Optionality: How to Survive and Thrive in a Volatile World – Book Notes and Summary

Optionality: How to Survive and Thrive in a Volatile World
  • One-sentence summary: No book has done more to change my thinking in the past two years than Optionality – it’s a comprehensive operating system for flourishing under uncertainty.
  • Rating: 10/10
  • Author: Richard Meadows
  • Date Completed: October 2020
  • Tags: Optionality, Mental Models, Frameworks, Stoicism, FIRE, Risk, Asymmetry, Career, Hobbies, Skills, Relationships, Decision-Making, View Quake
  • Hot take: If you read Optionality thoroughly, you can skip an entire shelf of self-help books, much of Taleb’s Incerto series, and a cadre of academic papers. There are no shortcuts in life, but this is as close as you’re going to get.

Big Ideas

Optimize for optionality, not happiness.

  • Happiness isn’t what it’s cracked up to be – “the popular conception of happiness is…a chimera – a cluster of loosely related traits stitched together, some of them contradictory, which doesn’t exist in any coherent way.”
  • “The greatest irony is that those who dedicate their lives to hunting the chimera are the least likely to find it.” It’s like Viktor Frankl warns – you can’t pursue happiness directly. Instead, it will find you as a byproduct of some worthier goal.
  • Optionality is one such goal. Optionality is having the right, but not the obligation, to do something. Under an optionality approach, the quality of your life will depend on:
    • How many options you have (e.g., someone in jail has very few options) 
    • How valuable those options are (e.g., choosing between a dozen toothpaste brands isn’t useful if you have to spend 15 hours per day working).
  • In decision-making, optionality can substitute for knowledge. Having high-quality options to choose from guarantees that no matter what you choose, you’ll do well.
  • You could try to optimize your life for what will make you happiest, what will earn you the most money, or what will make you look coolest in front of all your friends. But there are lots of tradeoffs inherent in the choices between those things. 
  • Instead of focusing on making those trades between the various currencies of life, Meadows argues that “we should instead load up on optionality, as a kind of derivative that buys us the right to all the precious currencies of life, and let the trade-offs between them emerge accordingly.”

There are four components of optionality: health, wealth, relationships, and knowledge.

  • Health Capital: Good health is mostly the avoidance of bad health. “Staying alive is more about avoiding death than diligently eating your vegetables.” It’s also a stable domain where accessing unbounded upside is nearly impossible – you can be healthier than the person next to you on the subway, but you can’t be 10x healthier. The things you need to do to be healthy are well-known – eating right, lifting heavy things, and moving often.
  • Financial Capital is based on two metrics: your Net Worth and Savings Rate. These numbers determine how much autonomy you have, how much longer you need to work for pay, and how much freedom you have to say “no thanks” to people or jobs you dislike.
  • Social Capital encompasses relationships in all forms – your partner, friends, family, and professional relationships. Having even a few close friends who would let you crash on their couch for a mildly uncomfortable length of time is enough to avoid the worst downside here.

    It might feel weird curating friendships or actively seeking to change your social standing. Still, we need to get past this and realize that social capital is like any other domain: “No one in their right minds would think that financial capital accumulates effortlessly, or knowledge, or health. You can improve anything, when you a) learn how it works and b) apply targeted effort, and…relationships are not some magical exception.”

  • Knowledge Capital is everything you know how to do, fix, make, or avoid. Successful acquirers of knowledge capital have a “force field of competence” that makes them resilient if something breaks or goes wrong. The proactive side of this is building knowledge and skills that can help you earn money – think Scott Adams’ “Talent Stack” idea.

    You can find time to build such a talent stack by avoiding (some) of your TV watching, which adds up to about 100,000 total hours of lifetime viewing. Carving out even 10% of this is enough to master an instrument, become a writer, or learn chess.

    The Talent Stack is even more valuable for the average among us. If you’re not world-class at anything, it makes sense to keep acquiring skills at which you’re pretty good until nobody else has your combination. If you get specific enough, you can dominate a niche that only you inhabit.

”If you think extraordinary talent and a maniacal pursuit of excellence are necessary for success, I say that’s just one approach, and probably the hardest. When it comes to skills, quantity often beats quality.”

Scott Adams, creator of Dilbert

We must all learn when to explore and when to exploit.

