The principles I am summarizing are largely from Nassim Taleb and his series of books.
Asymmetries vs Parity
An asymmetric bet or action takes place when a small move makes a disproportional effect or when an outsized move dictates the result.
Asymmetrically Small: When a small move has little chance of success, but if it does succeed the outcomes are disproportionate. You can see this kind of activity in many fields such as venture capital, investing, poker and many others.
Asymmetrically Large: When an overwhelming move dictates the results to the smallest level, which yields a great amount of control. You can see this in big banking, government policy, global commerce and others.
Parity: When an average move or bet yields an average result. This is obviously the most common and is typically the safe decision to make.
Another source of practical inspiration for understanding asymmetries is The Count of Monte Christo, one of the greatest books ever written. The Count would make an asymmetrically small move that had outsized effect when it came to a series of different actions. He would also make Asymmetrically large bets that dictated the result he wanted. Yet, he never had parity with his enemies.
The best way to illustrate this concept is in the chart above where you have leverage or natural leverage on one axis and the probability of success on the other axis. In order to place small asymmetric bets, you need to have an understanding of the leverage embedded in that particular system. If you are making large asymmetrical bets, you need to make decisions that provide near certainty of success which typically requires a great amount of resources.
Asymmetrical Effects
Nassim Taleb and other investors refer to small asymmetrical bets as long tail investing. Long tail events occur when something small impacts things greatly and is what Nasim Taleb refers to as a black swan events. These kinds of events are more common in uncertain environments, such as the stock market.
I like to think about it in terms of the gaussian distribution curve in the drawing above. The tails are indicated in the arrows that show an extremely positive or extremely negative event. In either case, you can make small bets on these low probability events that few people expect to happen. Most effects occur around the averages or neutral mark. Long tail events can help you achieve outstanding success or bring you to failure.
Asymmetries and Natural Leverage
Natural leverage is my own term for identifying the built-in leverage that lives within a system over time. Think about natural leverage as the spread between artificial and natural results. Natural results are the natural or organic growth that would happen on its' own. Artificial results are the outward results that are artificially supported further than they would have been otherwise.
Natural leverage can't grow forever. Sooner or later artificial results will correct to their natural state. The greater the artificial result, the greater and stronger the correction. In other words, everything reverts to the mean. The problem is typically in understanding the timing of the correction.
When looking for long-tail events, I like to start by evaluating markets and systems that are artificially inflated in such a way that most people expect the artificial results to continue forever.