I’ve thought often about risk over the past couple years. Maybe it’s a lame topic, at least for most people to read blog posts about, but it’s something that I’ve thought was important to comprehend both intellectually and emotionally.

As far as I can tell, our culture — at least in the US — seems to deny that there is such a thing as risk. The Personal Savings Rate as recorded by the St. Louis Fed has dropped significantly since 1959 from 8.3% (which is low) to a current rate of 4.0%. In 2005, it dropped to a stunning 1% for a brief period.

The data indicates that we live in an extremely present-oriented society that discounts the future in order to enjoy the present more.

This runs counter to the mission of the entrepreneur, which is to risk saved capital, toil with it, and perhaps build assets that will make for a better future.

I dislike introducing problems without suggesting a realistic solution to this, but the only one I can come up with is leading by example and encouraging conspicuous saving and production rather than conspicuous consumption.

A person that doesn’t save limits their capacity to endure risks.

It’s a good set of problems for startups to solve. Aaron Patzer founded Mint in 2006, just as the savings rate trend flipped. Intuit acquired Mint as the savings rate was near its peak — as people scarred by the financial crisis were stuffing their accounts with as much cash as possible to gird themselves against an unknown future.

They happened to capture multiple trends at once with an easy-to-use and free solution. They improved on one of Quicken/Money etc.’s core features, made it free, put it on the web, and added better transaction tracking than the paid alternatives. The design aesthetic was also replete with warm color, unlike the fluorescent spreadsheet color scheme of the paid competition.

Hedge fund managers get paid to manage risk — but risk is something that everyone struggles to manage. Mystic shaman sell risk-proofing. Psychics sell risk protection. Whether any of these deliver on their promises consistently is up to speculation.

What differentiates a shaman from someone selling something that works is that what works is seeing the world as it is rather than what you want it to be. A mystic promises to be able to control the rainfall by persuading the gods. A meteorologist makes rainfall estimates based on satellite imagery with reference to models of weather theory — and still gets it wrong most of the time. But at least the latter has a vaguely correct method for solving the problem of predicting complex weather systems.

Almost all predictions are worthless. I sometimes feel compelled to make a prediction, like when someone on Quora asks me to. I don’t think it’s wise, and I feel guilty when I’m tempted to spout predictions that can’t be acted on.

To go back to the example of Mint, if Patzer had started working on it in 2001, none of the trends that worked in his favor would have surfaced. The technology wasn’t there yet, the banks may not have had their infrastructure together, everyone was leveraging themselves into outer space, and venture funding was dead.

He could have had the same insight, a similar product prototype, the same drive, but failed due to factors out of his control.

Where what you can control comes into play is being able to choose when to enter a position and when to exit, and what you do while you’re riding it up or getting whipsawed off of it.

That’s when the challenging work is needed.

No one works harder than a janitor, an fruit-picker, or a roustabout on an oil platform.

The goal of knowledge work is to invent and implement clever technological solutions that eliminate the need for vast quantities of work. A software program that could enable farmers to direct fruit-pickers 3% more efficiently would eliminate man-decades of ‘hard work.’

I’ve done ‘hard work’ before. It’s not as challenging as knowledge work. Hard work is coming home filthy, with your arms covered in lacerations from all the twisted metal you handle at work. Hard work is inhaling carcinogens in a chemical factory and shortening your lifespan. Hard work is showing up at 5 am on the dot on the work-site and being fired if you’re 30 seconds late on the boss’ watch, which is set five minutes fast.

It’s easy to fall into the trap of believing that ‘working hard’ as a knowledge worker is sufficient. When I transitioned from brute labor to using my brain, I used to pull all-nighters to make deadlines every week. It was ‘good enough’ only because the output was marginally better than that provided by other marginal copywriters.