  • These are computer science terms, so the meanings here are slightly different than we’re used to:
    • Exploration is seeking the best possible option – either by generating new opportunities or improving the quality of the ones you already have.
    • Exploitation is swapping out options for action. It’s taking advantage of something you have in front of you. If someone offers you a filet mignon, it probably doesn’t make sense to see what else is on the menu – it’s time to dig in.
  • Most people explore far too little in their attempt to open options and improve their lives, particularly in unstable domains like careers, hobbies, and relationships, etc. In rapidly changing areas (e.g., the career landscape), it makes sense to explore widely and then exploit. 
  • The best strategy is probably switching between exploration and exploitation – a period of opening options followed by time exploiting them. This helps avoid what Meadows calls “premature exploitation,” or getting to a local maximum and calling it quits because it’s more work to go down the mountain and up to the highest peak than it is to settle for pretty good.

“Working for the sake of earning a pay check early in one’s career is not quite as short-sighted as playing video games all day, but it’s still an example of premature exploitation. Instead of repetitively pulling the first lever you find, you’re better off building knowledge, skills, and connections that open up more attractive opportunities—to keep exploring—even if it means earning less money in the short-term. You don’t necessarily want to specialise until you’ve explored more of the possibility space.”

  • This isn’t true for every aspect of life, though. You should probably experiment a little in more stable domains like health capital but switch to exploitation quickly. Diet and exercise are things that you should lock in early and continue to focus on throughout your life.

To live well, we should identify and pursue positive asymmetries.

  • Asymmetry of returns is the determining factor in figuring out which things are attractive to pursue, which things to leave alone, and which to avoid like the plague. We’re seeking positive asymmetries above all else and should endeavor to ditch the rest. There are three profiles to know: 
    • Positive Asymmetries (i.e., Treasure Chests) carry considerable or unlimited upside and capped or no downside. Ex. “A financial windfall, a new friend or loved one, a job offer, a successful business, an excellent investment opportunity, a life-changing idea or epiphany, and all the things we generally associate with ‘good luck.’”
    • Dead Ends have limited upside and limited downside. Non-scalable side hustles like moonlighting for Uber fall into this bucket, as does watching lots of TV. “We should be perfectly happy to wander through doors which quickly turn out to be Dead Ends, if there’s even a small chance they lead to a Treasure Chest. But we shouldn’t waste precious resources on the ‘safer’, well-travelled doors which only hint at a modest return on investment: we’re looking for a big, uneven payoff, or nothing at all.”
    • Negative Asymmetries (i.e., Bottomless Pits of Doom) are anything with the risk of ruin. It’s OK to lose every once in a while, and it’s probably not possible to avoid losing altogether. But it’s critical to avoid losing “so badly that you can’t come back.” Ex. “Addiction, financial ruin, ideological death spirals, disease or disability, accidents, investments that blow up, and all the things we generally associate with ‘bad luck.’”
  • To get access to the best stuff in life, we must first practice avoiding the risk of ruin. Then we can switch our attention from Dead Ends to searching for Treasure Chests in each of our four focus areas. 

Winning is mostly not-losing.

  • Most of us think that winning is about figuring out The Best Strategy and brilliantly executing it – zigging while all the other lemmings zag. But in reality, most winning comes from avoiding losses. We should get rid of the negatives in our lives before we start pursuing positives. 
  • “The growth side of the equation is sexier: this is what generates the successful startup, the podium finish, the hot dates. But the resilience side is much, much more important. Why? In every one of these domains, bad is stronger than good.” For example:
    • To have above-average investment returns, you must not shoot yourself in the foot – selling when things are bad and getting greedy when things are good. Setting and forgetting makes you a better investor than the rest of the crowd. 
    • To have above-average health, you have to avoid falling victim to bad habits and addictive behaviors. 
    • If you want to do something challenging (e.g., write a book, record an album, become a successful entrepreneur), your best strategy is to open your options. There’s no guarantee you hit it big, but you’ll have the best possible shot if you have great opportunities and lots of arrows in your quiver.
  • Still, this doesn’t sit well with the popular notion of success. We believe that spectacular success is about what you do rather than what you avoid. Meadows sets the record straight:

”The mundane reality is that winning is mostly about not-losing. Think of a counterintelligence agency which works tirelessly behind the scenes to foil terrorist plots: if it’s doing its job well, we’ll never notice anything at all. Most risk accumulates silently in the background, and is attenuated just as silently. ‘Winning’ is making it to 40 without falling into a Bottomless Pit of Doom. Achieving something spectacular is really, really hard. More encouragingly, all you have to do is consistently not-lose, and you’ll still come out ahead of the pack!”

