On risk taking
The real risk takers are not who you think they are
The common understanding of risk taking is something like this:
An entrepreneur raises money to fund a company.
That capital is at risk.
If the company works, investors and founders get a return.
If it fails, capital gets burned.
This is in general contrasted to less risk taking behaviour, like being a “regular employee” in a company, who are framed as choosing stability: a salary, health insurance, etc. Even inside that lane, there is nuance: startup employees are considered more risk takers, because the startup can go belly up quickly. On the other hand, employees of big corporations are considered less risk takers, because the chances that a company like Google goes bankrupt overnight are almost zero. If you think about it, HP is still around, in the business of selling printers, which, honestly, is mind-blowing.
I argue that this framing is very misleading, because it gives this idea that risk takers are defying danger, while non risk takers are refraining from it, in favour of sleeping well. The standard notion of risk taking denotes an act of agency, it’s a deliberate act by someone.
However, risk is not waiting politely for you to “take” it, and you can just run away from it and you will be fine. Risk is everywhere, and what really counts is the risk exposure and how well someone can survive a catastrophic event.
The people that we call “risk takers” are in reality “risk setters”, borrowing the usage of the term from price takers and price setters in economics. They are people who can choose their downside and keep it bounded.
Take the classic startup founder in the Bay Area. They are called risk takers, but what is the actual downside if their startup blows up? Would it be a catastrophic terminal event for them? Do they end up begging for food on Market Street? Probably not, because they have optionality: a network to raise more money for another startup, liquid savings and parents with a spare bedroom, experience that can be re-packaged for a job in Big Tech. If their startup explodes, it’s painful and maybe humiliating, but probably not existential.
Contrast that with someone like an immigrant working at AWS on an H-1B visa, single income in the family. By definition their LinkedIn profile screams “cushy and safe corporate job”, but it’s quite likely that their personal value at risk (VaR) is much higher than our startup founder. If they are laid off, they might be in serious trouble, maybe they need to leave the country.
As Taleb thought us, at the end of the day what count it p(event) x payoff(event). In some cases the magnitude of a negative payoff is more important than the probability of the event occurring. Even if the probability of a startup failing is higher than the probability of being laid off by AWS, or that AWS goes bust, a founder might face a 70% chance of a setback, while an H-1B worker might face a 10% chance of ruin.
Zoom out further and the picture gets even starker. Consider a low-skilled worker, with limited optionality and geo mobility, tied to a single local employer. They don’t set their risk terms at all. There is no remote work arbitrage, no runway beyond a paycheck or two. They are the true “risk takers” in society, because they have no other choice than taking what it comes their way.
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