Risk Architecture
Designing for the storm you can't predict
Real risk lives where the math stops working. These seven terms are the structural moves used by people who survive crashes everyone else called impossible.
- 01Mental Models · Risk
Margin of Safety
Buffers, so small mistakes don't become fatal.
Build buffers so small mistakes don't become fatal.
Open the full definition →Try it · 30 secondsLive example · Apply Margin of SafetyUse the model. Pick the move.
Build buffers so small mistakes don't become fatal. You've just seen this: Buffett buying companies at a discount to intrinsic value. Which lever does the model recommend?
● LivePick a lever. There are no neutral ones — every incentive funds a behavior somewhere.
- 02Mental Models · Risk
Antifragility
Systems that gain from disorder.
Systems that gain from disorder.
Open the full definition →Try it · 30 secondsLive example · Apply AntifragilityUse the model. Pick the move.
Systems that gain from disorder. You've just seen this: Immune systems. Which lever does the model recommend?
● LivePick a lever. There are no neutral ones — every incentive funds a behavior somewhere.
- 03Mental Models · Probability
Black Swan
High-impact, hard-to-predict, retrospectively obvious.
High-impact, hard-to-predict, retrospectively explainable events.
Open the full definition →Try it · 30 secondsLive example · Apply Black SwanUse the model. Pick the move.
High-impact, hard-to-predict, retrospectively explainable events. You've just seen this: 2008. Which lever does the model recommend?
● LivePick a lever. There are no neutral ones — every incentive funds a behavior somewhere.
- 04Mental Models · Risk
Skin in the Game
Advice from people with no downside is worth what they paid to give it.
Decision-makers should bear the consequences of their decisions.
Open the full definition →Try it · 30 secondsLive example · Apply Skin in the GameUse the model. Pick the move.
Decision-makers should bear the consequences of their decisions. You've just seen this: Bank execs who don't hold their own bank's stock. Which lever does the model recommend?
● LivePick a lever. There are no neutral ones — every incentive funds a behavior somewhere.
- 05Mental Models · Risk
Convexity vs. Concavity
Hunt for convex. Run from concave.
Convex payoffs gain more than they lose; concave do the opposite.
Open the full definition →Try it · 30 secondsLive example · Apply Convexity vs. ConcavityUse the model. Pick the move.
Convex payoffs gain more than they lose; concave do the opposite. You've just seen this: Venture capital is convex. Which lever does the model recommend?
● LivePick a lever. There are no neutral ones — every incentive funds a behavior somewhere.
- 06Mental Models · Strategy
Barbell Strategy
Extreme safety + extreme risk. Avoid the middle.
Combine extreme safety with extreme risk; avoid the middle.
Open the full definition →Try it · 30 secondsLive example · Apply Barbell StrategyUse the model. Pick the move.
Combine extreme safety with extreme risk; avoid the middle. You've just seen this: 90% in cash, 10% in venture; almost nothing in 'medium-risk medium-return.' Which lever does the model recommend?
● LivePick a lever. There are no neutral ones — every incentive funds a behavior somewhere.
- 07Mental Models · Strategy
Optionality
The right to act with no obligation to. Worth more than it sounds.
Investments that give you future choices.
Open the full definition →Try it · 30 secondsLive example · Apply OptionalityUse the model. Pick the move.
Investments that give you future choices. You've just seen this: Small bets across many promising areas vs. Which lever does the model recommend?
● LivePick a lever. There are no neutral ones — every incentive funds a behavior somewhere.
You don't predict Black Swans. You build a portfolio they can't kill.
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