I recently read Going Infinite by Michael Lewis about Sam Bankman-Fried and the collapse of FTX. In the weeks since I've read it, I've been turning in my mind ideas Lewis discussed about SBF's approach to risk taking and how he thought about his decisions. Now, SBF isn't someone I'm trying to emulate - he stole billions of dollars from customers and is now in prison, but the way he thought about risk and probability was incredibly interesting.
Before starting FTX, SBF worked for a quantitative trading firm called Jane Street. Lewis describes the interview process for new hires at Jane Street as something completely unlike any other job interview most people have experienced. It's not your typical experience of going into a stuffy room with a bored interviewer who asks you the same boring questions about your work experience like "tell me a time when you had a disagreement with a coworker" or "tell me about your weaknesses". Yawn. Like anybody in a job interview has ever given honest answers to those questions.
Instead, Jane Street puts its interviewees through a series of games designed to test their risk-taking and problem-solving abilities. Interviewees are given a set of poker chips that they use during a series of games they are put through. For example, you may be placed in a room with other interviewees where you will play poker with them, but it's not your typical poker game (nothing at Jane Street is typical). You'll bet on each hand like normal, but the interviewer will throw in the possibility of side bets during the game, like "who wants to bet that the next card is going to be a spade?" or "who wants to bet that at least one of the next two cards will be red?".
Interviewees who left with the most number of chips at the end of the day would certainly be at the top of the list of candidates considered for the position, but that wasn't the most important thing to the Jane Street interviewers. They were a lot more interested in WHY you were leaving with a lot of chips, and if you could explain your strategies. In the minds of Jane Street traders, it didn't matter if you made a lot of money trading if you couldn't explain why.
On the flip side, Jane Street didn't punish traders for losing money if they followed sound principles. In one story, SBF realized that traders at Jane Street could learn US election results before they were announced on the news, and he used this advantage to make a huge bet. Jane Street believed that a win by Donald Trump in the 2016 election would lead to a huge selloff in the market, and so when they learned of his win before anyone else they took a massive short position. However, they were wrong - the markets actually went up in value, and Jane Street lost $300 million. SBF wasn't fired though, and there was no meeting afterwards trying to figure out what went wrong. Jane Street traders know that there will always be uncertainty and that you will be wrong sometimes, or even many times, but what matters is that your strategies are sound and lead to you winning more often than not.
I'm not interested in taking risks that would lose millions of dollars, but the fact that Jane Street didn't punish anyone after the loss stood out to me. We tend to celebrate risk takers who win and punish those who lose, only seeing the outcomes of their actions rather than the reasoning behind them. For every Steve Jobs, there are countless entrepreneurs who took massive risks to innovate and ended up with nothing. But that doesn't mean they were wrong. It means that we live in an uncertain world where we can't know everything. Taking risks doesn't mean being foolish. It means working with the information you have and being willing to accept what happens in the cases when you lose, but also not believing you're invincible when you win.