On June 2, 2023, the Denver Nuggets had just won Game 1 of the NBA Finals. Morgan Wallen’s “Last Night” was topping the charts. The New York Times was trying to combat a slow news week with stories of the Trump Confidential Documents case.1 And, most important (to me), Mytide Therapeutics had run out of money.
I’ve written about this before. I woke up that morning with a job2, and I went to bed unemployed and owed two weeks’ salary. Besides the missing paycheck, I was ecstatic. After three years, the toxic culture and exhausting grind had worn me down, and this push towards a fresh start was just what I needed.
I had reached a point where I found the risk of unemployment to be tolerable, even attractive.
I was first introduced to the concept of “risk tolerance” back in ECON 410, when we discussed it in the context of an investor. Risk tolerance (from here on out, RT) was defined as “the degree of risk an individual willing to endure”. In the lecture, we discussed topics like lotteries, where a person’s RT dictated the amount of money they’d be willing to put on the line as compared to the expected returns.
In the real world, RT comes up more often when we discuss investing and entrepreneurship. More tolerant individuals might trade stocks or options, or even start their own company, as compared to a person who parks their cash in bonds or ETFs.
We’re all different. We have different personalities and motivations, along with different external pressures. Some people are willing to put everything on the line, with the chance of squalor being worth a shot at greatness. Some people would prefer to play it safe and enjoy the life they already have. Truly, to each their own.
Where this concept gets more interesting is as it relates to our jobs. Thinking about RT only in the context of entrepreneurs vs workers is like thinking about the possible outcomes of a trial as “not guilty” vs the death penalty. There’s all kinds of avenues for risk to shape our career paths:
Imagine telling a Green Beret and a marketing professional that they should switch places.
In a less extreme scenario, what if you swapped a Wall Street investment banker and a loan approval office from a large local bank?
You could even compare a salesperson who collects 100% of their salary in commission to one who would prefer to have a base salary with less upside.
I’m not disparaging the safe options in any of these instances. I think both sides in each of these situations would be equally uncomfortable.
But we can get even more specific, to a point where RT can be used in a framework to help plan our career paths.
All the things that society and corporate America expect us to do to get ahead involve some semblance of risk. This might come in the form of an opportunity cost:3
Applying to and attending grad school.
Networking or interning instead of spending your time making money.
Staying at a job rather than moving on.
It might also come in the form of going above and beyond in the hope that you’ll stand out:
Putting in extra hours at the office.
Sticking your neck out for an innovative job you believe in.
Working “above your pay-grade”, assuming it’ll be rewarded later.
These might be smaller risks, since they don’t involve potentially losing all your money or getting injured. However, they’re still real and involve foregoing time and energy which could be used to make more short-term money or do fun, social things with friends and family.
Basically, you should be asking yourself about where you want to end up. How much risk are you willing to take on in order to get there? At what point will sacrificing hours or money no longer be worth it?
Don’t fall for the sunk cost fallacy. (If you already went through law school, it makes sense to take the bar exam, but the corporate lawyer grind may not be the worth the chance that you fail to someday make partner.)
When you know where you want to be, and you know what you’re willing to tolerate to get there, things become a little clearer. Merry Christmas Eve!
Biden also apparently fell during the Air Force graduation - probably should’ve been bigger news than it was.
Granted, I knew that job was in trouble, but still.
In my opinion, anytime we make decisions, we’re taking risks!
Thank you MSA
FN3 got me thinking. Is decision-making inherently risky? And if so, is it because every decision (even doing nothing) has an opportunity cost?