Lady Luck and Father Time
Lady Luck, otherwise known to the Romans as Fortuna, represents everything outside of one’s control and understanding — in other words, luck, randomness, and the unknown. She is not to be mistaken for Justice, who is also blindfolded but also holds scales.
She might bring good or bad luck: she could be represented as veiled and blind, as in modern depictions of Lady Justice, except that Fortuna does not hold a balance. Fortuna came to represent life’s capriciousness.
Fortuna also appears in chapter 25 of Machiavelli’s The Prince, in which he says Fortune only rules one half of men’s fate, the other half being of their own will. Machiavelli reminds the reader that Fortune is a woman, that she favors a strong, ambitious hand, and that she favors the more aggressive and bold young man than a timid elder.
— from Wikipedia
Father Time, otherwise known as Greek as Chronos, represents the inevitable consequences that follow from current circumstances. One of these consequences is death, but there are many other things that fall into his dominion as well. Anything that can be described as “it’s only a matter time” are things governed by Father Time. Unlike Lady Luck, Father Time’s outcomes are easy to see if one reasons linearly over time, the most obvious one being death. However, they still sneak up on people, probably because they are a) unpleasant and b) hiding in plain sight.
In recent centuries he is usually depicted as an elderly bearded man, sometimes with wings, dressed in a robe and carrying a scythe and an hourglass or other timekeeping device.
— from Wikipedia
Lady Luck and Father Time are really a reflection of what you can and can’t predict. Lady Luck is the representative for all the things outside your predictive powers (which is most things). The processes whose outcomes that you can predict with reasonable accuracy are represented by Father Time. For an omniscient being, there is no such thing as Lady Luck.
Understanding the limits of your predictive powers is the key to drawing the line between Lady Luck and Father Time. Dealing with Father Time is simply a matter of doing the math — if you know that spending X hours on Y will lead to Z, and you don’t want Z, maybe spend those X hours on something that will lead to a better result. Father Time is habits, “the grind”, everyday life, the mundane, boring, tedious parts of life. With Father Time, you want to get the most value out of your time as possible. This is the “exploit” aspect of explore-exploit.
Dealing with with Lady Luck is another thing altogether. The unknown excites and scares people. The thrill and addictiveness of random payoffs is the driving force that keeps casinos open and people scrolling on their phones. The possibility of a fast fortune and fear of missing out causes people to buy and the fear of losing it all makes people sell. Dark alleys and serial killers and diseases from a foreign lands all elicit fear. If Father Time requires exploitation, Lady Luck requires exploration.
Risk is inherent in life. Your only choice in the matter is whether you choose to proactively explore the unknown or not. Generally, this is favorable, as “[Fortune] favors the more aggressive and bold young man than a timid elder.” The reason this is better is because by being proactive, you get to choose the risks you’re taking, and some risks are better than others.
Generally, risk and reward are correlated. But this only applies generally, which means practically there are going to be things with higher risk and lower reward and things with lower risk and higher reward. This also doesn’t take into account that each person values different things, and what might be considered a “high reward” for one person might be a low reward or a downside for another. So the name of the game is a) figuring out what you value, b) avoiding things with a bad risk profile and c) proactively seeking out opportunities with favorable risk profiles.
Generally speaking, there are two kinds of risks. The first kind is what we’ll call “common risk”, which are the kind of risks that we encounter frequently, can collect a lot of data on, and thus we can quantify easily. A good example might be the risk of running into traffic on Thursdays at 11am on your favorite highway. The second kind of risk is “tail risk”. The tail risk category includes all the risks that happen so infrequently (or haven’t happened yet, but still could) that we cannot build any kind of good model to describe them. An example would be the risk of you having a heart attack while driving next week on your favorite highway.
Each risk you take can be classified as betting on common risk or betting on tail risk. Betting on common risk is the same thing as betting against tail risk and vice versa. Betting on common risk means betting that the model you’ve built for your common risk model continues to hold true. In the vast majority of cases, this will be the case. Betting on tail risk means that you’re betting that someone out of the ordinary is going to happen (i.e. a tail event). Most of the time nothing of the sort will happen, but if something does, that’s when you get your payoff.
The upside for betting on common risk is relatively small. But since you’ll be right most of the time, the small rewards add up. When you’re wrong, though, the downside is usually pretty large. The downside for betting on tail risks is relatively small, but since you will be wrong most of the time, these small costs add up. On the other hand, when you are right, the upside is usually pretty large.
You can think of betting on tail risk like buying insurance — you make small payments most of the time, but if something catastrophic happens, you get a big payout. Betting on common risk is like selling insurance to someone. You collect small payments most of the time, but when something catastrophic happens, you have to pay out a large sum.
On the whole, you should seek to balance your bets on common risks and tail risks. If you bet too heavily on common risk, you’re liable to get wiped out the next time something unexpected happens. On the other hand, if you bet too heavily on tail risk, you’ll likely bleed out before something unexpected happens. When the two are properly balanced, you’ll be fine in either situation.
For individual decisions, the key to deciding whether to bet on common risk or tail risk is a matter of how often you think you will be correct (or incorrect) and how large the costs and rewards will be. When you bet on common risk, you want larger recurring rewards, smaller the risk of tail events, and smaller payouts when tail events do happen. When you bet on tail risk, you want smaller recurring costs, a larger risk of tail events, and a higher payout when tail events do happen. If tail events you are betting on are so catastrophic that they negate any reward you might get from betting on them, your best bet is to bet on common risk.
As you can see, dealing with what you don’t know (Lady Luck) is not as straightforward as dealing with what you know (Father Time). For both, it is generally better to proactively make decisions than to let either of them force your hand.