Arnie Weissman

I’m about two-thirds of the way through Nate Silver’s book On the Edge: The Art of Risking Everything (Penguin Books, 2024), and it’s already changed my perspective on risk and reward in the travel industry.

Silver rose to fame as a political seer in 2016, partly because his FiveThirtyEight forecasting model seemed to give presidential candidate Donald Trump the only chance of winning the 2016 election with a 30 percent chance, while bookmakers generally predicted 17 percent.

Less well known is Silver’s career as a professional poker player, which began before this election and led him to become interested in modeling odds and risk. In poker parlance, the difference between 17% and 30% reflected a significant “expected value” when trusting the 30% prediction. If 30% was right and 17% was wrong, a player had a significant advantage that could be quite profitable.

The book includes a long section on gambling strategies and casinos, including an in-depth look at historical and modern Las Vegas. (There’s an insightful interview with Steve Wynn, as well as an analysis of why Trump didn’t succeed in Atlantic City.)

“On the Edge” is roughly divided between gaming strategies and Silicon Valley gambling. Silver examines what personality traits poker players and venture capitalists have in common and where they differ. (“Contrarian” turns out to be a significant area of ​​potential overlap.)

Yet both types are, in Silver’s extended metaphor, inhabitants of the “river,” in contrast to the less risk-taking members of society who live in the “village.”

Businesspeople in the travel industry, from independent contractors to cruise line CEOs, take risks to grow their businesses. And as the level of investment based on expected value increases, the risk often increases as well.

Travel agents encounter both Rivera and village people among their clients, and I began to think about the risks clients take when booking a vacation.

Riverian travelers should not be confused with those whose businesses involve great risk. Venture capitalists who have invested billions in high-profile investments are not necessarily looking to climb Mount Everest. Most I have met prefer to pamper themselves at a Four Seasons on vacation and are willing to spend a small fortune to make sure everything goes exactly the way they want it to. Unlike in the office, they spend their money not to gamble but to avoid risk. They want to make sure their leisure time is predictable and not speculative.

I’m a contrarian here. I believe that risk aversion can reduce the expected value of a vacation for brands and travelers.

I certainly understand why hotel companies value consistency and focus on RevPAR, ADR and occupancy. Likewise, the majority of consumers value predictability and are therefore content to stick with familiar brands whose consistent performance is all but guaranteed.

But recent acquisitions by Hilton (NoMad and Graduate brands) and Hyatt (Standard/Bunkhouse) demonstrate the appeal and rewards of these brands, both of which began with a single property. I believe customers who booked these unique properties early received greater expected value than those who booked with loyalty points in mind.

I speak from experience, both as a consumer and as an investor. As my travel agent knows, although I mostly stay in conference hotels, I am quite willing to book interesting independent accommodation. These are the unforgettable stays.

And I invested in what would become the first property in Bunkhouse’s portfolio, the Hotel San Jose in Austin, Texas. Although it was unlike anything that had come before and located in a part of town that had been overlooked until then, it was an overnight success and, more than any other venture, drove the revitalization of the now-popular SoCo neighborhood.

Earlier this week, I spoke to Basak Tan, CEO of hospitality consultancy Kremm, who agrees that the mass behavior of hoteliers is undermining the expected value for both investors and consumers.

“Today, hotels exist in a very different environment than they did 20, 10 or even 5 years ago,” she said. “There is more of everything: more brands, more confusion, more innovation, more movement, more money, more expectations and a greater need for authenticity, connection and meaning. And yet we still see financial projections based on ‘heads in beds.'”

Tan said she believes if developers choose to create their own brand, they have the freedom to reimagine the value and experience framework not just for guests, but for the community as a whole. She believes it is certainly important to pay attention to the underlying financial metrics, but takes a broader perspective, looking at “the potential of the asset as a whole and what is possible today given design, resources and technology, as well as societal, environmental and urban needs.”

All of this means that when selecting your clients, you should take a moment and proactively seek out local travelers. While it may be more work to find the perfect accommodation for them, they will certainly appreciate the added value you provide.