allow reasonable pivots while advancing through the decision tree of a particular project, area or path.
The strategies (options) below balance three key parameters in different proportions: variance, asymmetry and time horizon.
| Range of outcomes | Small | Mid | Widest |
|---|---|---|---|
| Career pursuits | Skilled or Technical Trades | Knowledge Work or Salaried Professional | Venture or Business Ownership |
| Investing in public markets | S&P500 index | Individual stocks | Trading options |
| Capital management | Paying Cash | Deferred Payments | Leveraged Financing |
| Project management | Waterfall (linear) | Agile (Adaptive) | 100% Delegating |
A Weapon Against Chaos
Combining strategies ensures a reduction of variance in the outcome and optimizes higher return by introducing asymmetric options in reasonable quantity (low enough to prevent ruin, yet significant enough to allow upside).