Effort Allocation for Major Opportunities

Note to my future self…

Today I was listening to a podcast w/ Naval Ravikant and at one point he discusses this idea that if you’re going to put in the effort to build a company you might as well try to build one that could one day be very big because the amount of effort that will put will be the same in both cases. Naval says:

“It takes the same amount of effort to run the pizza parlor down the street than it takes to run Google – at least for the founders.” – Naval Ravikant

This quote might sound a little off-putting to some people but I think that it’s fundamentally true. I think that it’s a compelling way to show that more effort doesn’t equal better results. In this particular case running the pizza shop over a long-time period of time (e.g. 20 years) is probably a lot more effort for the founders than running Google because for the latter the founders have been able to delegate most of their day-to-day responsibilities to other executives.

Assuming that you will put the same amount of effort into whatever it’s that you decide to do you might as well go for whatever will yield the highest return to you.

But what about low probability of success?

While going through the logic Naval’s argument I wondered, wait but what about pursuing desirable outcomes with low probability of success.

Pause: This is my psychology/economics student brain talking here. What this question is trying to get at is the expected utility of my decision. Tl;dr if I was a rational being I should probably prefer a more modest outcome with a higher probability of occurring. Now back to our regularly schedule stream of thoughts(:

While it might be really awesome to pursue some lofty goals and swing for the fences, the actual probability that I will make it is so low that I might as well dedicate my energy to something that I am more likely to accomplish. In theory this makes sense but the problem is that it assumes that you’re no better than the average person at figuring out how to achieve the high utility outcome.

In other words, if you think that you’ve got “something” (e.g. an insight, network, competitive advantage, etc.) that will allow you to accomplish the better outcome (building a great company in our example), then you should by all means swing for the fences. If you don’t, then the opposite is true.

Another point that’s important to consider is that we’re quite terrible at predicting how big/important something will be in the future AND what’s the probability for future events (for non-obvious events).

Conclusion

Maybe I’ve overly complicated a very simple argument so here’s a one-liner to sum it all up:

Given two similar choices in terms of probability and utility, choose the one with the best expected outcome.

Now back to work..

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