Introduction
On the Edge: The Art of Risking Everything is the second book from Nate Silver. Nate Silver is most well known for his election predictions, and he also wrote an great book on forecasting, The Signal and the Noise. This post will talk about core traits of the “River”, characteristics of successful risk takers, and modern values that that should be preserved in the US.
Core River Traits
The River is a specific world view that tends to attract people with certain cognitive and personality traits (pg. 23). These traits often result in a clash with other groups, particularly those associated with politics.
The River views the world as “Complicated, stochastic, and contingent (pg. 16).” As a result, The River necessarily thinks of the world in terms of probability, expected value, and risk. In the prologue, On the Edge talks about how a slight “edge” in a forecast can result in a massive expected value (pg. 14). As context, Silver discussed how his forecast predicted a 29 percent of a Trump victory in 2016 while the market predicted a 17 percent victory. With the 5:1 odds, which has the implied probability around 17, the expected value of betting $100 on a Trump victory is $74 dollars. In other words, assuming that the actual probability of a Trump victory was 29 percent, the expected return of a bet on Trump was 74 percent… Not bad.
Thinking in terms of expected value (EV) and risk tends to be closely associated with certain cognitive and personality traits (pg. 23):
Cognitive traits of analytically, abstracting, and decoupling;
Personality traits of competitive, critical, independent-minded, and risk-tolerant.
Theses traits are at odds with common ways of thinking in the Village. Those on the river can decouple issues instead of thinking as a voting block with a righteous cause.
Gamblers, in particular, are necessarily more independent minded and contrarian than the Village because that is the only way to beat a bookie - betting services offer a negative EV to bettors by design. You can see the same contrarian tendency with venture capitalist looking to invest in a unique business that does not exist in the market and may be able to price its future services in a way that is similar to a monopoly - a business that can go from “Zero to One” in the words of Peter Thiel.
In addition, those on the river can decouple issues and analyze them. This is often foreign to politicians who punish members of their team when they go against the group consensus. Politicians also seem more focused on passing bills that build a brand and signal their virtue to voters - they focus on intentions rather than results. For example, an analytical mind on the River would not invest $42 billion in a project that produces zero results in more than 1000 days - even if their team voted for it. Instead, they would consider the EV of these bills and revise their program requirements and planned implementations to produce a positive EV. As discussed later, they would also “fold” if new information becomes available and the EV becomes clearly negative.
Those on the river are also comfortable with randomization. I happen to being reading another book that also talks about about game theory optimal decisions: sometimes a mixed strategy based on a random input is the best one. A rule follower, or anyone that prefers deterministic models to stochastic ones, would not be comfortable with this.
Characteristics of Successful Risk Takers
One of the most interesting sections is on the habits of highly successful risk takers (pg. 221). A few characteristics stuck out to me:
- Successful risk takers prepare. Two of the most interesting discussions follow from this characteristic. One is that with a sufficient amount of preparation, instinctual thinking (System 1) becomes similar to systematic thinking (System 2) (pg. 104). As an example of this, a skilled poker player that can feel the difference between a 50/50 spot and 52/48 spot. Another discussion is the valuable insights that the body produces in a high stress scenario (pg. 93), and how past experiences can be helpful in “channeling the stress to productive use (pg. 94)”.
- Successful risk takers focus on process and not on results. This is counterintuitive to many people in business. The example he used is a simulation of poker player, assumed to be the top 100 in skill, that results in a 40 percent chance of loosing money in a single year even though her median income in the simulation is $33,000 (pg. 110). Focusing on the process means staying the course and not adjusting the process without the necessary analysis.
- Successful risk takers raise or fold and possess a selective attention to detail. This is also counterintuitive. The first characteristic refers to the growing commitment to a bet that possesses an increasingly positive EV as well as the refusal to bend analysis based on sunk costs. The second, selectively focusing on what is most important, is also counterintuitive for those habituated to seek more and more data.
1776 Values
The book ends with a discussion of agency, plurality, and reciprocity as a way to bridge the gap between the River and Village (pg. 469). The short definitions are the following: agency is having “Good options where costs and benefits are transparent (pg. 469)”; plurality means the prevention of a single group possessing a dominant amount of power; and reciprocity is the assumption that fellow humans are intelligent and deserving of dignity.
Earlier the book talked about how acceptance of risk is uniquely high in the United States as well as its unique founding values. Preserving the revolutionary spirit is necessary to maintain the unique advantages of the US.
Conclusion
This was a great book. Even though it is not science-fiction, Silver mentions that science fiction is the favorite fiction genre of the River (pg. 453). It is motivating me to learn the math of poker and consider betting on sports games.
I also recently completed The Mercy of Gods, so I will write about that when I have time. I wanted to re-read Blood Meridian, but it raised my blood pressure a little too high - I am preparing to move across the country soon, so I want to avoid unnecessary stress.
References
Silver N (2024) On the edge: the art of risking everything (Penguin Press, New York).