The human body is an impressive device, but it’s not limitless. Most American education systems set the bar low except in a few disciplines. If you want to pass a course, you need to put in a few hours of concerted labor, a little disciplined study, and you’ve made it over the bar. You get your gold star. No one cares how you achieved the output as long as you convince the professor to stamp your work with an ‘A.’ There’s only one customer for you to deal with: a harried academic and perhaps her graduate student staff. Once you’re done with the class, which only lasts for a few months, you’re on to another one.

The world of work is rather different. A team can work superbly — produce bug-free code, manufacture a device with a six sigma failure rate, and otherwise be great enough to achieve an ‘A’ grade — and still fail. It’s up to customers to decide whether a product or service is useful to them. Our culture trains us for form instead of function. It takes substantial mental effort to break that habit.

The smart work goes on in the off-hours.

The hockey legend Wayne Gretzky studied videos of games for thousands of hours, created volumes of charts of where the puck was likely to go in various game situations, and internalized that knowledge. That’s how he knew how to skate where the puck was going rather than reacting to situations.

Most mediocre sports players spend their off-hours boozing, pill-popping, fucking whores, and hanging out with vapid musicians. It’s the same in most other disciplines, although professionals usually don’t have that sort of florid lifestyle. Your muscles — for knowledge-work, your talent — can help you progress for a time.

The way to get to a higher plane is to study and never stop studying, even when there’s no teacher to drag you along and give you a gold star for it. If I have done well at all in my short life, it’s because I value the knowledge that others can teach me.

Capital moves to where it’s least impeded. I’ll quote a recent New York Magazine article by Gabriel Sherman to illustrate this point:

For New York’s bankers and traders, the new math suddenly reordered their assumptions about their place in a post-crash city. “After tax, that’s like, what, $75,000?” an investment banker at a rival firm said as he contemplated Morgan Stanley’s decision. He ran the numbers, modeling the implications. “I’m not married and I take the subway and I watch what I spend very carefully. But my girlfriend likes to eat good food. It all adds up really quick. A taxi here, another taxi there. I just bought an apartment, so now I have a big old mortgage bill.” “If you’re a smart Ph.D. from MIT, you’d never go to Wall Street now,” says a hedge-fund executive. “You’d go to Silicon Valley. There’s at least a prospect for a huge gain. You’d have the potential to be the next Mark Zuckerberg. It looks like he has a lot more fun.”

Wall Street bargained with the government and the central bank for access to an infinite lending facility. In return, it gave up autonomy. Investment banks are becoming increasingly regulated. As far as I can tell, the main game that’s been running since the financial crisis has been the Treasury “carry trade” — borrowing from the Fed at near zero percent and lending the proceeds to the government for a slender, nigh-riskless profit on massive volume. It’s not risk-free, of course — the general public takes the risk — but it is for the banks in the context of that particular trade.

Silicon Valley has yet to accept such a bargain, so long as you ignore the many (now-mostly-failed) ‘clean’ or ‘green’ tech startups.

In Silicon Valley, risk and reward lies with companies, investors, and employees. The more risk that you take, the higher your potential upside. There are infinitely fewer rules and regulations governing user interface design than there are about kitchen sizes and seating arrangements in any restaurant in any state in the country.

You can decide where to place a button on a screen in a program used by millions of people with less oversight than selecting table height in a restaurant used by a few dozen people at once. This is part of the reason why Silicon Valley remains so widely admired: businesses can focus most of their efforts on solving problems rather than dancing a convoluted jig to please the regulatory gods.

Seeing what’s happened to Wall Street can be instructive to Silicon Valley. The more that you ask for “help” from the government, the more arbitrary rules that they’ll impose on your industry.

The final result of these protections in an era of international competition is stagnation and doom. China was the world’s leading power in the late Middle Ages and early Rennaissance, but hobbled itself for centuries through its intermittent bans on naval trade in 1371 and 1550. American presidents attempted to protect concerns like Bethlehem Steel in the later 20th century to no avail — people still make, buy, and sell steel, but most of the production happens elsewhere.

