On the Edge: The Art of Risking Everything

by Nate Silver

Expected value is such a foundational concept in the River’s way of thinking that 2016 served as a litmus test for who in my life was a member of the tribe and who wasn’t. At the same moment a certain type of person was liable to get very mad at me, others were thrilled that they’d been able to use FiveThirtyEight’s forecast to make a winning bet. (I still sometimes get poker players picking up dinner tabs for the money that my forecasts made them in 2016 or other years.)

I think of the River as having several subregions. Let’s start with the one that will require the most explanation: Upriver. I imagine Upriver as being like Northern California with its major research universities, rolling hills, and ocean views—but also eccentric and aloof, not quite fitting in with the rest of the country.

The natural companion to analytic thinking is abstract thinking—that is, trying to derive general rules or principles from the things you observe in the world. Another way to describe this is “model building.” The models can be formal, as in a statistical model or even a philosophical model.[*6] Or they can be informal, as in a mental model, or a set of heuristics (rules of thumb) that adapt well to new situations.

ability to block out context…the opposite of holistic thinking. It’s the ability to separate, to view things in the abstract, to play devil’s advocate.” Decoupling has been found by the psychologist Keith Stanovich to correlate with performance on tests of logical and statistical reasoning, a type of intelligence that is valued in the River. I think of decoupling as the tendency to make “Yes, but…” statements. Let me give you a mildly spicy example of a “Yes, but…” statement.

Finally, I put risk tolerance in this cluster because—whether they’re degens or nits in other parts of their lives—being willing to break from the herd and go against the consensus is certainly not the safest professional path.

I’m going to make a bold, daring generalization here. For the most part—at least when it comes to financial and career decisions—people do not undertake enough risk. It’s certainly true in poker. For every player who’s too aggressive, you’ll encounter ten who aren’t aggressive enough. It’s

Imagine a graph that I call the “U.” Plot the popularity of the sport with the American sports-betting public on the x-axis, and how profitable it is to bet on the sport on the y-axis; it forms a U-shaped pattern. For extremely obscure sports—Russian ping-pong became a fad at one point during the pandemic—it isn’t really worth the sportsbook’s time to price them to a high degree of precision. These sports are beatable for large theoretical edges if you’re willing to put the time in. The catch is that the sportsbooks will limit you from betting them as soon as you’ve shown the propensity to be any good.

Successful risk-takers are cool under pressure. They don’t try to be heroes, but they can execute when the chips are down.

In poker and sports betting, the vast majority of players lose money. You have no choice but to be toward the top of your field; otherwise you won’t make money at all. And to be at the very top requires a careful balance. Overconfidence can be deadly in gambling, but playing poker against the world’s best players is not for the faint of heart.

Successful risk-takers have strategic empathy. They put themselves in their opponent’s shoes.

Successful risk-takers are process oriented, not results oriented. They play the long game.

“What I’ve always said is logic, psychology, statistics, in that order,” said Galfond, referring to what he used to think were the most important skills for a poker player. But he’s changed his ranking because of experiences like this. “I think probably more important than psychology and statistics is just self-awareness and humility.”

Successful risk-takers take shots. They are explicitly aware of the risks they’re taking—and they’re comfortable with failure.

“There’s a classic moment, two days before launch, where you have your final visit with your family,” Sullivan recalled. “I took my brother aside, and flat out told him, ‘Look, I know the day after tomorrow, I’m getting on top of a bomb. And wanting my friends to light it. I get that, I’m riding a bomb.’ ” But Sullivan knew exactly what she was doing. “If something goes really horribly ugly, wrong, don’t be tearing yourself up that I didn’t know,” she told her brother. “I knew. I knew and I’m here. Because I believe in the purpose, I believe the value of what we’re doing here to the country, to mankind.”

Successful risk-takers take a raise-or-fold attitude toward life. They abhor mediocrity and they know when to quit.

You’ve got to know when to Hold’em, know when to fold ’em Know when to walk away and know when to raise —Nate Silver, On the Edge

Successful risk-takers are prepared. They make good intuitive decisions because they’re well trained—not because they “wing it.”

So is there never a place for trusting your gut? That’s not quite what Vescovo is saying. Rather, it’s that the more you train, the better your instincts will be.

Successful risk-takers have selectively high attention to detail. They understand that attention is a scarce resource and think carefully about how to allocate it.

Again, it’s natural to feel physical anxiety in high-stakes situations, which produce profound physiological changes to your body. It’s mistaking these sensations for being out of control that can produce a self-fulfilling doom loop.

