Option and Asymmetry
Optionality can offer a favorable asymmetry: a limited cost when an experiment fails and a larger payoff when it succeeds. Taleb emphasizes obtaining that exposure cheaply; the outcome also depends on how often gains occur and whether they cover losses and costs.
THE IDEA
Option and Asymmetry
The olive press episode took place about six hundred years before Seneca’s writings on his tables with ivory legs, and three hundred years before Aristotle.
The formula in Chapter 10 was: antifragility equals more to gain than to lose equals more upside than downside equals asymmetry (favorable) equals likes volatility. And if you make more when you are right than you are hurt when you are wrong, then you will benefit, in the long run, from volatility (and the reverse). You are only harmed if you repeatedly pay too much for the option. But in this case Thales patently got a good deal—and we will see in the rest of Book IV that we don’t pay for the options given to us by nature and technological innovation. Financial options may be expensive because people know they are options and someone is selling them and charging a price—but most interesting options are free, or at the worst, cheap.
Centrally, we just don’t need to know what’s going on when we buy cheaply—when we have the asymmetry working for us. But this property goes beyond buying cheaply: we do not need to understand things when we have some edge. And the edge from optionality is in the larger payoff when you are right, which makes it unnecessary to be right too often.
When to use it
Evaluating a potential opportunity by comparing its upside, downside, probabilities, and full cost of participation.
In personal career choices, pursue paths that offer asymmetric outcomes—for example, starting a side project with low time cost but high potential reward.
When facing uncertainty, avoid overpaying for options; focus on free or cheap optionality from nature, innovation, or simple experiments.
In strategic planning, emphasize building an asymmetry: small, reversible bets that could yield large payoffs if successful.
FROM THEORY TO EVERYDAY LIFE
In practice
Thales and the Olive Presses
Thales paid a small deposit for the right to use all olive presses during harvest season. When an unexpected bumper crop caused high demand, he profited massively. He had more to gain than lose, demonstrating option and asymmetry.
Venture Capital Investing
A venture capitalist invests small amounts in many startups. Each investment is an option with limited downside (the investment) but potentially huge upside if one startup succeeds. A few successes may cover many losses, provided the gains exceed the total investment and costs.
A MOMENT TO REFLECT
Put it to work.
In what areas of your life do you have more to gain than lose? How can you increase optionality there?
Think of a decision where you are trying to predict an outcome. How could you restructure it to have asymmetry in your favor?
For an investment or career move, what could you gain, what is the full cost of failure, and how likely are the different outcomes?
CONTINUE THE CONVERSATION
Source texts
- Antifragile (Nassim Nicholas Taleb)