Sunday, September 13, 2009

Left brain, Right brain, and the other half of the story

In my head, this post and yesterday's post on risk and opportunity are deeply connected, but logically they needed to be split apart.

The theory of the left-brain / right-brain split is that the left hemisphere of our brain handles linear, logical processing (cold logic) while the right hemisphere is more emotional, intuitive, and holistic (evaluating the whole picture instead of considering things one component at a time). Naturally, some people are more left-brain dominant while others are more right-brain dominant. This divide is discussed quite a bit elsewhere -- I recommend starting with the TED talk by Jill Bolte Taylor, a neuroanatomist whose left hemisphere was damaged by a stroke, causing her to become right-brain dominant.

I'm actually somewhat skeptical that the left-brain / right-brain split is as real as people assume, however it seems to be metaphorically correct, so for my non-surgical purposes, it's "good enough".

To me, one of the most interesting aspects of this right/left divide is that many people seem to identify strongly with one side or the other, and actually despise the other half of their brain (see here for a few examples, and even Jill Taylor seems to be doing it to some extent). This seems kind of dumb. My theory is that both halves of our brain are useful, and that for maximum benefit and happiness, we should learn how to use each half to its maximum potential.

This is where I link in to yesterday's post on Risk and Opportunity. My suggestion was to simultaneously seek big, exciting opportunities ("dream big"), while carefully avoiding unacceptable risks ("don't be stupid"). In my mind, that is the right/left divide.

The left-brain ability to carefully double-check logic and evaluate the risks is very important because it helps to protect us from bad decisions. When we imagine the kind of person who believes things that are obviously false, falls for scams, ends up joining a cult, etc, we probably picture a stereotypically right-brain person.

However, what the left brain has in cold, efficient logic, it lacks in passion and grandiosity.

When I wrote about evaluating risks and opportunities, it was as though we use a logical process when make decisions, but of course that's not actually true, nor should it be. Our actual decision making is much more emotional (and emotions are just another mental process).

The right-brain utility is in integrating millions of facts (more than the left brain can logically combine) and producing a unified output. However, that output is in the form of an intuition, "gut feeling", or just plain excitement, which can sometimes be difficult to communicate or justify ("it seems like a good idea" isn't always convincing). Nevertheless, these intuitions are crucial for making big conceptual leaps, and ultimately providing direction and meaning in our lives.

So to reformulate yesterday's advice, I think we do best when using our right-brain skills to discover opportunity and excitement, while also engaging our left-brain abilities to avoid disasters, find tactical advantages, and rationalize our actions to the world. Left and Right are both stuck in the same skull, but not by accident -- they actually need each other. (the same could probably be said for politics, but that would be another post)

Coincidentally, I just saw another good TED talk that mentions these right-brain/left-brain issues in the context of managing and incentivizing creative people. It's worth watching.

Saturday, September 12, 2009

Evaluating risk and opportunity (as a human)

Our lives are full of decisions that force us to balance risk and opportunity: should you take that new job, buy that house, invest in that company, swallow that pill, jump off that cliff, etc. How do we decide which risks are smart, and which are dumb? Once we've made our choices, are we willing to accept the consequences?

I think the most common technique is to ask ourselves, "What is the most likely outcome?", and if that outcome is good, then we do it (to the extent that people actually reason through decisions at all). That works well enough for many decisions -- for example, you might believe that the most likely outcome of going to school is that you can get a better job later on, and therefore choose that path. That's the reasoning most people use when going to school, getting a job, buying a house, or making most other "normal" decisions. Since it focuses on the "expected" outcome, people using it often ignore the possible bad outcomes, and when something bad does happen, they may feel bitter or cheated ("I have a degree, now where's my job!?"). For example, most people buying houses a couple of years ago weren't considering the possibility that their new house would lose 20% of its value, and that they would end up owing more than the house was worth.

When advising on startups, I often tell people that they should start with the assumption that the startup will fail and all of their equity will become worthless. Many people have a hard time accepting that fact, and say that they would be unable to stay motivated if they believed such a thing. It seems unfortunate that these people feel the need to lie to themselves in order to stay motivated, but recently I realized that I'm just using a different method of evaluating risks and opportunities.

Instead of asking, "What's the most likely outcome?", I like to ask "What's the worst that could happen?" and "Could it be awesome?". Essentially, instead of evaluating the median outcome, I like to look at the 0.01 percentile and 95th percentile outcomes. In the case of a startup, the worst case outcome is generally that you will lose your entire investment (but learn a lot), and the best case is that you make a large pile of money, create something cool, and learn a lot. (see "Why I'd rather be wrong" for more on this)

Thinking about the best-case outcomes is easy and people do it a lot, which is part of the reason it's often disrespected ("dreamer" isn't usually a compliment). However, too many people ignore the worst case scenario because thinking about bad things is uncomfortable. This is a mistake. This is why we see people killing themselves over investment losses (part of the reason, anyway). They were not planning for the worst case. Thinking about the worst case not only protects us from making dumb mistakes, it also provides an emotional buffer. If I'm comfortable with the worst-case outcome, then I can move without fear and focus my attention on the opportunity.

Considering only the best and worst case outcomes is not perfect of course -- lottery tickets have an acceptable worst case (you lose a $1) and a great best case (you win millions), yet they are generally a bad deal. Ideally we would also consider the "expected value" of our decisions, but in practice that's impossible for most real decisions because the world is too complicated and math is hard. If the expected value is available (as it is for lottery tickets), then use it (and don't buy lottery tickets), but otherwise we need some heuristics. Here are some of mine:
  • Will I learn a lot from the experience? (failure can be very educational)
  • Will it make my life more interesting? (a predictable life is a boring life)
  • Is it good for the world? (even if I don't benefit, maybe someone else will)
These things all raise the expected value (in my mind at least), so if they are mostly true, and I'm excited about the best-case outcome, and I'm comfortable with the worst-case outcome, then it's probably a good gamble. (note: I should also point out that when considering the worst-case scenario, it's important to also think about the impact on others. For example, even if you're ok with dying, that outcome may cause unacceptable harm to other people in your life.)

I've been told that I'm extremely cynical. I've also been told that I'm unreasonably optimistic. Upon reflection, I think I'm ok with being a cynical optimist :)

By the way, here's why I chose the 0.01 percentile outcome when evaluating the worst case: Last year there were 37,261 motor vehicle fatalities in the United States. The population of the United States is 304,059,724, so my odds of getting killed in a car accident is very roughly 1/10,000 per year (of course many of those people were teenagers and alcoholics, so my odds are probably a little better than that, but as a rough estimate it's good). Using this logic, I can largely ignore obscure 1/1,000,000 risks, which are too numerous and difficult to protect against anyway.

Also see The other half of the story