Convex vs Concave Decisions
Seek asymmetric opportunities where upside exceeds downside.
Convex: limited downside, unlimited upside. Concave: limited upside, unlimited downside. Smart decisions favor convexity.
Asymmetry Matters
Expected value matters more than outcome probability. A 10% chance of $1 million has $100K expected value. That's worth more than 90% chance of $10K.
Limited downside, unlimited upside: take it.
Finding Convexity
- Calculate expected value: Probabilities × outcomes
- Look for asymmetry: More upside than downside?
- Take smart risks: Don't just minimize risk
- Avoid concave: Limited upside, big downside = avoid
Seek convexity. Avoid asymmetry that hurts.
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