What are Risk and Reward?
One of the most basic business principles is the relationship between risk and reward, and how these variables interrelate. There is, of course, no such thing as a risk free investment in business, and so it’s critical that companies balance the upsides and the downsides. In simple terms, companies should make rational, appropriate decisions – based upon their resources, and particular situation – accepting an appropriate amount of risk, to generate an appropriate level of return.
The practical application of this rather vague definition will differ from business to business; it’s sometimes referred to this as ‘risk appetite’ (i.e. the amount of risk a company is willing to digest – and accept). In general terms, the higher the perceived risk, the higher the potential reward; and, the lower the perceived risk, the lower the potential reward.
To help us apply these concepts to Chess, let’s first consider investment, risk and reward, using a business example:
An example of Investment, Risk and reward in Business
Imagine you’ve decided to invest $50,000 of your hard-earned cash into a local business, which creates widgets, and their CEO provides you with 3 potential investment choices: (a) purchase lottery tickets; (b) deposit into an interest bearing bank account; (c) invest in a machine to produce widgets, faster and cheaper than their old machine.
Option A – lottery tickets – a very small probability of winning millions, and a very high probability of losing everything. As the investor, we would probably consider this too risky, even with the potential upside. Option B – bank account – a very high probability of generating a very low return (e.g. 2%), with almost no risk of losing the $50,000. As the investor, we would probably consider the returns too modest; after all, we could invest $50,000 into our own bank account, to receive the same return.
Option C – widget machine – to produce more products, faster, cheaper, etc. – this should enable the small business to be more competitive. If they’re in the widget business, and their products are profitable, then we – as the investor should generate more return than a bank account, with less risk than the lottery tickets. Hence, Option C would – for most rationale investors – be the most appealing option – an appropriate amount of risk, to generate an appropriate level of return
Do Investment, Risk and Reward exist in Chess?
Good question! Does some vague business concept about investment, risk and reward relate to Chess? Chess is a game, and has little to do with lottery tickets, bank accounts, and widgets, right? Correct! But, despite this, there are investments, risks and rewards. In Chess, our investments are time, energy and money. The amount of each will vary from person to person, depending upon their aspirations, and their own personal circumstances. Books, videos, tutors etc., all consume time, energy and money and – the more we invest in total – the more important it becomes to maximize the return. The returns – or rewards – are, of course, in terms of improvements: winning games, increasing ratings, cash prizes, etc., etc. In short, we can see the actual results through FIDE, USCF, ECF or other rating mechanisms, through cold hard cash, or – in more causal terms – through our online chess statistics. In effect, the increases and decreases to our ratings, and the prize money versus tournament expenditures, are our Chess profits and losses! Just as in business, though, there is no exact formula: no precise recipe for success. If you invest little time, energy and/or money in improving at Chess – then, chances are – there will be little improvement. But, even if you do invest heavily, then what about the risk factors, without which we cannot weigh up the pros and cons?
Of course, risk is a central theme in Chess. Perhaps, the most obvious of these are Gambits, which sacrifice – or rather, invest – material, commonly a pawn, in return for piece development, open lines, piece activity, or other advantage (i.e. the return). Here, the relative soundness or otherwise of the Gambit relates directly to the level of risk(s) for both players. A similar theme exists within Poisoned Pawn variations, offering a pawn in return for an attack, to de-centralise the opponent’s Queen, or other potential advantage. In both cases, the initiator is, in effect, ‘risking’ they know the variations better than their opponent, to ‘regain the material, with interest’, i.e. gaining a return on their investment.
Then there are Traps – here, there is often a clear reward, such as a quick checkmate, winning the opponent’s Queen, or other pre-defined outcome. To set the trap, though, often requires an unorthodox move, or some sort of material sacrifice. Here, whilst the reward may be clear, the risk can be hard to calculate – if the opponent is aware of the Trap, and knows how to avoid it (or refute it) then, at the very least, the initiator’s position might be compromised.
Then comes the concept of Sacrifice; giving up a piece in the hopes of gaining tactical or positional compensation in other forms. A sacrifice could also be a deliberate exchanging of a chess piece of higher value for an opponent’s piece of lower value. Such sacrifices can be a real surprise to one’s opponent, putting him/her off balance, and causing them to use valuable time calculating whether the sacrifice is sound or not, whether to accept it, etc. One such example is the classical bishop sacrifice, by White playing Bxh7+ or Black playing Bxh2+ to initiate an attack against a castled King position.
Going forward, what do I need to consider?
In all cases, even with vast arrays of win/lose/draw statistics on games, such ‘risks versus rewards’ decisions are often subjective, and much is based on the personality type of the chess player. Just as one business might accept more risk, than another, the same can be said of Chess players; in effect, all of us have our own ‘risk appetites’. A conservative individual may give more weight to the downside, overvaluing risks and undervaluing rewards, while a more adventurous individual may have a tendency to do the opposite.
The point is, with Gambits, Poisoned Pawns, Traps and Sacrifices; it’s critical to consider the concept of risk and reward, even if the calculation of ‘soundness’, or the levels(s) of risk and reward involved, is often subjective, or – at best – unclear.
The real question is, for us Chess ‘improvers’ is, how do we balance risk and reward, whilst ensuring our investment of ‘time, energy and cash’ delivers a return? In part 2, we’ll look this in more detail using our Chess investment equation of ‘time, energy and money’ to generate our desired reward of ‘increased chess ratings’, and, importantly, consider the role of risk in Chess.