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#10 What is Optionality?

Bijgewerkt op: 1 jan.

What is Optionality?

Optionality, as proposed by Nassim Taleb, means having numerous options or choices. It involves developing skills or assets that offer multiple opportunities. I’m talking here about options. Any options that’s allows you having more upside than downside.  An option must be convex, meaning it has limited downside and substantial upside potential.  Having the peace of mind.


The importance of being selective and discerning when it comes to choosing which options to pursue. It encourages individuals to focus on valuable and potentially beneficial options while avoiding unnecessary commitments or distractions.

But is knowledge the most important factor to create options? To achieve success?

We often lose time with  ideation and realization. We try to be pro first before getting in action. May be in the ideal word that would be logical. But in this continues changin environment we are living maybe we should make a switch from thinking then doing to thinking while doing.

To examplfy this Let me give you an example from 600 years ago. The story of Thales. As you may know Thales of Miletus, Thayles of Mayleetus- a philospopher, Mathemician.  Mayleetus is current western Turkiye Balat, Didim  areas in Aydin province very beautiful places btw. (This man was not really rich and decided to take a chance to get rich.

Picture this: a time long ago in the Mediterranean region, where the aroma of ripe olives filled the air, and the olive oil industry was in full swing. Our story revolves around the brilliant Thales of Miletus, who saw an opportunity amidst the olive groves of Miletus and Chios.

Thales was a poor philosopher, with rich friend. He had enough of this situation and wanted to show himself that he was able to achieve if he want. He put down a down payment on the seasonal use of every olive press in the vicinity, securing them at a remarkably low rent. It was a bold move, because he knew nothing about the olive market and definitely can not foresee the future. He is a philosopher not an entrepreneur.

The harvestseason turned out great.   The farmes had a significant quantity of olives to process into olive oil. Thales was sitting on a golden opportunity.

 Here's where the brilliance of Thales' strategy truly shines. With such an good harvest, there was a high demand for olive presses.  Other olive farmers in the area also needed to process their olives into oil.

He released out the olive presses to other farmers but did so on his terms, leveraging the high demand to his advantage.

The result? Thales of Miletus not only met his initial investment but built a substantial fortune in the process. But then turned back to philosophizing 😉


moral of the story

One of the moral of this story is this: The advantage of Lack of knowledge. This story was told by Aristotle and arostles says the following abut this story: “But from his knowledge of astronomy He had observed while it was still winter that there was going to be a large crop of olives.”  basiscally he implify that Thales had supernatural power of knowledge… Well actually Thales benefits from something called Lack Of Knowledge. It’s not too  important whether he had a deep understanding of astronomy or not. The important thing is having an option. He had the right to use the olive press but not the oblication. Hi had limited downside thus low risk of loss but large possible outcome.. He just paid a small prie for that privilege. But for the farmer that’s the opposite. The obligation to use the olive press but not the right.


Advantages of Optionality

  1. Optionality allows individuals to thrive in an unpredictable world. It doesn't require accurate prediction of the future; instead, it involves evaluating and choosing the best option when the time comes. The more uncertainty, the greater the role of optionality in achieving above-average results.

  2. Options can bring more options. Looking at Thales story. With the small fortune he got from brin right in an option creates him more options aka opportunities to take.  With this you can diversify your skills investment and relationships that allows you to face uncertain situations.

  3. Peace of mind. It comes  from knowing that you have choices.  You cab understand this in many ways:

    1. Financially, it means having multiple income streams, investments, or savings that act as back up plans  in case of unexpected financial shocks.

    2. Emotionally, it means having a diverse set of coping mechanisms and a support network for dealing with life's challenges.

  4. You don’t have to be right all the time. When you are right about the option, The payoff is larger; So this makes It's unnecessary to be right too often. wisdom lies in avoiding harmful actions and recognizing favourable outcomes.

    1. A beginners mindsete Can Drive Groundbreaking Ideas. Imagine, experiencing, exploring something without preconceived judgments  When we stop worrying about not knowing things and instead, are okay with being open, honest, and humble about what we don't know, we create room for fresh ideas and the chance to discover new and exciting creative paths that haven't been explored before.

