Thursday, January 31, 2019

Peter Thiel's Theory of Entrepreneurship

Scott Alexander reviews Zero to One, a book based on a course about entrepreneurship Thiel taught at Stanford some years ago. Most of the book, he says, is
less directly about the startup world, and more about deep social trends that good startup founders will have to buck. One such trend – which Thiel approaches in a lot of different equivalent ways – is the loss of belief in secrets. People no longer believe that there are important things that they don’t know, but which they could discover if they tried a little harder.

Past scientific discoveries came from a belief in secrets. Isaac Newton wondered why apples fell, thought “Maybe if I work really hard on this problem, I can discover something nobody has ever learned before”, and then set out to do it. Modern people aren’t just less likely to think this way. They’re actively discouraged from it by a culture which mocks stories like Newton’s as “the myth of the lone genius”. Nowadays people get told that if they think they’ve figured out something about gravity, they’re probably a crackpot. Instead, they should wait for very large government-funded programs full of well-credentialled people to make incremental advances.

Good startups require a belief in secrets, where “secret” is equivalent to “violation of the efficient market hypothesis”. You believe you’ve discovered something that nobody else has: for example, that if you set up an online bookstore in such-and-such a way today, in thirty years you’ll be richer than God. This is an outrageously arrogant claim: that you have spotted a hundred-billion-dollar bill lying on the sidewalk that everyone else has missed. But only people who believe something like it can noncoincidentally found great companies. You must believe there are lucrative secrets hidden in plain sight. . . .

Belief in secrets is connected to belief in one’s own reasoning abilities. Modern conventional wisdom says armchair reasoning never works; any idea you prove true in your head is useless until it’s been exhaustively tested in real life, and you’re more likely to get some other (true) idea out of the exhaustive testing than to validate your armchair speculation. As a corollary, the more steps in your proof, the less likely it is, since each one exponentially increases the error rate of your final conclusion. Since your armchair reasoning is useless, you are unlikely to ever discover a secret (except perhaps by chance, if you randomly do experiments no one else has ever done). The only thing that might not be useless is large institutions working together to gradually advance knowledge with lots of testing, who effectively buy many lottery tickets hoping one will pay off.
This fascinates me partly because it might be true to some extent about business but can, I think, lead to truly horrible thinking about politics. Of course it might be that billionaire entrepreneurs are mainly just lucky, not in the sense that they don't have good ideas or work hard but in the sense that other people have equally good ideas and work just as hard and the ones who become billionaires rather than just rich have simply won the lottery; but I can certainly see an appealing logic to what Thiel says.

Thiel is one of the world's leading libertarians, and also a great believer in social experiments. He is one of the main backers of the sea-steading movement. He assumes that these human-created islands would be libertarian paradises, but he has on occasion said that they will actually be laboratories in which people might try all sorts of different governments. Here we see the faith in armchair reasoning that Alexander highlighted: Thiel thinks some guy on an artificial island might just imagine a system of government as much better than any previous form as Amazon is better than Sears.

I, of course, think this is nonsense; I think that managing a society is a problem several orders of magnitude more complicated than anything done by Google, and that it is in fact a problem beyond the reach of human reason. All attempts to imagine a great form of government from scratch have failed; all successful revolutions preserve more than they destroy.

I say the only way to figure out how to govern a society is to look around the world and see what works. I acknowledge it is possible that some genius might one day come up with a radical social or political innovation that works brilliantly, but I consider it very, very unlikely.

3 comments:

G. Verloren said...

1/2

I, of course, think this is nonsense; I think that managing a society is a problem several orders of magnitude more complicated than anything done by Google, and that it is in fact a problem beyond the reach of human reason. All attempts to imagine a great form of government from scratch have failed; all successful revolutions preserve more than they destroy.

One thing I view as an aspect of the larger problem is that where a single person might potentially stumble upon a brilliant idea for how to run a society, they then have to succesfully convey that idea to other people in a way they can understand, AND convince other people to fundamentally change how they live.

***

I'm reminded of Mark Twain's novel A Connecticut Yankee In King Arthur's Court, where the protagonist, transported back into the medieval age, attempts to uplift the local populace with modern technology and notions of how to run a society. And while he is perfectly successful in building the physical infrastructure he needs to create his notion of a utopian modern society, including electrical lines and telegraph wires, where he runs into disaster is in convincing the medieval population to actually make good use of any of it.

There's a section where he's trying to recruit people to come live in his fledgling community, and he faces resistance because he's offering lower raw wages than they currently receive. He tries to explain that while, yes, a worker in his community technically receives a smaller number of silver coins for a day's work, this is more than made up for by the fact that each silver coin has vastly more buying power, because local prices are so much cheaper. But everyone calls him an imbecile, and remarks that one silver coin is the same as any other silver coin, whether it's earned in one town or another, and only a fool would think they could somehow live more richly by working for fewer coins.

Eventually his fledgling society gets invaded and destroyed by its neighbors, because they all view him as a dangerous lunatic who is upsetting the natural order of things and leading the more gullible members of society astray, filling their heads with dangerous and nonsensical notions.

G. Verloren said...

2/2

Ideas alone do not equate to success. They also need the proper societal circumstances to become accepted. If you tried to advocate overthrowing the institution of Monarchy in medieval Europe in favor of founding a Republic, you'd have found little fertile ground to sow the seeds of revolution in. There were a few notable Republics in that time and place, but they were the odd exception, and they led precarious existences, and almost universally succumbed to their Monarchic neighbors eventually.

It wasn't until centuries later that conditions became more favorable for the rise of Republicanism - and then it was suddenly everywhere. The world exploded with Revolutions, and those Monarchies that remained when the dust settled had nearly all abandoned the previously popular and successful notions of Abstolutism, and had instead embraced far more Democratic systems such as Parliamentarism.

***

The same problem crops up in technology as well.

A British naval captain in the 1700s noted that fresh fruit benefitted his crew tremendously, but no one in the Admirality took any note of it, and scurvy continued to be a major issue for another century before the adoption of limes as the primary means to combat the disease.

Rifled firearms existed for centuries before their usage became commonplace, especially in warfare. Wealthier hunters occasionally used rifles for their superior accuracy, but militaries found them too expensive and too slow to reload, and the tactics of the age relied on volley fire anyway, making the inherent inaccuracy of smoothbore weapons far less of a concern.

The ancient Greeks built the first known steam turbine, but failed to grasp its potential uses, instead viewing it as a mere curiosity, and so it passed into obscurity for another eighteen centuries or so. Imagine how different the world might have been if the Roman Empire had adopted steam power.

***

The point is, you can have a brilliant idea, and even see it realized in all practical respects, but without a societal impetus for widespread adoption, it won't find any meaningful success. If people simply don't want to live or act in a certain way, they won't - nevermind how great of an idea it is.

David said...

FWIW, I'm tired of flashy narcissists and their big ideas. It's time for a wave of Menschlichkeit in the world.