Evan Coopersmith

We all want to do the right thing. We want to make the right decision. We want to behave as we should in each situation.&nbsp;

More often than not, the challenge is recognizing what the right thing is. We don’t have information to determine if we should invest in that nascent startup or start that high-upside project or challenge that authority figure when we disagree. The risk-reward calculus is largely opaque, and inaction might legitimately represent the correct path in addition to the one with which we are most comfortable.

Of course, sometimes, we know exactly what the right thing to do is, and nonetheless, struggle to do it. 

Literature and cinema are rife with the example of the uncertain protagonist pondering whether or not to cross the high school gym or the restaurant or the Atlantic Ocean to announce their feelings to the object of their undying affections.&nbsp;

Is the risk-reward calculus complex? Not even remotely.&nbsp;

When the upside is represented by a lifetime of love and happiness and the downside is the sting of rejection (which, however gruesome, is far less enduring than a lifetime), the best action is obvious. How many of us would dither, despite the rather straightforward analysis?

Life, alas (or thankfully, depending on your perspective) is not a romantic comedy. Rarely does finding love require the Herculean, financially-impulsive, law-breaking actions of would-be rom-com suitors.&nbsp;

But generating returns on invested capital typically does require some non-trivial risk.

Certainly, there are many circumstances in which determining the right thing is exceedingly difficult, and debates rage over the proper course of action.&nbsp;

But there are far too many circumstances in which the “correct” action is relatively easy to identify, and despite the inability to argue in favor of any other “right answer,” pulling the proverbial trigger remains a challenge unto itself.

The most common impediment is the idea of “perverse incentives,” specifically the types that encourage the “wrong” decision, despite significant data that might point in the opposite direction.

One such example might be the doctor with a substantial financial incentive to prescribe a test without much evidence of its diagnostic efficacy and at least some evidence to suggest that the risks of the test itself and the risk of subsequent procedures following false positives generally outweigh the benefits.1

For those inclined to wade into the controversy and medical mire, consider the idea of cancer screenings. Cancer is bad and kills a lot of people. Obviously, finding and removing a cancer before it metastasizes is good. So let’s test everyone, right? Well… “<a href="https://www.sciencedirect.com/science/article/pii/S2468294220300605" style="">more men die with prostate cancer than because of it</a>.” Tests for colorectal cancer <a href="https://www.cancer.gov/types/colorectal/patient/colorectal-screening-pdq#:~:text=The%20following%20colorectal%20cancer%20screening%20tests%20have%20risks%3A,-Colonoscopy&amp;text=Tearing%20of%20the%20lining%20of,the%20discomfort%20from%20the%20procedure." style="">do not seem to diminish the risk of death</a> from the disease. And even mammograms seem <a href="https://news.un.org/en/story/2015/06/500732" style="">helpful for older patients</a>, but not younger ones. Basically, the tests themselves contain risks of damage, and discovering a slow-moving cancer that might otherwise have taken decades to yield any ill effect will subject the patient to unnecessary chemotherapy and radiation.&nbsp;

Of course, incentives to bill for testing are real. Liability risk for failing to test is also real.2&nbsp;

Simple decision theory really - if false negatives yield lawsuits and false positives do not, there will be many, many more tests.&nbsp;

But even without these well-worn cases where incentives are ill-considered (e.g. you’ll be fired for starting that high-risk project that fails but promoted for only attempting manageable projects that succeed), there is still a difficulty in doing the right thing.

How many individuals choose not to invest in the stock market despite a track record of returns over a century long? It is one thing to know intellectually, or even mathematically that literally everyone who invested 1% of their income on a monthly basis throughout their working years fared quite well. It is another to do this.

It is one thing to recognize that the odds are unquestionably favorable and another altogether to accept the visceral pains of realizing one’s hard-earned dollars are imperiled in a way that feels avoidable.3&nbsp;

Though admittedly, if your money is in a checking account and inflation soars, then your balance is unchanged, but your buying power is very much at risk despite your “safe” choice.

Often, we attempt to argue that there is greater uncertainty than truly exists to justify our own fears.&nbsp;

Imagine that a coin is to be flipped, with a payout of $X/-$X (you win or lose $X, you are permitted to choose X).&nbsp;

Now imagine that you are convinced that the coin’s true probability is 60%. The “right decision” is blindingly simple. The only question is how much of your fortune to wager on this game of pitch and toss?4&nbsp;&nbsp;

Credit to Kipling for “...if you can make a heap of all your winnings / then risk it on one turn of pitch and toss / then lose and start again and your beginnings / and never breathe a word about your loss…”

The question of how much of one’s assets should be risked on a potential series of geometric returns is well-understood.5 But to allow the coin to be flipped and accept the possibility of losing a significant amount of money? Most would cringe.

https://en.wikipedia.org/wiki/Kelly_criterion

Almost any attempt to pose such a thought experiment inevitably degenerates into a discussion of just how certain you can be about the coin or the distrust that one would feel if presented with such an obviously profitable opportunity (what must the other party be thinking?).&nbsp;

And of course, this skirts the relevant issue. We don’t want to be forced to do the “right” thing, so we instead attempt to reframe the problem in such a manner in which the easiest thing (do nothing) is also, conveniently, the correct answer.

How many strategic discussions conclude in a similar manner - manipulating the parameters of the problem until the next action is palatable? If the “right” answer is to accept a 60% probability of a large payout and a 40% chance of meaningfully diminishing the corporate coffers, then clearly we’d better ask a different question!

Life is not a series of probability theory exercises (much as that might suit a geek who spent his college years on such things).&nbsp;

Life is, however, a series of difficult decisions that rarely conform neatly to the parameters of coin flips in thought experiments.&nbsp;

Perhaps the better part of avoiding the types of corporate squabbles that scuttle career development is avoiding the types of questions where the “right answer” is the easy part and the action itself puts someone else’s career on the line?

Perhaps the better part of “wisdom” is the capacity to recognize when, subtly, we are reconfiguring a decision to avoid an obvious “right answer” that demands an action we would prefer to avoid?&nbsp;

And perhaps, most importantly, self-awareness might require some recognition of why it is we experience less profound anxieties while gathering data, analyzing, and modeling than when the comfortable inquiries are over, we know the right answer, and all that remains is action.

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