Binary outcomes and anxiety

A lot of anxieties in life are to do with events which take a continuous "input" and result in a discrete output

There is one class of financial derivatives that is called “binaries”. It is so named because the payoff is binary - either there is a (previously fixed) payoff or not. Whether this payoff happens typically depends on the price of one or more “underlyings”.

via ChatGPT

The thing with binary options is that they take what is a continuous event and convert it into a discrete event. There is a reason these options exist - they can hedge against other similarly (or “opposite-ly”) binary payoffs.

However, this post is not about finance. It is about binary outcomes in real life.

Trains and planes

I was wondering why I was so anxious on my last day in the Bay Area on my recent trip there. That day, I had business in the South Bay, where I was meeting four people one after the other. And on top of that, I was lugging my luggage around the area that day since I had a plane to catch in the evening.

Upon later reflection (while sitting on the flight) I realised that my anxiety stemmed from two binary options that I had inflicted upon myself - a train and a plane.

The Bay Area has notoriously bad public transport. To travel from the city to the South Bay, the most economical way is to take the CalTrain - which is otherwise excellent, but runs only once every half hour. This means that if you miss a train it can have a very material impact on your schedule.

In fact, on my previous trip to the Bay Area in February, I had to cancel a couple of meetings because I missed the CalTrain (couldn’t get a cab to take me to the station in time in both cases).

And so on that Friday (the 13th), my previous missed trains were weighing on my mind as I proceeded to pack up, check out, grab lunch in Chinatown and then take a cab to the Caltrain station. Ultimately I decided to hedge by taking an earlier train and waiting it out in a coffee shop rather than (partially) missing a meeting.

The second bout of anxiety happened later that evening as I sat in a Mountain View restaurant grabbing an early dinner. Suddenly I panicked that “Friday evening traffic can suddenly increase” and “Friday evening might mean long lines at the airport, at checkin and security” and that I might miss my flight. Again not helping matters was that one way of beating the unpredictable Friday evening traffic was by taking the rather infrequent CalTrain.

I ended up putting my dinner in a takeaway box and finishing it at the airport after checking in. And I made my flight comfortably. However, I had been anxious.

Binary options in real life

If you think about it, there can be several things in real life that take a continuous outcome and turn it into a binary outcome. Catching trains or flights is one of them (that said, a more frequent Metro service can reduce the impact of the binary payoff). Being “on time” (notice the binary nature implied in the term itself!) for something is another. Having enough money to afford something is yet another.

And notice that wherever you have binary outcomes involved, there is scope for anxiety.

Currently, the Karnataka Quiz Association’s AsKQAnce quiz fest is going on. Yesterday was the national final of MegaWhats. My team narrowly missed out on qualifying for it, based on a tie break score (we are “Zero Gravitas” in this list; the team at wait list1 made it). That was a binary outcome - a small underperformance resulting in non-qualification.

And whenever I’ve thought about Megawhats in the last one month, I would get triggered, on knowing one answer well and not insisting enough about it to my teammates. Whenever I would think of something related to the quiz I would get triggered. And all of it was to do with the binary nature of the outcome.

In fact, I’m beginning to think that a lot of anxieties in life are to do with binaries. Or functions that convert continuous events to binaries. Being slightly late for a train. Being slightly faster than optimal and ending up in an accident. Scoring slightly less than what was required to get into your preferred school.

The thing is that one cannot hedge away binaries either - they are an inherent part of life. I guess the best that one can do is to construct these binaries such that the payoff is not too great. I don’t know how feasible that is!

PostScript

I had been mulling over this post for the last two weeks. I got triggered (not that kind of trigger) to write it when I read this bit in a book on OCD I started reading this morning:

Officially, it is no more possible to be a little bit OCD than it is to be a little bit pregnant or a little bit dead. Someone has OCD or they are normal. That distinction is drawn for valid reasons, mainly to monitor disease trends and to decide who is eligible for treatment. But in the real world, it’s not that simple. In fact it’s a lot more complicated.

Yet another postscript

I began my career in financial derivatives. Over a period of time I transitioned into Data Science and AI. It is interesting that when I wanted an examples to illustrate binary outcomes, I chose financial derivatives rather than neural networks!

I guess old habits really die hard.