The
whole world of venture-backed innovation is structured to reward people who
take irrational gambles. In fact, you can argue that technological and economic
disruptions of the sort that the tech ecosystem celebrates only come from
people who display delusional levels of self-confidence and risk-taking. If
every entrepreneur and investor were to read Daniel Kahneman’s book, Thinking,
Fast and Slow, and become fully cognizant of the flaws in their thinking
and the statistical realities they’re up against, Silicon Valley would have to
put out a permanent “Gone Fishing” sign.
By
the same token, if the people who donate money to startups on Kickstarter and
buy Fitbits and Pebble watches and iPhones were to lose the conviction that
each new gadget will make them incrementally happier, there’d be nobody to pave
the way for wider adoption—and many genuinely worthy technologies might never
see the light of day.
Kahneman
himself seems to be aware of the contradictions. “I believe that someone who
lacks a delusional sense of significance will wilt in the face of repeated
experiences of multiple small failures and rare successes,” he writes. So the
answer to the paradox may be that there are sectors of the economy where bias
is not just desirable, but indispensable. Entrepreneurs are
delusional. They’re looking at examples like Larry Page and Sergey Brin and
Mark Zuckerberg and Kevin Systrom (Instagram’s founder) and—like buyers of
Powerball tickets—fixating on a hyper-optimistic scenario in which they’re just
as lucky.
But
you know what? God bless ‘em all for for their obvious overconfidence. If the traitorous
eight engineers hadn’t had the pluck to leave good jobs at Shockley
Semiconductor Laboratory in 1957 to start Fairchild Semiconductor, hundreds of
subsequent Fairchild spinoffs, including Intel and AMD, would never have been
formed—and Silicon Valley as we know it would not exist. And if today’s young
entrepreneurs weren’t taking equivalent gambles with their careers, we tech
journalists wouldn’t have anything to write about.
As
T.S. Eliot wrote, “Only those who will risk going too far can possibly find out
how far it is possible to go.” Kahneman and the behavioral economists didn’t
need to prove that humans are irrational: the tech world did that long ago.
Alas,
we wish we had written the six paragraphs above, but we have copied them almost
intact (and with permission) from a recent post by Wade Roush in his XconomyBlog.
Roush
was reviewing Thinking, Fast and Slow, the
career-capping book by Princeton psychologist Daniel Kahneman, one of the founders
of behavioral economics. This book spent
months on all the bestseller lists back in 2011, but Roush only picked up a
paperback copy a couple of weeks ago.
His full review is timely, excellent reading, and very much related to current
Angel investing.
Roush
is one of the very few journalists and bloggers in our field who is a pleasure to read, mixing clear and concise prose covering a broad scope, interspersed with historical and classical references, while maintaining an underling playfulness. Had we the skill, we ourselves would imitate him, but suspect that we can make more money if, eschewing Eliot, we followed
Merle Haggard, imitating Marty Robbins, Hank Snow, Buck Owens,
and Johnny Cash as seen in this classical and historical YouTube video.
Katie Rae
Joe Wallin
john frankel
MassChallenge
Marc Sedam
Kevin Steger
Jeff Bussgang
Kyle Alspach
Jean Hammond
Wade Roush
Matthew Benson
Angel Capital Assn
Dharmesh Shah
Scott Kirsner
Don Dodge
John Landry