This might seem like a very crude example but bear with me. You walk into a bar with the intention of getting to know someone new and maybe meeting the man/woman of your dreams.
When you arrive, you realise that there is a wide array of options. You are immediately faced with a choice.
- Do you start chatting with the man or woman that’s a 6/10 or ;
- Do you go straight up to the 10/10 and try your luck?
You have to realise, that there are 2 underlying phenomena at play here, and you might miss them if you are not aware of their existence.
- In the above scenario, there is an Asymmetric Risk.
- Most people will opt to chat with the less attractive (6/10) person because it seems to be easier and the risk of rejection(loss) is less.
What is Asymmetric Risk?
The term asymmetric risk originates from the investment community and it can be summarised like this:
Asymmetric risk is the risk an investor faces when the gain realised from the move of an underlying asset in one direction is significantly different from the loss incurred from its move in the opposite direction.
When looking at the bar scenario and analysing the asymmetric risk, it becomes clear that:
- Most people are afraid of talking to the attractive person (10/10) and will rather opt to talk to the less attractive person (6/10);
- Therefore the competition is higher with the less attractive person and your risk of failure is much higher.
- The better option would be to take the asymmetric risk and talk to the most attractive person (10/10) with less competition.
- If your risk pays off, the reward will be much higher than the potential loss you could incur by trying your luck with the prettiest person at the bar.
Asymmetric Opportunity
Most people are afraid of taking asymmetric risks, which creates asymmetric opportunities for those who dare.
Other Examples of Asymmetric Risks & Opportunities
- Writing a book
- Investing in a startup business
- Creating a software product
- Going on many dates
- Building a social media following
- Starting a blog
- Test a business idea with an MVP (minimum viable product) you build over a weekend
- Learning another language
- Getting rid of your TV
- Apologising to a person
- Learning a coding language
- Introducing yourself to a stranger at a party