Expected Value of Real Decisions

I recently accepted a data engineering job!

This job would not be possible without my attendance at Lambda School, an online coding bootcamp that allows students to pay only when they have received a job in which they are making over $50,000/year. If you never get hired, you never pay.

I loved the sound of that. I’m attending a state school that has no problem taking my money and saying see ya later. Lambda School actually has skin in the game. They were only getting paid if I was getting paid.

Before I entered Lambda School, I was understandably curious about their success rates and expected salaries of graduates. On their website, I found that the average data science graduate could expect a median salary of $65,000/year (H2 2019), and that roughly 77% of Lambda data science graduates (H2 2019) end up getting hired.

Fortunately, I took statistics in high school and remembered a few things, namely the calculation for expected value. It’s the easiest formula, but one of the most helpful when making major decisions.

Expected Value = Probability x Result

If you plug in the numbers above, we get an expected value of $50,500.

$50,500/yr. = .77 x $65,000/yr.

Since time is money and there is always an opportunity cost, I also compared this expected value of Lambda School to the expected value of doing other things with my summer like writing a novel or working on a startup idea.

Expected Value of Writing a Book

One query on Google and you can find the average salary of a novelist to be $49,046 per year (Indeed Editorial Team). But in order to be a novelist in the traditional sense,1 one has to get published. And that is difficult.

Fortunately, Leigh Shine wrote a Medium article that cited a 2014 report2 that took data from 9,000 respondents, and concluded that of those who completed a manuscript, 23% succeeded in becoming traditionally published (Shine).

This number seems quite high, and Shine notes that it probably is skewed as the majority of survey-takers were writers who were heavily involved in the community and thus had greater connections and chances of being published.

But, let’s try it anyways.

Expected Value = Probability x Result

$11,280/yr. = .23 x $49,046/yr.

These statistics and calculations are obviously flawed and cannot be taken as fact, but they are decent ballpark approximations for likely results when embarking on a a risky endeavor like writing a novel.

It is a little cold and detached, but I’d personally rather focus on advancing my career now, and start writing novels when I have a house and sizable steady income.

Expected Value of a Startup

I think that newsletter writers should be able to paid in cryptocurrencies, especially if they are writing newsletters about cryptocurrencies. But, currently that is impossible.

So, I created a prototype that solved that issue and threw the idea on my to-do list. Once something is on my to-do list, it must get done.

But then I thought to myself, what is the expected value of creating a startup?

I don’t know many venture capitalists except a few sharks named Mark and Daymond. Good thing Zachary Crockett from The Hustle took meticulous notes from all of Shark Tank’s seasons.

It turns out 56% of businesses on the show get a deal, and the average deal is $286,000 (Crockett). But, in order to get on the show, one needs to apply. And according to CNBC, only 1% of all applications get accepted (Elkins).

Let’s do the math.

$1,601 = .01*.56*$286,000

As I planned my trip to Miami with that $1,600, I saw a tweet come across by Zach Fleischmann about subscription payment processing for cryptocurrencies.

Zach is the founder of Creator Cabins (a DAO that sends creators to cabins funded by crypto) and is a software engineer himself, so I hit him up to talk about the idea.

We hopped on Zoom and I was really happy to find out that A) people were already working my idea, and B) it could be done way cleaner with smart contracts.

Thus, I crossed my $1,600 baby off my to-do list and settled with Lambda School.

Fortunately, it worked out, and I received a much higher outcome from going through Lambda School than either a novel or startup would provide according to expected values.

What about some other weird expected values?

Expected Value of Non-Financial Decisions

What is the expected value of going to a party on a Friday night?

We cannot calculate a number, but we can “regard the expected value of an enjoyable evening as higher than the expected costs the following day” (Street, Farnam).

The team at Farnam St. brought up this interesting example and a few others such as leaving early for appointments and taking on new work.

If we decide to leave early for appointments, we find the expected value of leaving early by multiplying the result of being on time against the frequency (probability) for when we arrive early.

Like the party example, there is no 100% accurate way to calculate the expected value of being early, but this calculation is essentially what we are doing in our heads.

Anyways, what about two important things: dating and food?

When we break up with a person, we weigh the expected value of being single as higher than the value of being in a relationship.

And when eating a hot fudge sundae, we weight the expected value of the sundae as higher than the costs of eating it.

While we can really only use the formula for expected value in financial decisions, we’ve been using the concept throughout our lives whether we know it or not.

Think hard, but take it easy,

Jason

Works Cited

Crockett, Zachary. “Shark Tank Deep Dive: A Data Analysis of All 10 Seasons.” The Hustle, 30 June 2020, thehustle.co/shark-tank-data-analysis-10-seasons.

Elkins, Kathleen. “5 Tips for Getting on ‘Shark Tank,’ from People Who Have Done It.” CNBC, 17 Mar. 2017, www.cnbc.com/2017/03/17/5-tips-for-getting-on-shark-tank-from-people-who-have-done-it.html#:%7E:text=That’s%20why%20some%2045%2C000%20people,Shark%20Tank%E2%80%9D%20producers%20take%20notice%3F.

Indeed Editorial Team. “How Much Do Novelists Earn?” Indeed Career Guide, 2 Mar. 2021, www.indeed.com/career-advice/pay-salary/how-much-do-novelists-make#:%7E:text=The%20national%20average%20salary%20for,contract%20terms%20and%20book%20sales.

Shine, Leigh. “Calculating the Odds of Getting A Traditional Publisher.” Medium, 26 Apr. 2018, medium.com/publishizer/calculating-the-odds-of-getting-a-traditional-publisher-798b1c7b94b0#:%7E:text=One%202014%20report%20taken%20from,%25%20of%20the%20total%20sample).

Street, Farnam. “Poker, Speeding Tickets, and Expected Value: Making Decisions in an Uncertain World.” Farnam Street, 12 Nov. 2019, fs.blog/2018/01/expected-value.