Successful risk-takers are adaptable. They are good generalists, taking advantage of new opportunities and responding to new threats.

Successful risk-takers are good estimators. They are Bayesians, comfortable quantifying their intuitions and working with incomplete information.

Successful risk-takers try to stand out, not fit in. They have independence of mind and purpose.

Successful risk-takers are conscientiously contrarian. They have theories about why and when the conventional wisdom is wrong.

Successful risk-takers are not driven by money. They live on the edge because it’s their way of life.

The study—published in the book Expert Political Judgment: How Good Is It? How Can We Know?—found that for the most part experts were terrible at making predictions. However, those experts with a cluster of personality traits that Tetlock regarded as foxlike—knowing many little things—were comparatively more accurate. Those clever little foxes were the heroes of The Signal and the Noise.

How Foxes Think How Hedgehogs Think Risk-tolerant: Think in expected-value terms and are willing to act on it. Do not necessarily see themselves as risk-taking; however, their ability to take calculated risks distinguishes them from most people. Risk-ignorant: Not necessarily natural risk-takers. However, because they may misestimate or overestimate their abilities, they may sometimes make decisions that others would regard as incredibly risky.

“If you’ve ever spent any time in D.C., it’s like a city of rule followers,” said David Shor, a data scientist and political consultant who works for Democratic campaigns. Shor has a theory for why this is the case. Election campaigns are like the minor league systems for Washington’s social hierarchy: bright kids in their twenties aspire to move up the ranks and get a White House job in their thirties before cashing out with a cushy life in lobbying, consulting, or media. But campaigns are not always very meritocratic. “It’s very rare to actually be able to assess whether someone did a good job,” Shor said. Campaigns have hundreds of staffers and ultimately only one real test—election night—of how well they did, which is often determined by circumstances outside the campaign’s control. Relationships matter more than merit. So people get ahead by going with the program.

Old money is out, new money is in? Well, it’s essential to keep in mind that this is not an indication of overall social mobility in the United States. In fact, by most accounts, such as the extremely detailed work of the economist Raj Chetty, overall income and wealth mobility has decreased in the U.S. from a generation ago. The Forbes 400, however, is the extreme right tail of the curve. To wind up there, it helps to have made some extremely risky bets that paid off—ones that you have less incentive to take if you’re already rich.

“Why are second-generation kids never that successful?” asked Social Capital CEO Palihapitiya, who moved with his family from Sri Lanka to Canada and worked at a Burger King to help support them. Instead of the entrepreneurial mother or father, who had “only one curve that they were optimizing for, which is the what-have-I-got-to-lose curve,” the child starts “with the exact inverse curve working against them, which is the risk of embarrassment,” Palihapitiya said. “No matter what the parent says to that child, that person is operating from a perspective where the perception is that they have an enormous amount to lose.”

It can also help to have something else: a chip on your shoulder. Josh Wolfe, of Lux Capital, is fond of the phrase “chips on shoulders put chips in pockets.” Feeling left out, excluded, or estranged can make you extremely competitive.

“It could be because they were left for adoption. It could be a broken home,” he said. “It could be being the only minority in a mostly homogenous white neighborhood, or the obese kid in a Friday Night Lights football town. People that out of necessity grow a thick skin with not fitting in and being okay standing out. And feeling a sense of anger that is not leading them to despondence, but to motivated revenge.”

Let me make two things clear. First, you only want adversity up to a point. There is almost certainly a threshold beyond which there are too many disadvantages to overcome. Elon Musk had a difficult childhood and became estranged from his father; Thiel was gay and closeted; Jeff Bezos was adopted—but they were also privileged in other respects. They had chips on their shoulders, but they had enough social capital to be taken seriously by VCs, employees, and customers.

And second, this does not always turn out well. That competitive fire can be channeled in both constructive and self-destructive ways, and childhood trauma almost certainly has negative effects on the life course on average. But we’re not talking about the average: we’re talking about who winds up on the extreme right tail, the 0.0001 percent. It’s usually going to be people who are either irrationally risk-loving out of a sense of having nothing to lose, extraordinarily mission driven out of a sense of wanting to prove people wrong—or both, as in the case of Musk.

Impartiality is also the basis for Singer’s utilitarianism, a term I’ve name-dropped several times without having defined yet. Utilitarianism is a branch of consequentialism, the idea that actions should be judged by their consequences. This stands in contrast to deontology (from the Greek prefix deon-, roughly meaning “duty”), which instead states that actions may be intrinsically good or bad based on ethical rules. Singer is suspicious of these rules because he thinks they lead to partiality—think of maxims such as “honor thy mother and father,” which prioritize those who are proximate to us over those who are distant.

