The Optionality Trap

The optionality trap starts when we’re young:

“Get good grades in school. You’ll have more options when choosing a college.” -Parents

“Pick a major that applies to many different industries. That way you’ll have more job options.” -College Counselor

“Consulting is a great field. From there, you can do whatever you want.” -Career Advisor

While this advice isn’t necessarily wrong, very rarely do we take a step back and examine what exactly we’re collecting all these options for. Perhaps at the beginning of our careers, we have some vague idea of a goal or accomplishment we want to reach but we’re not quite sure: a) how to reach the goal and b) if we even want to reach the goal in the first place. So naturally we choose the path that keeps the maximum number of future possibilities available to us. Unfortunately, this fuzzy goal mindset is often carried through to adulthood and leaves us grasping for optionality with all of our major life decisions. And over the course of a lifetime, this optionality maximization mentality turns us into habitual option collectors and prevents us from reaching our goals.

But I’m getting ahead of myself. Let’s start with the basics.

What is Optionality?

Optionality is a concept from the finance world. When someone holds an option, it means they have the right to do something but no obligation to do it. As Mihir A. Desai puts it in his Crimson article, “Optionality is the state of enjoying possibilities without being on the hook to do anything.”

When the universe conspires in your favor, you participate in the upside. And when it doesn’t, you aren’t on the hook for the negative consequences. It sounds pretty great, doesn’t it? In finance, this is referred to as a “non-linear payoff”, which literally means you stand more to gain than you do to lose.

Thanks to books like Antifragile, the idea of optionality has become popular in the mainstream. Predictably, people are very interested in the idea of having possibilities without any obligations. The optionality concept has been applied to things like careers (picking a job that opens up as many future opportunities as possible), relationships (dating around and not making commitments because you never know who else you’ll meet), and more.

Of course, in the financial world, every option has a cost associated with it. And so do real world options. But while financial options have an explicit price attached to them, real world options have more subtle costs.

What is The Optionality Trap?

When we first start making life decisions on the basis of the future options they create for us, we do so to reach some long-term goal. Perhaps we want to someday travel the world or start a company. Maybe we want to build enough skills and reputation so we can work on our own schedule. Or most common, we just don’t know what we want to do so picking an option that gives us more options seems to make the most sense.

However, when we do this for long enough, it becomes a habit and we start making all of our decisions through the lens of future optionality. After awhile, we aren’t even conscious of this rationale. We post-rationalize decisions and think we want to go to business school or consulting for their own sake but really, we’re optimizing for the opportunities we’ll have afterwards. Quoting Mihir Desai again:

The Yale undergraduate goes to work at McKinsey for two years, then comes to Harvard Business School, then graduates and goes to work Goldman Sachs and leaves after several years to work at Blackstone. Optionality abounds!

The optionality trap is something that ensnares us, not through outside forces, but through our own risk aversion and indecisiveness.

My opinion is that the optionality trap originates from an aversion to being hurt emotionally. A desire to avoid emotional pain is of course, completely natural. But in this avoidance lies an emotional stuntedness that prevents us from ever trying anything worthwhile and learning through the process.

Common Optionality Trap Examples

The optionality trap can affect more than just our career choices:

Startup Ideas

Let’s face it: coming up with startup ideas is not hard. The hard part is determining if your idea is viable and then of course, executing on it. And yet there are thousands and thousands of potential entrepreneurs sitting on the sidelines with a concept or an idea that “isn’t quite ready yet”.

Guess what? It’s never going to be ready. Instead of getting started with customer development to see if their idea has legs, these would-be entrepreneurs are keeping the option of being an entrepreneur alive, while not engaging in any of the emotional (ego) risk of being wrong.

If you have ideas, start testing them.

I also often see entrepreneurs who come up with tons of ideas but can’t pick one to go deep on. This is a close cousin of the “not ready yet” problem. These entrepreneurs are giving themselves optionality but never actually selecting one of their options.

As Chaz Giles frequently reminds me when I try to get “clever” with startup ideas, “Someone has built a profitable business selling bird diapers. Don’t overthink it.”

By focusing on optionality of ideas over execution, would-be entrepreneurs will never succeed. But perhaps more importantly, they will never make mistakes and in the process, completely stunt their own learning curve.

Corporate Innovation

Individuals aren’t the only ones guilty of optimizing for optionality. Companies frequently do it too.

In companies, the optionality trap is often seen in the insidious form of endless meetings, which leads to decision-making procrastination. Quite simply, companies that don’t make decisions can’t be wrong. Actually, that’s not true at all – by not making decisions, companies are defaulting to making the wrong decision. But the individuals at the company (a key distinction) get to avoid making a decision which could potentially be wrong, which means they avoid any potential blame.

This is once again the optionality trap at work. By not making decisions, individuals within a company keep all their options open. But by not making a decision, their company (which ultimately includes them) fails at solving whatever problem they were trying to solve.