  5. Optionality, with limited downside and significant upside, are vectors of antifragility. I talked about the concept of Antifragility in episode 5. Definitely check it out if you haven’t already. Bu t the summarize. Optionality contributes to your ability to be antifragile. You just don’t become resilient to harm. You can benefit from it and get stronger.


Information Era

I’m ignorant people have more confidence. They also talk lot more btw. But hey they are happy, right 😊

Ok jokes aside, this lack of knowledge, is benefit you can have as a beginner. I definitely do not promote ignorance although they are more happy yes. In a continuously developing and changing environment you can not keep benefiting from lack of you knowledge. Also where is the joy if you can not learn and grow?

 

While I was doing reading about the impact of information on happines I came across the term “infobesity”. overwhelmed by an excessive amount of information, overconsumption of information.

 

Information overload, referred to as "infobesity," has detrimental effects on decision-making and happiness. It can lead to indecisiveness and reduced concentration. People tend to skim through vast amounts of information without fully grasping it, making it challenging to assess situations and make good decisions. Those affected by infobesity feel compelled to stay constantly connected online, which can result in psychological fatigue and diminished well-being. To mitigate these negative effects, it is advisable for individuals to reduce their information consumption, as excessive information intake not only causes unhappiness but also hinders the ability to use information effectively for achieving happiness.



How to Increase Optionality

1- Invest in assets that can create more optionality,

such as skills, time, cash, health, and relationships. Developing professional skills and a diverse network enhances optionality.


2- Focus on "fat tails" -> unlikely but high-potential events.

Taleb emphasizes that traditional risk management often underestimates the significance of rare and extreme events (the fat tails). When you underestimate these events, you are vulnerable to sudden and catastrophic losses. Optionality, in this context, involves actively seeking out opportunities that benefit from these rare events. Instead of trying to predict or prevent them, you aim to profit from them when they occur.

The key idea is to position yourself or your organization in a way that allows you to exploit opportunities that arise during extreme and unpredictable situations, rather than being harmed by them.


3- Thinking then doing to thinking while doing.

Let’s look first at the traditional way of getting in action. You perform analysis before getting in action. You make a social, financial, all kind of analytics. as it allows for specialization toward analytical or creative or practical activities and ensures that executors do not lose focus by dividing their attention or by working on “fixing” things that are not broken. But this strategy is perect in a stable environment. But often times especiallyin these fast changing  and unpredictable era that’s not the case. Should not considering how the plan can differ in practice.

The wall between thinking and doing should be broken. We should consider that taking action is a way of thinking. This means we should feel free to ask questions, suggest ideas even if they haven't been fully checked internally, turn one-sided proposals into discussions, being counterintuitive meaning trying out inexpensive experiments that don't necessarily fit within our usual routines. Inexpensive because if the option has more downsides then upsides then that’s option should not be taken.

  • Elon Musk’s approach on reengineering twitter very openly and polling who should be the next CEO of twitter.  Under massive time and resource constraints it is possible to navigate a turbulent environment by thinking out loud, and thus turn a traditionally routinized activity (corporate communications) into one of prospecting and discovery (trying things out at the speed of thought).

  • Options represent opportunities and strategic decisions. But we need to be realistic. Options have a finite lifespan, so continually generating new options is crucial.


Not trying to fit

When we are talking about the future, we should understand that specific solutions are not enough. We can only predict and give it a likeliness, and create strategies around it. And the sticking to these strategies, aking sure every action fits the plan.

 But actually solutions should be able to adapt in the environment. For this, we need the mindset of an antifragile loser 😊 this mindset has the trial and error mindest and sees every failure as a step closer to a good solution. This mindset always looks for new ideas.  analysis of which deviations were successful. Keeping in mind that options are temporary, without ongoing generation, existing options lose value, reducing leverage and opportunities.

 

Polydexterity: exploring while exploiting (making full use)

It is the ability to exploit existing advantages in current markets while working toward multiple unknown potential future states.

Take the example of Google. Its main product is search, monetized through advertising. But every time it executes a search, it also improves its ability to search. We could say that Google is searching in two domains simultaneously—for words and ideas (the specific search) and for better ways to search, using the accumulated data (the meta-search). Thus it is exploring while exploiting.




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