Hedging, a Penny, and an Unusual Way of Decision-Making

Some short notes on the making of a decision.
Recently I've been quite interested in the idea of eventually operating a 3rd space like the SF Commons in NYC, this sounds like a really promising candidate for a project I could be passionate about long-term: for one, it brings together my interest in community-building and aesthetics. For two, it has enough financial potential to support myself and the type of future plans I might make.
However, working on this seems to come to direct odds with my plans to start job-hunting. If something has the potential to succeed and you have to bottom line to work on it right now, why not just work on it right now?
I came up with various reasons that rationally supports working on the 3rd space as a side-hustle, but there weren't anything that felt viscerally compelling enough to counter the above argument.
So I devised an experiment, suppose that I work while side-hustling the 3rd space, and that it takes 2 years to see whether the idea pans out (in that it both succeeds and is something I feel passionate about doing),
p(400k) total income = ~100% p(passionate & succeeds) = ~4%
Suppose I value (passionate & succeed) at $10mm, this comes at the expected value of $0.8mm.
On the other hand, if I jump into creating the third space and it takes a year to see whether it pans out, and take a job for a year after that:
p(passionate & succeeds) = ~5% p(200k) = ~100%
Note that spending full time on it only increases p(passionate & succeed) by 1% since I would have a smaller network, and I expect the diminishing return dropoff to be quite high. The expected value is $0.7mm.
The expected value is therefore similar. However, people are known to be loss-averse, and I think the loss is quite different.
On one hand, the two-job route has a 1% chance of losing $10mm, on the other hand, the one-job route has ~95% chance of losing $200k.
And this is the part of the experiment where abstract numbers become visceral – and the reason that I usually always have a dice or coin in my room.
The 1% chance of losing $10mm when taking the 2-job route can be loosely modelled by tossing a coin 7 times and having it always come up heads, which is an 1/128 probability. The 95% chance of losing $200k when taking the 1-job route can be modelled by 4 coin tosses with any heads, which has a 15/16 probability.
So I tossed a coin to simulate a future.
The pattern was tail-tail-heads. Meaning that I landed in a world where I didn't lose $10mm if I took the 2-job route, and a world where I would lose $200k if I tool the 1-job route. I emulated the feeling of gaining and losing that much value internally and thus viscerally.
And after experiencing the relief and the loss via imagination respectively, it wasn't difficult to pick the 2-job route.
— Categorized under: decision-making, psychology

I was talking to a friend about the idea of kindness and gracefulness recently. It's been a while since we both agreed on the idea that you really only know how kind someone is when they are under stress, but in that recent conversation I pointed out that sometimes you can observe kindness through small acts that are non-performative.




