By Dr. Sam L. Savage
At ProbabilityManagement.org our ultimate goal is to assist people in dealing with uncertainty. In this context, optionality is of great benefit in reducing downside risk. For example, fire insurance is really an option to sell your house to your insurance company at market value, even if it burns to the ground. A call option lets you purchase a stock after the fact, if it goes up, but limits your losses if it goes down. Recently, optionality played a key role in an emotional decision that my wife and I had to make.
Losing Rosey
Recently we tragically and unexpectedly lost our one-year-old dog, Rosey. She had destroyed most of our furniture (thank goodness it was old), ripped out the entire sprinkler system in our back yard (so we no longer have a lawn), and was 50% Husky, which explained both the seductive blue eyes and also her aloof nature. But we loved her beyond words and were devastated by her loss.
Luckily, my wife and I were able to throw ourselves into our work, and eventually the grief faded to sadness and finally to empty spots in our hearts.
The Theory of Options: Harnessing Uncertainty
A call option lets you purchase a share of a certain stock at a certain price (the strike) for a certain period but does not compel you to do so. If the stock price is above the strike at the end of the period, you buy it below market value and cash in. If it is below the strike, you have the option to walk away, limiting your losses to the cost of the option. It is an investment with a potentially huge upside and little downside. See, for example, Ch. 25 of The Flaw of Averages.
The Theory of Dogs: Unnatural Selection
It goes without saying that evolution depends on the probability of an organism getting its genes into the next generation. This, in turn, depends on both the probabilities of reproducing and survival. So how does evolution support an animal that has a neon sign on its butt that screams “Come Eat Me” from 50 yards? What this loses on the survivability side, it makes up for on the reproduction side, by attracting members of the opposite sex, as any female peacock will confirm.
But domesticated species don’t need to appeal to the opposite sex. They need to appeal to their domesticators who arrange their marriages.
So, why did we unnaturally select Rosey from the rescue puppies? Along with her blue eyes, it was because of her cute markings, with a white blaze on her face, white chest, white feet and a white tip on her tail. Well, if this color scheme attracts humans, why don’t they breed horses and cows with Rosey’s décor? They do, of course.
Finding Daisy
It was less than two months from the tragedy and my wife wasn’t ready to have another dog. But I wasn’t ready to not have a dog. What seemed like an insurmountable problem was that neither of us had the time or energy to train another puppy.
I began to surf the web sites of local dog pounds and saw Daisy on the San Jose animal shelter site. She had a white blaze on her face, white chest, white feet and a white tip on her tail and was listed as about 2½ years old. We had only had puppies in the past and I had no idea if we could bond with a fully grown dog. But I swiped right.
The site also indicated that we could foster her with the option to adopt. This reduced the downside to the cost of a couple of trips to the animal shelter. My wife still wasn’t ready to go with me, and if she had we probably would have come back with six dogs. A caring docent introduced me to Daisy who was very energetic and playful for an adult dog. She was also more obedient when asked to sit or lie down than any dog we had trained. The docent told me that it took dogs three days to decompress, three weeks to learn your routine, and three months to feel like they are home. This was not the case. Her nickname is Crazy Glue because she bonded instantly. We haven’t done a DNA test yet, but instead of Husky aloofness she displays a Pitbull’s strong cuddling instinct. She is a 60 lb. plug who filled a 50 lb. hole in our hearts. And of course we exercised our option on love and signed the adoption papers right away.