Optimize for Volatility, not Average Capacity

There are a number of interrelated ideas that I’d like to connect. Those are Optionality, Trial and Error, Exploration-Exploitation, Experimentation, Natural Selection, Comfort Zones, Creative Destruction, and certainly a swath of other critical ideas.

The central idea is Optionality - in many cases, you get the upside from volatility. You sample over and over from a distribution (you can imagine meeting potential friends/romantic partners, or trying out classes or a major at college, or there being many mutations of a gene in a population) and take the best, or at least the better, option.

In all situations like this (and they are everywhere), volatility is more important than the average.

In Exploration-Exploitation, optionality lets you exploit by taking the best solution thusfar and using it as your model for behavior. When there’s high variance in what you’re exploring - say you’re sampling different dishes at a restaurant - if some dishes are amazing and some are awful, you get the upside - amazing dishes all the time - as soon as you start exploiting. If there isn’t much volatility - if every dish is basically the same - even if the dishes are quite good, you don’t end up as well off as when there’s variation that you can take advantage of.

Personal experimentation is a form of exploration, where you try out a new behavior, style of living, or a new habit. When there’s more variation in the change in life quality, you get much more out of experimentation.

Natural selection benefits from high levels of mutation in a population, because that allows for faster adaptation to an environment and faster improvements in fitness at the species level.

In Trial and Error, there’s a binary outcome and you sample over and over until you get a success. Then you can use that success again and again.

People who are said to be staying inside their comfort zones are suffering from the absence of optionality - by refusing to explore the space, they end up with a weak payoff.

Creative destruction is critical for the growth of economic systems, and thrives off of the volatility inherent in the life and death of industry. By taking the upside to variance, capitalistic societies grow off of optionality.

This foundational principle underlies almost all value creation. It calls for us to optimize systems for volatility, not average capacity. Education, business, personal lifestyle - all of these have much to gain from volatility. And so the common heuristic that volatility is bad or dangerous or scary is only true at the lower fractal level. At the system one level up, the variance is essential to growth.