Those free trillions enjoyed by the banks aren’t weren’t really free — they were stolen from other people. They got mad once they figured it out. The costs that were obscured in the aftermath of the financial crisis are now apparent. The banks and politicians that colluded to pass incredibly unpopular bailout legislation are now dealing with large popular protest movements of various ideological flavor.

Silicon Valley’s competitive advantage is freedom, in the real sense, rather than that of a politician’s stump speech platitudes.

Workers, managers, and investors in many sectors can make decisions without needing to check with their legal compliance officer. The law only typically intrudes when an internet company attempts to do business in a legacy sector. Startups like AirBnB are able to avoid entire rolls full of red tape governing hotels, landlord-tenant agreements, and other onerous rules because their business isn’t legible to the legal system.

By the time that lobbyists for the hotel industry got around to bribing the right politicians and hyping the press with planted stories, it’s too late — the service is too popular. Once a sufficient number of people have adopted a technology, they become extremely resistant to having it taken away from them through legal means. Political action to suppress that technology becomes too expensive.

While the industry isn’t immune from regulatory overhead, it’s comparatively freer than any other industry. Computer systems engineering is less regulated than any other engineering discipline. As such, capital can flow more directly towards technological development without being diverted to regulatory obeisance.

This is why the anonymously-quoted Wall Street guy is a Mark Zuckerberg wannabe. Life in a protected industry sucks.

It’s easier to understand what we ought to do than it is to actually accomplish it. You can know the right thing to do and say, but if you can’t persuade others that you’re correct, your knowledge has little utility in the real world.

The best that you can do after failing to persuade others that the theory that you espoused was correct is a hollow “I told you so.” Few people like the “I told you so” guy, even if the data validates the theory.

“I told you so” is a consequence of taking inappropriate credit for the truth of a theory. The theory of universal gravitation is true independent of how awesome a guy Isaac Newton was (he was actually a jerk).

Doing the work to turn a theoretical observation into something that other people can use is something to take credit for. Just ‘being correct’ doesn’t help anyone.

For example, just saying “This ad campaign won’t work. You’re using AdWords inappropriately for your goal.” is not persuasive unless you have enough accumulated authority that anyone will listen to you without needing to provide supporting argumentation.

People usually dislike being told that ‘they’re wrong.’ A person is never ‘wrong’ nor ‘right,’ they’re just a skin-bag of meat and blood with higher mental functions than most mammals. Their thoughts may be incorrect. Their predictions may be based on bum theories.  Their observations may not be based in reality.

As I understand it, it’s best to focus on the thoughts instead of the person espousing them. Personality clashes may be entertaining, but they rarely shift minds.

I’m addicted to winning competitions. This is one of those fake “greatest weaknesses” that an asshole might bring up in a job interview.

I like seeing my name at the top of a list. When I can’t win something in one area, I figure out how to get the need met in some other context at the same time.

My love of winning all the time sometimes leads me to do dumb things, like get into pointless debates. I’ll win, but I’ll leave the other person feeling like shit about themselves. Sometimes, it’s better to let someone else stew in their wrongness than it is to “win” a pointless debate against them.

It’s easy for me to forget that the ideal purpose of debate is to expose the truth to all participants — not for me to come out on top as the “winner.”

One of the reasons that I like playing video games is that my name winds up at the top of a list so frequently at the end of the game.

One thing I’ve noticed about my habits is that I stay away from games that I lose frequently. I became bored with the real time strategy genre when ranked match-making became popular, which ensures that players at all skill levels will lose a significant proportion of their matches.

I’m getting better at coping with not being the best all the time. I write on Quora partly because I like seeing my name at the top of a list in a competition.

There are good and bad things about the chip on my shoulder that nags me to win. When I win something, I feel satisfied. I sense that my efforts have been worth it.

