An Extremely Risky Strategy

Magnus Carlsen | James Surowiecki | Factoids | Elsewhere: Adelle Waldman, Brian Merchant

Photo by Patrick Perkins on Unsplash

Not being willing to take risks is an extremely risky strategy.

| Magnus Carlsen

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I am reminded of a great essay by James Surowiecki from 2014, Epic Fails of the Startup World. He states that we live in the age of the start up, but

Studies of entrepreneurs find that, in general, they’re as risk-averse as everyone else. Only when it comes to starting a business are they daring. And that’s because the fundamental characteristic of entrepreneurs isn’t risk-seeking; it’s self-confidence.

While they know what they’ve undertaken is risky, they are overconfident to the point of delusional. And once they’ve taken the leap into start-updom they don’t act like what they’re doing is risky. They act as if they are likely to succeed, which is an extremely risky strategy.

A 1988 study in the same journal of some three thousand entrepreneurs found that eighty-one per cent thought their businesses had at least a seventy-per-cent chance of success, and a third thought there was no chance they would fail—numbers that bear no relation to reality.

And the overconfidence spreads like a flu, infecting others, and then making success for the entrepreneur even riskier:

The fact that so many entrepreneurs are convinced that they will succeed makes success less likely, by swelling the ranks of competitors. This dynamic was made famous by the economist H. Scott Gordon: in a 1954 essay, he noted that, because fishermen were “incurably optimistic” about their abilities to bring in a big catch, there were always too many fishermen working in the ocean, which, in turn, made it harder for them to earn a living.

And despite the ‘fail fast’ mantra (which a broad slice of the professional class have accepted as bedrock) 'the evidence suggests that past failure really just predicts future failure.'

A 2009 study of venture-backed firms found that entrepreneurs who had failed in the past were not much more likely to succeed in new ventures than first-time entrepreneurs were—some eighty per cent of those who had failed before failed again.

So the biggest risk for entrepreneurs — and many other overconfident individuals and groups — isn’t the risks of the market, but their own overconfidence.

Overconfidence means that many more companies start up than will ever succeed,” Brian Wu, a professor of strategy at the University of Michigan, told me. “That’s unfortunate for individual companies. The paradox is that it’s really beneficial for society.” In the delusions of entrepreneurs are the seeds of technological progress.

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Factoids

Apropos of the debate tonight.

Loathing for both parties is at an all-time high, and 25 percent of voters are what pollsters call “double haters.” | Elizabeth Spiers

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What you say and how you say it.

Research indicates the pitch, volume, and pace of your voice affect what people think you said about five times as much as the actual words you used. | Deborah Gruenfeld

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Imagine how much a US fund could be.

The Government Pension Fund of Norway is an example of what’s possible when surplus revenues from fossil fuels are invested for the benefit of society instead of private investors. The pension fund is the world’s biggest with a value of around US$ 1.626 trillion. The fund made a mind-boggling $110 billion profit in the first quarter of this year alone. | Dense Discovery

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Elsewhere

Pushing risk onto workers for profits.

In It’s Not Just Wages. Retailers Are Mistreating Workers in a More Insidious Way., Adelle Waldman took a job at a big box store, and learned from the bottom-up how flexible scheduling harms workers:

When I started working at the [big box] store, I assumed that the reason part-time work was less desirable than full-time work was that by definition, it meant less money and fewer or no benefits. What I didn’t understand was that part-time work today also has a particular predatory logic, shifting economic risk from employers to employees.

Which is exactly why the employers do it: to decrease their risks.

And because part-time work has become ubiquitous in certain predominantly low-wage sectors of the economy, many workers are unable to find full-time alternatives. They end up trapped in jobs that don’t pay enough to live on and aren’t predictable enough to plan a life around.

[…]

From the perspective of employers, flexible scheduling remains extremely efficient. But that efficiency means reneging on the bargain on which modern capitalism long rested. Since the passage of the Fair Labor Standards Act during the New Deal era, employers have had to pay most of their workers for 40 hours of work even when business was slow. That was just the cost of doing business, a risk capitalists bore in exchange for the upside potential of profit. Now, however, employers foist that risk onto their lowest-paid workers: Part-time employees, not shareholders, have to pay the price when sale volumes fluctuate.

[…]

Policies undertaken to increase corporate profits at the expense of workers’ well-being are then held up as evidence of the workers’ poor character. There is poor character at play here. It’s just not that of workers.'

Waldman's not a policy person, so she just points out the contours of +precarity, not a cure. The cure is unionization, along with other human-centric policies:

• a full-time job, rather than two part-time jobs

• fixed schedules, rather than algorithms

• and benefits for all workers.

Yes, people will have to pay more for their groceries at Walmart and their lattes at Starbucks. Tough.