What is Alternative Paths? And winning Russian Roulette
Alternative paths are all the outcomes that could have happened, but did not. Put simply – success that comes about through risky dealings is, to a rational mind, is of less worth than success achieved the slower, harder and more mundane way.
Here’s an example
You arrange to meet with a Russian oligarch in a forest just outside your city. He arrives shortly after you, carrying a suitcase and a gun. Placing the suitcase on the hood of his car, he opens it so you can see it is filled to the brim with stacks of money – $10 million in total.
‘Want to play Russian roulette?’ he asks.
‘Pull the trigger once, and all this is yours.’
The revolver contains a single bullet; the other five chambers are empty. You consider your options. $10 million would change your life. You would never have to work again. You could finally move from collecting stamps to collecting sports cars!
Do you accept the challenge?
You do. You put the revolver to your temple and squeeze the trigger. You hear a faint click and feel adrenaline flood your body. Nothing happens. The chamber was empty! You have survived. You take the money, move to the most beautiful city you know and upset the locals by building a luxurious villa there.
One of these neighbours, whose home now stands in the shadow of yours, is a prominent lawyer. He works twelve hours a day, 300 days a year. His rates are impressive, but not unusual: $500 per hour. Each year he can put aside half a million net after taxes and living expenses. From time to time, you wave to him from your driveway, laughing on the inside: he will have to work for twenty years to catch up with you.
Suppose that, after twenty years, your hard-working neighbour has saved up $10 million. A journalist comes along one day and puts together a piece on the more affluent residents in the area – complete with photos of the magnificent buildings and the beautiful second wives that you and your neighbour have accrued. He comments on the interior design and the exquisite landscaping. However, the crucial difference between the two of you remains hidden from view: the risk that lurks behind each of the $10 million. For this he would need to recognise the alternative paths.
But not only journalists are underachievers at recognising Alternative Paths. We all are.
Alternative paths are all the outcomes that could have happened, but did not. With the game of Russian roulette, four alternative paths would have led to the same result (winning the $10 million) and the fifth alternative to your death. A huge difference.
In the case of the lawyer, the possible paths lie much closer together. In a village, he would have earned perhaps just $200 per hour. In the heart of New York working for one of the major investment banks, maybe it would have been $600 per hour. But, unlike you, he risked no alternative path that would have cost him his fortune – or his life.
Alternative paths are invisible, so we contemplate them very rarely. Those who speculate on junk bonds, options and credit default swaps, thus making millions, should never forget that they flirt with many alternative paths that lead straight to ruin. To a rational mind, ten million dollars that comes about through a huge risk is worth less than the same sum earned by years of drudgery. (An accountant might disagree, though.)
Recently, I was at a dinner with an American friend who suggested tossing a coin to decide who should pay the bill. He lost. The situation was uncomfortable for me, since he was my guest in Switzerland. ‘Next time I’ll pay, whether here or in New York,’ I promised. He thought for a moment and said, ‘Considering the alternative paths, you’ve actually already paid for half of this dinner.’
Risk is not directly visible. Therefore, always consider what the alternative paths are. Success that comes about through risky dealings is, to a rational mind, of less worth than success achieved the ‘boring’ way (for example, with laborious work as a lawyer, a dentist, a ski instructor, a pilot, a hairdresser or a consultant).
Yes, looking at alternative paths from the outside is a difficult task. Looking at them from the inside is an almost impossible task. Your brain will do everything to convince you that your success is warranted – no matter how risky your dealings are – and will obscure any thought of paths other than the one you are on.
The Black Swan – HOW TO PROFIT FROM THE IMPLAUSIBLE
Ambiguity Aversion – THE DIFFERENCE BETWEEN RISK AND UNCERTAINTY
Fear of Regret – WHY ‘LAST CHANCES’ MAKE US PANIC
Self-Selection Bias – DO NOT MARVEL AT YOUR EXISTENCE
The above article is from the book The Art of Thinking Clearly by Rolf Dobelli. The article is only for educational and informative purposes to explain and understand cognitive biases. It is a great book, definitely worth a read!