Hoarding options is for cowards.

  • Creating lots of high-quality options is an intrinsic good, even if you don’t get to use all of them. But at some point, you have to start choosing, even if it means missing out on other things. Hoarding options and never exercising any of them is for cowards. 
  • “Freedom is the power to choose our own chains.” Rousseau was right. Sometimes, you should deliberately give away options in favor of constraints – a 9-to-5 schedule, a relationship, children, membership in groups. 
  • The point is to intentionally reduce optionality. It’s not a destruction of optionality so much as it is a sacrifice. Remember: fasting is categorically different from starving, and choosing your path is categorically different than having no good options at all.
  • If you’ve accumulated all the good options you can and used all you can, the next step is to find ways to give options away to people who might need them. This could be through generosity with friends, becoming a parent, or donating to life-saving charitable organizations.

Bits and pieces

  • The Matthew Effect can make or break you. The name for this theory comes from the Bible’s parable of the talents. The upshot is that compounding ensures advantages accrue to the people who need them the least. This is why momentum is such a powerful ally but can just as easily turn the tables against us startlingly quickly if it gets going in the wrong direction.
  • Roughly right beats precisely wrong. Goals can help you achieve a specific outcome, but they tend to put blinders on you – you may be looking around as you chase your dream, but you’re not seeing. That could mean we miss great opportunities – or that we don’t spot threats in time to head off danger.

    We’re also not the same person over time – who’s to say the person who gets that medical degree will be grateful to their 18-year-old selves for setting them on the journey to spend their life as a doctor? Instead of trying to nail the specifics – “I want to lose ten pounds” – try ambling in the direction of good health with something like “I want to stop drinking beer at 11 AM” and see where that gets you.

    “It’s impossible to know exactly what your future self will want, but you can predict with near 100% certainty they’ll be grateful you’ve set them up with high-quality options: financial capital, good health, valuable relationships, and useful skills and experiences.”
  • Effectuation is an excellent career strategy. First, look at the options available to you. Choose the most interesting of those options. After exploiting that option for a while, look at the new opportunities you opened while pursuing that one. “You’re never entirely sure where you’ll end up, but you can be confident it’ll be somewhere good.” You can keep iterating this way indefinitely. Four principles of effectuation:
    • Bird-in-hand: Create solutions with the resources available here and now.
    • Lemonade Principle: Mistakes and surprises are inevitable and can be used to look for new opportunities.
    • Crazy Quilt: Entering into new partnerships can bring the project new funds and new directions.
    • Affordable Loss: You should only invest as much as you’re willing to lose.
  • The barbell strategy for careers allows you to get paid and open up exciting options. This way, you don’t have to suffer through an unfulfilling job, nor do you have to struggle as a starving artist, living in your parents’ basement for the sake of creative “freedom.” There are two kinds of barbells that Meadows recommends, per Nassim Taleb:
    • Parallel barbell – have a relatively stable career with few intellectual demands and work outside the office on speculative side projects with asymmetric upside but a low probability of success.
    • Serial barbell – alternate between stable, paid employment and the barbell’s speculative end, pursuing one to build skills and some cash buffer, then the other to take a shot at an asymmetric win.
  • Life is not inherently meaningful, but creating meaning isn’t a mystery. “The universe doesn’t care about a bunch of murder-monkeys on a rock hurtling through space. It’s nothing personal; caring just isn’t in its remit. As far as the universe is concerned – and to be clear, it’s not – we’re all just shuffling atoms in a cosmic game of billiards, blindly bouncing along a causal pathway that started with the Big Bang and extends all the way to the cosmic heat death.” But we can make it so by pulling a few predictable levers:
    • Family and children
    • Religion
    • Work or entrepreneurship
    • Philanthropy
    • Creation (art, music, writing)

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