There are so many tropes in tech about people being magical engineering decision geniuses that are just somehow able to make wild bets they always seem to get away with. Yet if I say something like “we should use butter as a biodegradable lubricant” at the bike sweatshop, I’m the crazy one and would probably get fired. What’s the difference, if both domains have equally crazy sounding ideas? Well, in reading “Antifragile” by NNT, I think I’ve come across a framework that helps make a bit of sense.
In short, based on patterns I've observed, I think the difference between a stupid and smart bets lies in the asymmetry between downside and upside of the decision that is being made (Which is what NNT talks about in greater detail). The example I used is way over-exaggerated to be serious, so let’s look at a better example: SpaceX’s recent “crazy” bet on being able to catch their Super Heavy booster in mid-air using their launch tower. This bet is especially salient because it is an interesting low-downside high-upside bet: The odds of trying to catch a booster like this carried some risk (they did not seem overly confident it would work first try) in terms of loss of a booster and probable launchpad damage in the event of a failure, but the downside is fairly limited to this and would not have been that big of a setback in the big picture as they needed to do the launch regardless. On the other hand, if the bet succeeded (which it did), the upside would be huge: Reduction of weight to orbit, cost, and complexity due to deletion of landing leg requirements, aligned with SpaceX’s mission of making life multi-planetary through reduction of cost and time to launch. While this is a simplified analysis, this was clearly a massively lopsided bet: SpaceX paid some resources, time, and exposure to limited downside in the event of failure, but the value they got from success completely dwarfs the cost. Their success is no surprise given their history of making such rational bets, as the upside they eventually see eclipses the downsides of all of the failures along the way.
Silicon Valley VCs operate in a similar manner: They dump a lot of investment into startups (limited downside), but the return (upside) they get when they dump the money into the next Facebook or Google is so huge that it dwarfs their downside and even their returns from the moderately successful companies they fund. In business, this kind of bet exists in the form of options: You pay some amount for the right to buy something for a specific price, and if the price of the thing goes up by more than the price you paid, then you can exercise that option and make some money.
The moral of the story here is that our heroes making these bets are not in possession of some magical infinity stone: They are people that have the fortitude and strategic rationality to identify bets that cost little (relatively, in the big picture) and pay big, basically capitalizing on the chance of a big arbitrage opportunity. Sure, a lot of success is determined by luck, but with enough small inconsequential bets, there is bound to be a big payoff with enough exposure to biased randomness. Saying this out loud is not meant to downplay their success; on the contrary, it’s meant to empower us. It doesn’t take being irrational or a fool to do it. All it takes to start is to step back, think more rationally about the decisions we make, and intentionally strive to be better.