Conversation

If you bet a dollar, the utility of the win or loss is some function of the marginal value of your dollar So if you have $10, the win/loss might feel twice as good/bad as if you had $5 (modulo linearity of marginal value) But I thought of an interesting reframe…
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If you have $10, and bet $1, the other $9 is not just sitting there. It represents your control of the context of the win or loss. If you have $1000 or $1000,000, you can control the context so overwhelmingly that the difference between possible worlds of winning and losing ~0
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In general, for everyone $1 you spend pursuing a goal, you might need X dollars to achieve indifference to outcomes. If you fall short at Y, then your risk is a function of X-Y, the non-indifference outcome range
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Easiest to understand this with money, but any asset will do. For example, simply being proven right/wrong is worth something, but some truths are marginal to identity, others are central. So indifference depends on mass of unaffected beliefs.
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Beliefs are correlated though so it’s a bit more complex. Undermining a foundational belief might collapse a lot more. But general idea still applies. The parts unaffected by outcome are a measure of your agency in controlling context of outcome.
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This is not hedging but a passive analogue of it. Another example: if you’re fit and healthy, you take more physical risks because you trust your body’s ability to heal. Ie control the context of risky outcomes. Eventually return the world to an indifference state.
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The big idea is controlling the context of outcomes of risks *without* contingency plans or foreknowledge. Just straight up potential. For eg., if you’re a company with $10 in free cash flow, and spend $1 on R&D, you have $9 to control the context of whatever happens.
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Or think in terms of (RD&E %)/(net margin %). It’s a measure of how much risk the company is actually taking. If that ratio nears 1, you’re betting the company, plunging all net profit back into innovation. This is rare. I’d guess 0.3-0.5 is typical of tech companies.
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