Risk Prediction - It Pays Off

Genius.

Mojo and I are both HUGE proponents of Freakonomics and apply their principles to both daily life and theories on how the world is how it is.  Of all the books and websites we endorse, this one may very well be at the top of the list.  I personally enjoyed Think Like a Freak the most and found it the easiest to apply to my life.  I recommend all of my interns read the entire series, since it has taken my clinical practice to a whole other level.  Even if you aren't looking for some life changing series of books, its still a really funny read, e.g., why do drug dealers live with their mothers and how a prostitute paid her way through her Ph.D. in economics.



But for the purposes of this blog, Freakonomics teaches us a bigger life lesson...

Taking smart risks pays off.

In sports, we are always making predictions, mostly for fun, but some for profit (or not, because, you know, gambling is illegal.  Right, nfl.com fantasy site that has a space for "fees" under the management section?).  In life, this is a little more complicated.  What Freakonomics does an amazing job of teaching, through real world example, is showing "the hidden side" of how things work, i.e., if you can identify what will influence behaviors and outcomes, you can predict events and make solid, risky, yet safe decisions based on this information.

Taking risks = world domination

We live in one anxious society, let me tell you.  People here will panic about anything they read online, see on TV, or hear from a neighbor.  Not that some worry isn't healthy, because it is, but around this beautiful land, we take this too far.  Change scares people.  Complacency is safe for the individual.  Oftentimes people stay stuck in their routines because they are safe.  We would suggest this may be unhealthy at worst, but at the least, prevents us from truly enjoying the time we have on Earth.  Shameless plug time!  Read our last post for ideas on how to kickstart yourself!

Let me go Freakonomist and give you two real life examples... back in 2002, the then-girlfriend, now-wife and I moved to Boston for grad school.  We had been to the city a total of 3 times between us (once to visit Boston College, my future grad school, and each of us another time to go find apartments), and knew absolutely no one.  Didn't know the city at all.  I would be going to school part time (racking up debt in the meantime), and working full time while she did City Year (an off-shoot of Americorps), making pennies and volunteering in inner-city schools.  And no, we did not have a huge bank roll funding this adventure.  Seems pretty risky, right?

Miss you, Boston...

Here's what came of it - 2 Master's degrees at great universities, including hers being completely free, thanks to a grant she earned through City Year and Massachusetts' very friendly residency requirements; two life-long friendships with friends we met there, including one who now lives about 90 minutes away in beautiful Lancaster;  priceless lessons in budgeting and finding ways to enjoy Boston on limited income; and an experience in our young lives living in an amazing city with great people, learning how to be a couple that would build a life together, that we could never come close to putting a price tag on.  Moving to Boston was the 2nd smartest dumb-on-paper decision we have ever made.


The #1 smartest dumb-on-paper decision, you may ask?  Wait, you didn't ask?  Get another coffee, go ahead, I'll wait... ready now?  Good.  In 2010, the now-wife and I were selling our first house and looking for our last house.  In our search, we stumbled upon our dream house, the one you walk in and you know right away, this is the one.  Perfect location, perfect house for us, perfect price.  No way were we giving this up.  Only problem?  Hadn't sold our first house yet.  Oh, and did I mention the wife was about 6 months pregnant with ARG?  So what to do...

Hmmm....

Fah T. was our mortgage guy at the time, so he ran the numbers and found we could afford both houses by about thismuch, but we could do it.  Ran the scenario by my dad and a couple other close friends, who all said it was doable if we were willing to take on the risk.  Our realtor said our first house was rentable, though wouldn't cover the monthly payment.  We knew we could afford to drop the price on our first house a significant amount to try and sell it, but it was a slow market and there was no guarantee it would sell.  So the risk was, do we potentially own two houses and have to cut any sort of savings and trim the budget (with lessons learned from Boston) in order to have our dream house?  Hmmm...

We decided that our dream house and new baby were worth the risk.  We bought our current house, and two weeks later, after said price drop, the first house sold.  About 6 years and 4 re-fis later (thanks to continued connections at Quicken Loans), I am writing this on a beautiful winter Sunday morning, coffee in hand, ARG and LB, Jr. watching Mickey Mouse, wife sleeping, from the kitchen table of our dream house that we will own free and clear in about 17.5 years.  A few months ago, ARG sealed the wiseyness of this decision, "Daddy, I love our house, I'm really happy you and Mommy picked it for us."  Me, too, baby.  Me, too.

Pounce!

Where I think most people miss out on opportunities like this is out of fear for the negative.  We find that by seeing the positive gain and being able to predict the most likely scenario (Freakonomics 101), we are able to benefit tremendously from what, on paper, seems like a big risk, when in fact, when taken at its face and most likely outcome, is not that risky at all.  In fact, it's life's best opportunities staring us straight in the face.

One final plug... and this book blew my mind... Richard Thaler is known as the father of behavioral economics, which is what Freakonomics is based on.  His book, Nudge, is a fantastic and enlightening read.  In fact, a few of the suggestions he made in this book have been implemented by corporate America, most notably in having employees opt-out instead of opt-into retirement accounts.

Wouldn't exist if not for risky colonists

In sports, we make predictions all the time.  I post mine all the time, and do actually use some Freakonomics principles in doing so.  Looking back at my NFL preview picks, I had some nice picks, some of which came through (3 out of 4 over/under win totals), good ones that didn't quite make it (Pittsburgh 20 to 1 to win the Super Bowl, NY Giants 5 to 1 to win NFC East), and some pretty terrible ones (Philly in the NFC title game, Denver to miss the playoffs).  I had 6 of the 12 playoff teams right, including 4 in the AFC.  I'll take it.

My Super Bowl take - You know I love reading the lines... opened at Carolina -5.5, quickly bet down to Carolina -4, and then immediately bet back up to Carolina -5.5.  I initially loved Carolina because that seemed like a big line to me.  I correctly predicted to a friend when it opened that it would get bet down, then back up, though I didn't think it would happen that quickly.  While the line still seems big, I've lately been getting flashbacks to two years ago when Seattle was a big underdog to Denver, then smoked them out of the building with a suffocating D.  While Carolina's defense is clearly superior to the Denver D of two years past, I'm sensing a similar dynamic.  I think Carolina gets close, but kicks a bunch of red zone field goals, and maybe gets a 4th and 2 stuffed around Denver's 10 yard line somewhere in there.

If I were a gambler, I'd stay away from this game.  Don't love betting on games I could see either team winning by double digits.  I like both these teams, so I'll be happy with a good game, regardless of outcome.  But since you're paying for reading my opinions...

Denver 24, Carolina 23.

Stay tuned for posts on the role sports plays in love and a Mojo-solo post on being a sports fan.  Keep up with us on Twitter.  Hasta.