Core Concept: Solvable Problem™
Level 1...And That's Okay
Future Guardian,
During your time at the Guardian Academy, you will frequently encounter a central concept known as "The Solvable Problem™." This concept is crucial in helping you address questions such as:
“Should I…”
“When should I…”
“How do I know when to…”
“Does this make sense for me…?”
The Solvable Problem™ was created by Dan Nicholson and is extensively covered in his bestselling book, "Rigging The Game”1.
To grasp this concept effectively, you must first understand its core principles before delving into the details. Essentially, it boils down to this: Take as much risk as needed to achieve your goals, and once those goals are secured, either reduce or increase risk without jeopardizing your objectives.
The Biggest Risk
There is a lot of talk about risk - some encourage you to take more risk, others will encourage you to take less. However, the term "risk" often lacks a clear definition.
Here is the Guardian Academy stance on risk:
The biggest risk is working hard and not getting the things that matter most to you. Said another way, the biggest risk is that you don’t get what you want out of life.
How much risk you should take depends on where you’re at now and where you want to be. If someone is already on track to reach their goals, taking more risk will likely decrease the probability that they get there. On the other hand, if another person is not currently on track, NOT taking more risk increases the probability that they don’t get there.
So, what increase the probability of success for one can decrease the probability of success for another. Objectively the “risk profile” might be the same but the risk to the individual is different.
We first covered this idea in our article “Should I Be In Crypto? What Is Crypto?”
The Default To “More”
Without a clear target, the human brain defaults to “more”. More specifically, it seeks dopamine, the molecule of more. Often times the decisions that are made to gain more will get you further from what it is that you truly value in life.
Chasing more money can lead to spending less time with your family.
If you’re on track to fully fund your retirement in five years, but chase “more” unnecessarily you risk losses that could push your retirement back another five or ten years.
So how do we know when to take more risk and when to take risk off the table? Is there a way to do both? (The answer is yes, it’s in our basic financial framework)
To apply our methodology, you need clarity on what it is that you are actually trying to solve for. Sometimes, more is the answer - but exactly how much more? If you can answer that question, you can take on additional risk - but only as much as is necessary.
Principle: Closer > More
Principle: shift your orientation from “More” to “Closer”. Specifically, closer to the things that are the most important to you.
Instead of “will this get me more?” ask “will this get me closer to the things that matter most?”
An Intractable Problem
One of the reasons people struggle with answering the question “will this get me closer to the things that matter most?” is that they are facing an intractable problem - a problem that can’t be solved. When faced with something we can’t solve, we tend to default to “more” as the answer.
Here’s an example of an intractable problem:
X * 5 * Y = Z
This is an intractable problem, in terms of your personal or professional life.
Why?
Because there are an infinite amount of combinations and outcomes. In this multivariable equation, Z is the outcome. It’s also a variable that will change each time you change another variable.
In our daily lives, there are always going to be undefined variables - but we don’t want to make the equation correct, we want to end up with a specific outcome.
So the first step is to get clear on the outcome(s) we want so we can isolate for the other variables.
X * 5 * Y = 20
Z = 20. This makes it easier to solve for the other two variables (X and Y). There are still infinite answers, but at least we are solving for the outcome we want.
If we can get clear on as many other variable as possible, it will help us solve for the unknowns.
The Solvable Problem Informs
This is oversimplified for the sake of example, but we want to get as close to something like this as possible:
5 * 4 * Y = 20
Now we are able to solve for Y.
This would be the most efficient and high probability way to get the outcome we want.
Solvable Problem™ informs our behavior (when to take more risks, when to remove risk, how to behave when we have multiple options presented in front of us, etc.)
So, where to start?
First, define the variables.
Starting Location
The first variable to define is your starting location. Just like Google Maps, you cannot get directions without an accurate starting location.
Similar to the Recapture and Reallocate concept2, we start with money and time because they are the easiest to measure. We can also apply this to other currencies: energy, attention, identity, etc - generally speaking getting on track financially makes it easier to focus on the other stuff.
What you need to define to create the first version of your Solvable Problem™:
How much do you have in the bank now?
How much do you have to invest now and in the future?
What is the cost of living? (We recommend recapture and reallocate before doing this exercise)
This will give you a baseline to start from.
Profit Priorities
The new variable to define is the “desired location”. Dan Nicholson calls these the profit priorities. Since we are dealing with money and time, you also want to assign a dollar value and time horizon to each priority.
Here are some examples:
Pay for your kid’s college (120K over 11 years).
Buy a house (500K over 30 years).
New Car (100K over 5 years).
You would outline the top one to three priorities and now you have something to actually solve for. It’s important to be honest with yourself about your priorities. Nobody here is going to judge you, we’re here to help you get what you want. Not what you think you should want or what everyone tells you that you should want.
We also recommend a conservative timeline. Think: worst acceptable scenario. There is a method to collapse time down later, but first we have to lock in a worst case scenario that would still be acceptable.
There are many opportunities to be able to refine and iterate this later especially within TGA community, but if this is your first introduction to the Solvable Problem™ just opening the loop3 for you to reflect on within your own life can be a massive shift.
How To Come Up With Your Priorities
As a quick recap for how to begin:
List your top 1-3 priorities; the most important things to you.
The cost of fully funding those priorities.
Define your appropriate timeline. Remember, not the best case scenario, but the most appropriate, you can always collapse time later.
These are the variables to be honest with. You can utilize a spreadsheet, pen and paper, or whatever method you prefer to track.
We recommend the Certainty App (it’s free) if you want help getting started with a tool to be able to visualize and define your Solvable Problem™.
The Important Question
Am I chasing more or is this getting me closer?
The Solvable Problem™ helps us answer that question with a little more certainty each time we iterate.
You can learn more about the Solvable Problem™ by watching the video or listening to the audio version below:
Listen: Apple Podcasts | Spotify
Watch: YouTube
Wisdom comes from multiple perspectives:
Can you distill what you took away from this article in six words? Leave yours in the Tweet below and then go and read what other have wrote so that you can gain wisdom from their perspectives. https://twitter.com/TheGuardianAcad/status/1605977693958287361?s=20&t=UIeEWXWJAhi_a4WawOAg6g