Lesson 4.5: The Principle of Risk Asymmetry

The first time I heard the principle of risk asymmetry was when reading Tony Robbins’ book “Money, Master the Game: 7 Simple Steps to Financial Freedom”.

Tony explains he interviewed Richard Branson who, like many of his peers in the rarefied air of super-achievers, takes very little risk when he considers a new venture. Rather, he looks for ways to offload risk onto others. As Branson told Tony the goal is to find a big upside that involves taking as little risk as possible.

For instance, when Branson was building Virgin, he struck a deal with Boeing to use their planes at no risk to Branson. If he failed, if the business didn’t work within two years, Branson could give back all the jets with no downside, no liabilities.

That was the deal, an asymmetrical balance of risk and reward that reduced the risk while keeping alive the potential for significant reward for Branson and Virgin.

How to use the principle of risk asymmetry?

When designing and planning your moonshot, try to list all the possible risks and determine how you can avoid or at least reduce them as much as you can.

Before making any decision in your life, apply the principle too.  Think about what the reward can be and what the associated risk is.  Is there a large asymmetry between the reward and the risk?  If yes, probably worth to go for it.  If not, you should think twice.

Watch this video from Tony Robbins explaining the principle in matter of investing.