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The risk of foregone upside in expected value (or, alternately, expected utility) to the extent that you are mis-valuing one of your genuine choices. If Netfli

The risk of foregone upside in expected value (or, alternately, expected utility) to the extent that you are mis-valuing one of your genuine choices. If Netflix is going to pay you $200K/yr and Facebook $180K plus $400K in FB shares vesting over 4 years, IMO, it's an error (IMO) to conclude that Netflix's offer is $20K/yr more than Facebook.

JohnFen 3y ago
Ah, OK. I don't consider that a risk at all, but I get that others might. This sort of thing is what makes acceptable risk evaluation such a personal thing. To me, "risk" means that income I'm expecting doesn't happen. The risk you're talking about doesn't count as risk to me, because any money left on the table is money I wasn't expecting to get in the first place, so I haven't lost anything. I just failed to gain something that I could have. I don't think my attitude is incorrect (it's saved me from a lot of actual loss over the decades), and I also don't think that yours is incorrect. It's more about what makes the most sense considering our personal situations, temperaments, etc. I also acknowledge that I'm unusual in the HN crowd in that I am not primarily money-driven. When I'm considering a position, the compensation is the third or fourth most important consideration, not the first.
- vidarh 3y ago
  You can talk about it opportunity. You might apply a (heavy) discount to that opportunity, sure, and personally I agree it's not a "loss" if you choose it away, but it it is an opportunity that has a value even if you decide a 100% discount is the right value. I'm reasonably money-driven, but I also heavily discount the value of stock or options, because while I've come out ahead on my shares and options in almost every company I've worked in, the effective return has ranged from very decent multiples of the initial valuation to 1% of it, so I'm very comfortable applying a very high discount (reducing said discount for e.g. listed companies - but one of my best returns was from a listed company where the best engineer on my team was still under water on the vast majority of his options 7 years in, and now long after their expiry the price has never been as high as then)
- sarchertech 3y ago
  I completely understand having a low risk tolerance. But I think discounting stock offers by 100% is going further than is reasonable even for the most risk averse person. Put it this way, at the limit. Company A pays $120k + $1,000,000 dependent on the result of a random number generator where there is a 99.999% chance that you'll get the money. Company B pays $125k. All else being equal, any rational person would obviously choose Company A. But if you're saying you discount variable pay by 100%, you would choose company B. Or think of it another way. How much are you willing to pay to avoid loss. What you're doing is equivalent to buying insurance to avoid loss. How much would you pay for such insurance? There has to be a limit.

JohnFen 3y ago

Ah, OK. I don't consider that a risk at all, but I get that others might. This sort of thing is what makes acceptable risk evaluation such a personal thing. To me, "risk" means that income I'm expecting doesn't happen. The risk you're talking about doesn't count as risk to me, because any money left on the table is money I wasn't expecting to get in the first place, so I haven't lost anything. I just failed to gain something that I could have. I don't think my attitude is incorrect (it's saved me from a lot of actual loss over the decades), and I also don't think that yours is incorrect. It's more about what makes the most sense considering our personal situations, temperaments, etc. I also acknowledge that I'm unusual in the HN crowd in that I am not primarily money-driven. When I'm considering a position, the compensation is the third or fourth most important consideration, not the first.

vidarh 3y ago
You can talk about it opportunity. You might apply a (heavy) discount to that opportunity, sure, and personally I agree it's not a "loss" if you choose it away, but it it is an opportunity that has a value even if you decide a 100% discount is the right value. I'm reasonably money-driven, but I also heavily discount the value of stock or options, because while I've come out ahead on my shares and options in almost every company I've worked in, the effective return has ranged from very decent multiples of the initial valuation to 1% of it, so I'm very comfortable applying a very high discount (reducing said discount for e.g. listed companies - but one of my best returns was from a listed company where the best engineer on my team was still under water on the vast majority of his options 7 years in, and now long after their expiry the price has never been as high as then)
sarchertech 3y ago
I completely understand having a low risk tolerance. But I think discounting stock offers by 100% is going further than is reasonable even for the most risk averse person. Put it this way, at the limit. Company A pays $120k + $1,000,000 dependent on the result of a random number generator where there is a 99.999% chance that you'll get the money. Company B pays $125k. All else being equal, any rational person would obviously choose Company A. But if you're saying you discount variable pay by 100%, you would choose company B. Or think of it another way. How much are you willing to pay to avoid loss. What you're doing is equivalent to buying insurance to avoid loss. How much would you pay for such insurance? There has to be a limit.