Dating

The optionality trap in dating is the ultimate modern day problem. When you can login to a dating app and get access to a huge number of single people, it becomes tough to commit to anyone. What if there’s someone better just on the other side of that app?

Plus, as you get to know someone, their flaws start coming out while the ephemeral “people” on the dating apps are still perfect. At least in theory.

When you live with the belief that there are people better than your current fling just a tap away, it becomes impossible to emotionally commit to someone. And without emotional commitment, no relationship can flourish.

Living Situation

For those lucky few who have the option to live wherever they want, the easiest thing to do is to live nowhere. I’m referring, of course, to the currently en vogue nomad lifestyle. Don’t get me wrong: the ability to live and work anywhere is generally awesome. Lord knows I’ve taken full advantage of it. But there are downsides that very few people talk about. For example:

When a person spends all his time in foreign travel, he ends by having many acquaintances, but no friends.

This quote about the nomad lifestyle was made by Seneca in Letter II of Letters From A Stoic, which is about 2000 years old but still holds true today. By not living anywhere, you experience a wide variety of locations but never develop deep relationships with people and place that someone who lives in the same area for years would enjoy.

How To Get Out of The Optionality Trap

You’re probably sitting there thinking to yourself, all this talk about optionality traps is fine but HOW do you actually make a decision? If you’re looking at two options with different risk profiles and appeal, how in the world do you decide which one to go for? Andy Dunn from Bonobos says it better than I can:

The risk is not in doing something that feels risky. The risk is in not doing something that feels risky.

Very little is obvious in the research on human decision-making and happiness. Very few things are proven. One thing that is proven is this: the only regrets octogenarians have are for the risks not taken.

Here’s why:

If the risk taken does pan out, it is good. But if it doesn’t — and here’s the key thing — we find a way to justify the risk taken as learning.

That’s the secret.

If our goal is to live a good life without regrets, it’s so important to internalize Dunn’s quote. If we choose the path that doesn’t speak to our souls but feels safer, there’s a very strong likelihood that we’ll ask that dreaded question years later: What if? What if we took the plunge?

But if we choose the risky path and it doesn’t work out, we can (usually) call it a learning experience and move on. There’s very little thinking about what would have happened if we had taken the safe path.

By knowing this and then projecting to how you’ll feel in 10, 20, or even 40 years out as a result of this decision, you can take on the fear that quite naturally arises at a decision point. And by taking fear out of the equation, you can make a decision that’s based on what you actually want, rather than basing it on what’s safe or comfortable.

Is There a Time and Place For Optionality?

Despite what you may think from my railing against the optionality mindset for the past ~1800 words, there are plenty of times in my life where I’ve chosen optionality over the more direct path. While I do regret some of those decisions, there are a couple times that I’ve chosen optionality and it worked out.

Like most complex matters, there’s no “one size fits all” solution to decision-making. Big life decisions are deeply personal. Even something like deciding to go into consulting, which on the surface seems like it’s driven by optionality, can be a courageous decision depending on what the motivation is.

Ultimately though, if you know you want something, the fastest way to get there is to chase it directly. Optionality is a backup tactic, not something to pursue first.

Closing Thoughts

The siren call of optionality is admittedly an alluring one. But it’s also dangerous. Unfortunately, when we don’t know what to do or the path to our goals is unclear, the easy default choice is to defer and pick something that gives us the most future choices. But the universe is strange. When we choose a path, things start to happen. Things we can’t necessarily predict in advance. Andy Dunn says it nicely:

If you can’t decide what to do, get on the road. You won’t find the answer. It will find you.

In other words, go punch the optionality trap in the nose and get after it.


Further Reading:

Mihir A. Desai’s Harvard Commencement Address

The Risk Not Taken by Andy Dunn

Antifragile by Nassim Taleb

Letters From A Stoic by Seneca

8 thoughts on “The Optionality Trap”

  1. Great article. I think what most people forget is that you have to exercise the option (to use an investment term). Optionality is great by itself, as it limits the downside while preserving the upside. But at some point, you have to jump in with both feet. Your example of a career jumper is a good one. Optionality abounds, but they never receive any real authority or never have a chance to earn equity).

  2. Wow… I finally have a word that describes how I fritter away my time. Our weekends seem to subsist of “we could do X or Y or Z” but somehow we never get into gear and pick one. It often leads to me being sad on Sunday evening when I feel like we didn’t “do” anything on our two days of rest. We are headed to Japan in a few weeks. My goal is to plan each day so that we don’t fall into the optionality trap of “we could go here… or there… or here” but then not have time to do any of it because we couldn’t commit.

    1. Kristy, you aren’t the only one! I’ve felt exactly the same way at the end of the weekend. I suspect there’s something in human nature that leads to our indecision in the face of many options…so the only hope of avoidance is being aware and actively fighting the tendency. Hope you’re able to avoid the optionality trap now that there’s a word to describe it!

      Unrelated to the optionality trap, send me an email if you want Japan recommendations – was just there in July. It’s an amazing place.

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