Day 4 — Symmetric vs Asymmetric Risk

1

min

December 2020

Symmetric Risk

Let's say you bet $50 on a coin toss. You win $50 on heads, but lose $50 on tails. The potential upside is equivalent to the potential downside.

Asymmetric Risk

Contrast this with a new game where you bet the same $50, but you win $100 on heads and only lose $50 on tails. The potential upside outweighs the potential downside.

Everyone has a different appetite for risk, so you have to evaluate what suits your risk tolerance. Alex Honnold may view free-soloing El Capitan as low-risk, while I might start crying just looking at the 3,000-foot monolith.

However, these asymmetric risks could be as simple as cold emailing someone you admire. The potential downside is getting ghosted. The potential upside? A close friend, mentor, or new career.

The best part is that you can often turn opportunities into asymmetric risk. Here are two ways:

1. Preparing in advance (same risk, higher potential upside).

- Example — preparing before an interview to impress the guest.

2. Tim Ferriss’s practice of fear setting (lower risk, same potential upside).

- Example — evaluating potential downsides of a decision to mitigate them.

Spotting positive asymmetric risks can be extremely beneficial, so it’s important to cultivate this skill.

Ask yourself

- What's the upside of action versus the downside of inaction?

- What can I do to generate an outsized return? Is there a specific book to read, skill to learn, community to join, or action to take that will create positive asymmetric risk in my life?

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by Amaan