Next, I think there is some rational basis for partiality because we have more uncertainty about things that are removed from us in time and space. Some of this is for practical reasons. If there’s a small but tangible risk of a civilization-destroying nuclear war each year, then we probably ought to discount the welfare of people a thousand years from now quite a bit heavily.

The most well-known example of this in philosophy is Immanuel Kant’s categorical imperative: “Act only according to that maxim whereby you can at the same time will that it should become a universal law.” This can be analogized to the prisoner’s dilemma. If we both agree to cooperate, to act morally, then we wind up collectively better off than if we just act selfishly. Indeed, much conventional morality comes from society’s need to discourage selfish behavior, and I worry about upending that artifice.[*16]

What I don’t want, though, is to be so impartial that I’m constantly put in a position where I can be taken advantage of—the sucker who cooperates when my fellow prisoner does not. And even if I think there’s something honorable about acting morally in a mostly selfish world, I also wonder about the long-term evolutionary fitness of some group of people who wouldn’t defend their own self-interest, or that of their family, their nation, their species, or even their planet, without at least a little more vigor than they would that of a stranger. I want the world to be less partial than it is, but I want it to be at least partially partial.

A nerdy term that EAs and rationalists use for this is Chesterton’s fence, referring to a parable by the philosopher G. K. Chesterton about a fence that’s been erected across a road for reasons you don’t understand. You shouldn’t just remove the fence without knowing why it was put there in the first place, Chesterton thought. Maybe it protects against something—deer who will eat your foliage, wild boar who will trample your lawn, the zombies who tend to roam the town at night—that you very much want to protect against.

We’re living in a world where focal points are becoming spikier, and wealth accumulation follows more of a power law. The ten richest people in the world were worth a combined $452 billion in 2013—by 2023, that had shot up to $1.17 trillion, about twice as much after adjusting for inflation.[*13] This is not, actually, intended as a standard lefty critique of capitalism, or necessarily as a critique of capitalism at all. Look, I play poker with venture capitalists and hedge fund guys. I’m a capitalist. Rather, I’m saying to take the observation seriously that totalizing utopian ideologies have the potential to be dangerous. And they are potentially more dangerous in a world where instead of power being entrusted to governments—kludgy as they are with checks and balances and that experiment we call democracy—it now increasingly resides in individual people or firms who can accumulate untold amounts of wealth and power almost overnight, as SBF did.

Silicon Valley is full of people like roon, people who look at purgatory and call it heaven, who look at the glass and declare it half full. “All successful founders are optimistic. You have to be,” said Graham. The perfectly risk-neutral, well-calibrated founders tend to fail. “Strictly speaking, optimism is [an] error. But it cancels out other errors,” he said. You can’t sell other people on your ideas unless you’re optimistic about them, and without other people who believe in you, your startup will never achieve escape velocity.

And indeed, when it comes to my specialties like building election models, that objection still holds. Election forecasting is emphatically not a “big data” problem; just the opposite—there’s only one election every four years, so the data is exceptionally sparse. In cases like these, you need to bake a lot of structure (or if you prefer, assumptions) into a model—for instance, that the order of states from red to blue stays about the same from election to election, so Pennsylvania will probably be bluer than Wyoming but redder than Vermont.

The first of these, Hyper-Commodified Casino Capitalism, is one in which some humans use AI to exploit the vast majority of humanity. The second, Ursula’s Utopia, involves either humans or AIs giving up technological progress for the sake of sustainability.

Agency is a term I just defined in the last chapter, so I’ll repeat that definition here: it refers not merely to having options but having good options where the costs and benefits are transparent, don’t require overcoming an undue amount of friction, and don’t risk entrapping you in an addictive spiral.

Although plurality is my closest modern analog to égalité, they don’t quite mean the same thing. You don’t necessarily want to give every model equal weight or every idea a seat at the table. Instead I endorse Nick Bostrom’s idea of a moral parliament, which I imagined in chapter 7 as a mix of different philosophical traditions (e.g., utilitarianism, liberalism, conservatism, progressivism) that are credible and robust enough to deserve some consideration in your moral framework.

Finally, there is reciprocity. This is the most Riverian principle of all, since it flows directly from game theory. Treat other people as intelligent and capable of reasonable strategic behavior. The world is dynamic, and although people may not be strictly rational, they’re usually smart about adapting to their situation and achieving the things that matter most to them.