Generation Flux Salon: How Do You Measure The ROI Of A Risk? (How Do Silicon Valley And Hollywood Approach It Differently?)

Without risk, there can be no success—but how do you know which risks are worth pursuing? How do Hollywood and Silicon Valley evaluate the ROI of a risk differently? Troy Carter, Derrick Ashong, Franklin Leonard, Cindy Gallop, Tiffany Shlain, and readers discuss as our salon series continues.

It has often been said on this site that there can be no success without the willingness to take a risk. But how do you evaluate the potential ROI of a risk? Do Silicon Valley and Hollywood approach risk evaluation—and risk in general—differently?

Join Troy Carter, CEO of Atom Factory; Derrick Ashong, former Al Jazeera host; Black List founder Franklin Leonard; Make Love Not Porn founder Cindy Gallop; and Webby Awards founder Tiffany Shlain as the latest installment of our Generation Flux salon series continues.

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  • noah saber freedman

    no mention of bayesian analysis or game theory in this article. upsetting.

  • Alexandre Sartini

    Which option would choose ?

    1. Gain $100 (100% probability)
    2. Gain $300 (75% prob) or -$500 (25%)
    3. Gain $500 (50% prob) or -$300 (50%)
    4. Gain $700 (25% prob) or -$100 (75%)

    Which one is the most risky ?

    Those questions materialize the notion of risk aversion... They were asked to professionals in Risk Management and you would be surprised that none of them came with the exact same answer !

  • noah saber freedman

    by bayesian analysis:

    1. 1.0*100 = 100
    2. 0.75*300 - 0.25*500 = 100  
    3. 0.50*500 - 0.50*300 = 100
    4. 0.25*700 - 0.75*100 = 100

    in the long run, they are all the same investment. that said, i'd probably want to take the sure chance of $100 because it's more stable and predictable.

  • Alexandre Sartini

    As you said, in the long run... However, if we consider we have only one chance then things goes a bit different.  Some people with less aversion may consider other options than option 1.  

    Something to take into account when you discuss risk aversion, that is not present in the problem stated, is how much money you have in the beginning. 

    If I have $ 1 million, I would probably never take option 1 and chosse option 2 or 3. If you play all-in, i'm not sure whether you would take an other option than 1.

  • Alexandre Sartini

    You don't measure ROI of a risk, you measure risk of an investment with a attached risk. On a financial point of view and put it very simply it is weighted average of the return of your investment if things go right or wrong. The risk is only the variability in terms of return you would get depending on your scenarii. And if we have to put a human aspect to risk, the risk itself will not be perceived the same way by each individual. For example, playing the lottery is very "risky" as almost no one win, however millions of people keep investing in it as the initial investment is very low and gains could be tremendously high but almost no chance to win. So talking about risk is very tricky as no one will see the risk the same way !

  • Liza Moon

    way back when i was a teenager i was lucky enough and talented enough to be included in a game changing local TV show.  google Beyond Our Control, specially the IMDB list associated with our alumni.   40 years later i am making new TV again.  we are a micro studio selling downloads all over the world.  lifetime banned from youtube - you can post our work there but we cannot.  so we have a new project, and a new host which will feed commercials to our feed.  even tho i have been here before and muddled through, should i feel like i know what i am doing?

  • Brandon Skaar

    Risk is like an investment.  Like investments, there are many different types and strategies.  Decisions are
    made based on emotion, then backed up by logic. 
    With every risk, there is a decision, and that decision comes with an
    opportunity cost.  Being a risk taker, I
    might be putting capital at risk day trading in the stock market, or investing
    time trying to navigate the uncharted waters in social media.  The conservative type will stay away from day
    trading and invest in long term investments like mutual funds or real estate,
    and stick to the same print advertising strategies they have used for years.  This could all change the roles can be changed
    in a heartbeat.  All it takes is for the
    opportunity to be presented in a different way changing the risk taker’s