Transcription
The River is my name for this community of like-minded people that I kept encountering over and over again in competitive domains. Las Vegas, Wall Street, Silicon Valley. They are very risk-taking. They can be contrarian. They can be difficult and very high-variance, I would call it. Meaning, it can lead to both tremendous success and a huge amount of failure.
Because most time you think of somebody, "Oh, they're quantitative and analytical." You might think, "Oh, they're like an actuary or an accountant." Right? "They're very calculating and cautious." Right? And some people have that, but when you instead cross that with using that to compete, you get this more dynamic, Riverian personality.
So I talked to around 200 people for On the Edge, people who are domain experts, people who are practitioners, who take risk themselves in different fields. I identified 13 common habits. I'm going to distill down to just a few of my favorites. My name is Nate Silver. I'm various things: a statistician, a poker player, and an author, most recently of On the Edge: The Art of Risking Everything.
So a lot of people in the River are contrarian. They kind of have to be by design. In Silicon Valley, you're making an investment in a category or a company that has not succeeded yet and that maybe is dismissed by the rest of the marketplace, at least in public markets. What I say is that you want to be a conscientious contrarian, which means it's okay to deviate from the consensus, but most of the time, the wisdom of crowds is pretty smart.
So, the markets are hard to beat because it's the consensus of lots of smart people on Wall Street and lots of smart modelers. And so when do you have robust evidence for a particular direction? That's kind of like part art and part science. You're not relying on any one model, any one faction politically, any one philosophy because people are error-prone, right? And one thing you learn if you're betting sports, for example, is that you want multiple pieces of evidence to line up the same way. If you have two models, you average just better than one model. That's what makes things robust is when you have multiple indicators, where they all flash in the same direction.
Another habit of good risk-takers is that they're good estimators and good at working with incomplete information. The world moves pretty fast these days, and having a pretty good estimate quickly is often better than having a perfect estimate more slowly, right? If you're dealing with things like markets, any competitive system, a small business that you're running, you want to be first to market or early to market at least. And that means that you can't wait for all the data to show up. You have to know where the most reliable data points are early on and take real risk based on your estimation skills.
You ultimately do have to quantify your decisions to be able to make calculations. It kind of comes second nature if you're a poker player. If you face a big bet and the bet's for 200 bucks, right, and there's 200 bucks already in the pot, that means you have to win the pot one-third of the time, 33 percent of the time. If you think you're going win 34 percent of the time, you're supposed to call. 32 percent, you're supposed to fold. How do you tell between 34 and 32? Well, you have a lot of freaking practice because poker players play thousands and thousands of hands, but it's a very necessary skill to be explicit about this kind of thing even if it's back in the envelope to get there, right? The output nonetheless has to be a number, and you have to make a decision based on that number.
One of my favorite aphorisms is take a raise-or-fold attitude toward life. So look, you have 3 choices in poker. You can raise, call, or fold. People who have never played poker before — all they ever do is call. They call, call, call. They're very passive, not taking control of the hand. If you ask a computer, it will say, most of the time you want to either be raising or folding, right? You want to take an aggressive action or quit. I think this is a great metaphor for lots of things in real life, too.
Annie Duke, a former poker player who now studies decision-making and writes as an author for a living, wrote a book called Quit, which is lots of evidence about how people are actually happier a lot of times when they quit. They quit an unhappy relationship, or a job that's not working out, or they move cities, right? That allows you to preserve your capital, your decision-making power, your optionality. Giving yourself what may turn out to be fruitful or good decisions later on when you have more information to work with.
The world is a pretty intrinsically challenging and uncertain place, and that's kind of why the people, the countries, the companies that will survive are people that are comfortable in uncertain environments. People are often uncomfortable with that kind of uncertainty. And so, people are seeking out safety given how complex and how confusing admittedly the kind of environment can be, when I think that might be a mistake actually. If you are privileged enough to fail and then get back on your feet several times, then that's a reason to take more risk.