• I’m always looking to gain competitive edges
•  I compete inappropriately sometimes, but I stop it when I catch myself
• I’ve become more comfortable with risk, loss, and failure as I’ve aged (winning is meaningless if all the competitions are too easy — don’t get into boxing matches with toddlers)
• Im accustomed to succeeding. I’ve an orientation to believe that if I make a serious effort, I’m more likely to win.
• I see losses as the result of being out-competed. I self-reflect to determine what I can do to improve my chances in the future instead of blaming ‘the universe,’ ‘god,’ or other factors beyond my control.

I didn’t start out that way. I began from a typical ‘over-achiever’ perspective of “if I’m not the best, I’m shit.” This wasn’t a sustainable point of view. It encourages an over-narrow specialization, avoiding hard competitions, avoiding learning, and avoiding risk.

It’s possible to encourage this behavior in others without expecting people to rebuild their personalities. I do this by:

• Emphasizing the progress of a group after a failure to reach a goal instead of ruminating on the fact of the failure (if the group is regressing, it’s time to pause and determine why)
• Articulating what our group’s competitive edges are
• Picking competitions that are worthy challenges, but not doomed from the outset
• Reviewing successes as much as failures (it’s often easier to dissect failures and carp over everything that everyone did wrong — it’s just as important to review what made an attempt successful)
• Applying the same process to myself that I apply to groups that I work with

It helps me to write all this out. I hope it’s useful to you, reader.

A pen and paper are “easy to use.” You just take the pen, remove the cap, put the point on the paper, and carve out letters. Children learn how to do it over a couple years of practice as they learn language.

Typing a message on a keyboard into a Twitter update box is “easy.”

But how long does it take to learn how to type? How many people in the world know how to do it? How many people in your market can touch type? How fast do the people in your market read?

How long does it take to punch in a sentence on a smart phone? Is that ‘easy?’ It might be ‘easy’ for a kid who grew up texting. It won’t be for a 55-year-old arthritic.

Programmers and other professionals assume that their specialized skill-sets are standard issue. They’re not.

A lot of people in the US and abroad read much slower than you do, can’t touch-type, and struggle to comprehend text. It takes many more multiples of effort on their part to gain knowledge. Their lives are tougher as a result. Their problems appear tougher for them to surmount.

Creative people have a tremendous structure of knowledge inside themselves built up over years of effort. As we’re all trapped in our own heads, it takes extra effort to figure out how other people think and act.

It helps me, at least, to make an analogy with areas that I’m ignorant about. Some people are as ignorant about gaining and applying knowledge as I am about cleaning drain pipes. Or building a plumbing system for a large office building. I’m dimly aware of the principles of water pressure. That’s the extent of my plumbing knowledge.

It would take me years of focused effort (or months of crash-studying and apprenticeship) to become a good enough plumber that I could be trusted to lay pipe.

Many users become frustrated by a product when it assumes that they have skills that they don’t. There’s nothing that you can do on Instagram that you can’t do with a pirated copy of Photoshop.

Photoshop is intimidating to someone who hasn’t yet learned its esoteric mysteries. Editing a photo that you’ve taken on your smartphone on a desktop copy of Photoshop takes at least several steps and perhaps some format conversions.

Instagram allows anyone to transform poorly-taken photographs into pretty pictures in a few taps.

People who are ignorant of photo editing and don’t care to cure that ignorance can now achieve their ends.

There’s a wealth of product ideas to extract by examining tasks that requires special knowledge to accomplish and then using technology to eliminate those requirements.

It seems like an obvious concept. It’s not. People continue to mistake complexity for utility. A complex product may be powerful, but increased complexity limits how many people can derive utility from it. The complex product delivers zero utility to a wide swath of the population, but may have a lot of potential for a skilled operator.

Photoshop is worth nothing in the hands of someone who doesn’t know how to use it and doesn’t want to learn. A designer can use Photoshop to earn a salary and equity besides.

During development, ask:

“Who’s going to use this? How skilled are they? How much effort are they going to expend using this before they give up?”

“How much utility are those people going to get from this?”

“How many people are we losing for every new feature we’re adding?”

“What skills are we assuming the user will have?”

Many products would be drastically different if the principals creating them took those questions seriously.