Blog of Sara Jakša

Evaluation of Decisions of Tools

There was an interesting fact, that I have seen in both the financial decision making and in the evaluation of technology. And it has to do with the difference, about how we evaluate the companies/technologies that we know vs. the ones that we don't.

In the finances, its evaluation of stocks and other investments in well studied. There, when the investment is well known, the risks and rewards usually correlate. So, putting the money in the bank is (almost) risk-free, but they also don’t have a high return. I mean, by bank has a return of way less than 1%, which is also way less than the inflation in my country. So, I am technically losing money. But on the other hand, as long as the Slovenia as a country continue to exist, I will not lose this money. On the other hand, people investing in start-ups expect to lose the money in 90% of the investments. But that 10th one could be big enough to have a return to each of them still a lot higher than a lot of other investments. The stocks are somewhere in the middle, the return is higher than in the bank, but there is always a potential problem of crisis, where the value of the stocks falls.

But the thing is a bit different, when it comes to the investments, that are not known and have a lack of information. In this case, instead of a higher-risk higher-reward combination, the people evaluate them reversely. The things that they perceive as have the higher risk are in their eyes also the things that have a lowest reward. The opposite is true as well, as investments that seems the least risky, are the ones that people expect the highest reward.

The same can be true for reading about technology. It is relatively hard to find a good evaluation of the technology, at least on the internet. The people criticizing the technology, from social media to artificial intelligence and so on, are using the language of technology having a high risk with no reward. On the other hand, the proponents of technology go in the opposite direction. They only see the positive things with no risk at all.

On the other hand, try talking to somebody about a car. They will be able to tell you all, that it is convenient, and they would not be able to do what they do without it. But these same people will complain about how it broke down and about the financial burden of the car or simply about the idiots on the streets. So, they seem to have a lot more balanced position of the technology of the car, which is quite well known.

And I think this is a good rule of thumb. If something has a lot of positive effect, then it most likely has a lot of costs (not necessarily financial) as well. So, if there is just position for one side, then maybe we still lack the information to make a good decision.