Trouble with Optionality & The Mirage of Safety
Hello friend
How do you make important decisions in life?
Do you keep your options open? Or do you commit to a path irrespective of the consequences?
On a fundamental level, it usually comes down between these two choices:
- Wait until I am assured that it won’t lead to drastic outcomes and in the meanwhile stay with safe options.
- Take a leap and commit to a path that kinda rings true to my intuition
The thought occurred this week when I came across the concept of optionality in finance– apparently popular amongst MBAs who want to “maximize optionality” while describing their career goals.
This is what makes consulting a preferred option as it creates optionality because of the broad exposure to different industries and skills.
Article of the Week: The Trouble With Optionality by Mihir Desai
The trouble with optionality is it can lead to the tendency of acquiring safety nets (big university/degree/big firm) one after the other. Taking risks & making choices take a backseat along with dreams that those safety nets were meant to enable.
What’s the solution then?
While choosing optionality, what gets ignored is the pursuit of Alpha– a concept in finance that refers to the “excess return earned beyond the return required given risks assumed.”
Phew.
I’d honestly interpret it as to why not work hard and dedicate yourself towards your honest dreams instead of trying to create multiple options that create the illusion of safety.
Something similar to what Paulo Coelho says in The Alchemist, “It’s the possibility of having a dream come true that makes life interesting.”
Or in the words of the author of the above article,
“Given the ambiguity over the correct risk-adjusted benchmark, one never even knows if one has attained alpha. It is the golden ring just beyond your reach—and, one must enjoy the pursuit of alpha, given its fleeting and distant nature. Ultimately, finding a pursuit that can sustain that illusion of alpha is all we can ask for in a life’s work.“
– Mihir Desai, Professor of Finance, Harvard Business School
Of course, the dreams might change as you make progress. (Refer the 11th edition of this newsletter to read on how our identity shifts while making progress towards a goal. )
So, what would you do if you were to make an important decision?
Is it a matter of deciding whether the decision really threatens the literal safety? Or am I just trying to generate options that merely create the mirage of safety?
Feel free to hit reply to share your thoughts! 🙂
Until next time
Love
Vishal
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