Reduce the Role of Chance

intermediate2 min readeconomics · business · philosophy · psychology

Thought experiments compare an actual decision with plausible alternative outcomes. They can reveal exposure to luck and help evaluate policies from the positions of people affected by them.

THE IDEA

Reduce the Role of Chance

This mental model emphasizes the use of thought experiments to simulate alternative realities and evaluate the role of luck in decision outcomes. By running "what-if" scenarios, you can avoid overconfidence from positive outcomes that were primarily due to chance and design fairer policies by imagining yourself in different positions.

Example: Buying Google on Margin

Suppose you buy $100,000 of Google stock, half with cash and half on margin. If the stock doubles, your $50,000 becomes $150,000—three times your original equity, before financing costs. Before concluding you're a genius, run the thought experiment: What else could have happened? The stock could have dropped 50% or even 90%, triggering a margin call and wiping you out. By simulating many possible outcomes, you realize the role of luck and the risk you took.

The Theoretical World Generator

This tool makes you aware of your decision process. Even if the results are good, you can recognize when luck played a major role and work on reducing its influence. Thought experiments reveal the limits of your knowledge and what you should attempt.

John Rawls' Veil of Ignorance

Philosopher John Rawls proposed a thought experiment for designing a just society: imagine you don't know your own place in that society (class, ethnicity, talents, gender). This "veil of ignorance" asks you to assess rules without knowing which position you would occupy. This can be applied on smaller scales, such as designing company HR policies (hiring, parental leave) without knowing what role you'd have.

A useful thought experiment states its assumptions and considers plausible alternatives, including unfavorable ones. It helps assess a decision even when its observed outcome was good.

When to use it

Evaluating investment decisions by simulating bear market scenarios
Designing company-wide policies that are fair to all employees
Assessing personal career successes to distinguish luck from skill
Strategic planning by considering multiple counterfactual futures

FROM THEORY TO EVERYDAY LIFE

In practice

Buying Google on Margin

You buy $100,000 of Google stock, half with cash and half on margin. The stock doubles, so your $50,000 becomes $150,000—three times your original equity, before financing costs. However, by running a thought experiment, you consider that the stock could have gone down 50% or 90%, triggering a margin call and wiping you out. This reveals the role of luck and risk in your 'success'.

Designing Fair Policies with the Veil of Ignorance

John Rawls' veil of ignorance asks you to design a society without knowing your own position, such as your class, ethnicity, or gender. A company can adapt the exercise by asking whether a hiring or parental-leave policy would seem acceptable from different roles within the organization.

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A MOMENT TO REFLECT

Put it to work.

Before making a major decision, what different outcomes could follow? Which are plausible, and how would each affect you?
If you were to design a policy for your organization without knowing your own role, what would you change?
In a recent success, how much was due to luck versus skill? How could you test this with thought experiments?