March 6, 2024

Distinguishing between ambiguity aversion and risk aversion

Jake Gutstein
Jake Gutstein

The act of creating a business, or wading into any complex problem, is a humbling experience. It requires mastery of balance between humility (knowing what you do not know) and acting decisively (relying on foundational principles for how you work [amateurs have a goal while professionals have a system]). I’ve found that balance comes through prototyping on the latter with constant regard for the former. An understanding of what I walk humbly in front of has been necessary to build effective tools for action. This article primarily discusses the basis for humility and mostly leaves tactics for filtering information for future posts. Overall, people tend to overestimate to risk causing us missing out on paths with asymmetric return. Risk aversion is oftentimes a distraction. It is a story, that we tell ourselves as a distraction from our real fear, aversion to ambiguity.

One thing is certain, I am not humbled by the risk of pursuing hard goals. People often commend me for taking a risk to pursue Zest but this compliment is untrue. It is particularly untrue if the following two conditions are met: 1) you have identified an opportunity that people are willing to pay money to solve and 2) have the requisite viability (the ability to try to build it and not die while doing it). If these factors are satisfied, there is no outsized risk inherent to the process. On an adjusted basis, the risk is actually quite asymmetric due to professional value gained during the experience. For proof, look no further than every short term founder who ended up in a cushy PM job at Google shortly after their business went under.

The humility I rely on most is required to deal with a highly ambiguous situation. The primary mental road-block in a founder’s journey is really a problem of contending with their lack of control and uncertainty. The reality with creating is that there is a lack of measurable output from the early inputs which compounds into step change improvements. This is particularly hard to deal with for most would-be founders who for much of their lives were motivated by positive achievers and earning gold stars. These people must learn to live without knowledge of what the next milestone is. Not having the awareness to realize your lack of control over outcome is the silent killer.  

A generational addiction to instant gratification and social media misrepresentations serve as a massive boon to this problem and stifle early innovation. Coping with ambiguity is once again made harder by a lack of visible causality (or at least a variable pace) to the rewards for success and the striving that brought you there. See symptom of this in the DSM 5 listed as, “Why should I ship anything if it won’t be right / I can’t visualize how it will be received”.

Ineffective treatment for the disease is prescribed by virtually all snake oil salesmen, “read a book”. People too often look to others' journeys as a benchmark for their own but the pathways principle (Todd Rose) shows that they will not follow the same journey as others. To make matters worse, people, including hindsight laden protagonists, have trouble separating the signal from noise in other people’s journeys.

The head fake of aversion to risk prevents people from understanding their driving roadblocks. This leaves them to never put themselves in a position to reap asymmetric rewards.

So what is there to do? In my mind, awareness is the first step. The second is bringing yourself back to the present moment inventorying what action is at your disposal. My advice to founders, for example, is to live in the present and control what you can (give yourself 6-weeks and build anything). Deal with the moment you have not a fictitious moment to come.

If Dealing with Ambiguity 101, requires awareness of what is the cause of the anxiety in the moment, the 201 course teaches tools for how to think differently. One solution is understanding what your control variables are and your noise variables when making a decision. This scales up and down from the super system to the subsystems that comprise them and lead to better, more clear minded prototyping. It forces you to leave the elements beyond your control behind and negotiate your decisions from a point of leverage. I have found this in turn catalyzes fast and effective decision making.

You are not able to control how the future will materialize. Now that we are past that, the next action is all yours.

Jake Gutstein

Founder, Zest