4 ms·

I find it funny that capitalism requires what is essentially an irrational behavior. It seems to me that big public corporations, which avoid risk, and only buy

by js8 10y ago

I find it funny that capitalism requires what is essentially an irrational behavior. It seems to me that big public corporations, which avoid risk, and only buy startups once they have been established, are the rational actors. On the other hands, three guys in the garage doing a startup often do it not because they calculate expected profits, but because they want to do it for other than monetary reasons - typically to show that things can be improved and done differently. And so they are willing to take huge, irrational risks.

thefalcon 10y ago
Similar in some ways to how evolution depends mutation?
- js8 10y ago
  This is actually on the mark. Evolution doesn't care about individual outcomes, it concerns with survival of the genes, or species. So even if those guys in the garage act irrationally as individuals, someone has to take those risks, otherwise the society as a whole would be out-competed. And that's why some people have evolved (not me :-)) to take more risks, at the personal expense.
zanny 10y ago
Startups are not much risk, though. You start out without, you try to make something, if it doesn't work out just having the experience as long as it wasn't a total catastrophe makes you hirable anywhere you want or you try again. The most you might lose is the support of friends and family if your dreams aren't fully realized. Which can be a lot, but that is why the people who have the most to lose don't try startups.
- js8 10y ago
  There is opportunity cost which is working for a big company from the start. If startups are not risky enough to be irrational to get involved, are you saying then the big companies are acting irrationally when not getting involved? That's of course a dual view. But it seems to me that the big corporation is more likely the one that calculates the correct expected ROI than the startup in the unknown space..
- pc86 10y ago
  Founding a failed startup does not "make you hireable anywhere you want."
  - Strom 10y ago
    Of course not, it's hyperbole. Your criticism can be applied to anything [1], because nothing will make someone hireable everywhere. The point is that if you go through a decent period [2] of running a start-up you will acquire experience and skills that will make you much more attractive for hire compared to yourself without that experience. What's more, the quality of this real world experience will most likely far surpass anything you would gain in a classic university in the same amount of time [3]. -- [1] Depending on how literal we want to be with these word games, there are some tricks that can be done with the "you want" part of the phrase to adjust how much it applies. [2] Let's say 6 months full-time minimum. [3] There's no way to give a universal estimate here for everyone. However for people who are capable of self-teaching, the startup experience can be orders of magnitude more useful than university time.
nabla9 10y ago
Capitalism don't require irrational behavior. What is needed are things like comparative advantage and economic profit[1]. Someone who has capital has different incentives than someone who whose major offering is labor or expertise. Newton's studies were motivated by his dislike of farming and need to revenge a bully. He got time for his most productive work because plague closed the University for two years. ---- [1]: if you are not familiar with these terms, look up definitions, because they don't mean what you think they mean.
- js8 10y ago
  Do you agree there is a difference in behavior between startups and big companies, though? In the way they are willing to invest into something? If you agree, then how can you say both act rationally? Why wouldn't rational people who have labor to offer, instead of joining a startup, go work for a big company? The pay is usually better I hear. Addendum: I am sure you can explain the difference in behavior by invoking "preferences" or "utility" (which is actually meaningless in humans, cf. https://news.ycombinator.com/item?id=13276760 https://news.ycombinator.com/item?id=13276760, but that aside) of monetary rewards; however, that doesn't explain why there is the difference in the first place. If some entities are rational, they should perceive the world the same way and thus have the same preferences.
  - nabla9 10y ago
    You can explain it using prospect theory https://en.wikipedia.org/wiki/Prospect_theory https://en.wikipedia.org/wiki/Prospect_theory >If some entities are rational, they should perceive the world the same way and thus have the same preferences. This is incorrect. Rational economic behavior is sequence of choices that gives the optimal level utility for the actor. Utility function is given and outside rationality. Different people have different capabilities and resources available to them. Even if they had different utility functions they would behave differently for the reasons I described above.
  - ajuc 10y ago
    > If you agree, then how can you say both act rationally? Why should there be only 1 optimal way to play this game? Example of a game with 2 optimal ways to play - tossing a coin and betting on head or tail.
ue_ 10y ago
Capitalism is also quite rational - feeding human greed while exploiting the proletariat. Initially, it can be irrational to take some risk, but beyond that, it's clean-cut rationality, and a business must behave rationally (considering rising returns as a consequence of rational conduct) or be out-competed or fail.
marcosdumay 10y ago
About the people on the garage, I don't think you can say it is irrational if they get a big non-monetary benefit from doing it.
- pbhjpbhj 10y ago
  Depends, is non-monetary benefit rational? Doing something that risks your food/shelter/comfort/family without guaranteed material return is probably always irrational; doing something for the thrill, or out of love, for friendship, to have the experience, etc.. All ultimately irrational wastes of energy. There is no rational reason for you to live, you can - and hopefully do - want to, but that's not rationality. That's irrational humanity, or based on irrational axioms.
- tonyedgecombe 10y ago
  Nor if they do it for non-monetary benefit.
maverick_iceman 10y ago
How's taking a calculated risk an irrational behavior? By your definition rational behavior would require perfect knowledge about the future, a goal forever beyond those of us mere mortals.

by js8 10y ago

thefalcon 10y ago

Similar in some ways to how evolution depends mutation?

js8 10y ago
This is actually on the mark. Evolution doesn't care about individual outcomes, it concerns with survival of the genes, or species. So even if those guys in the garage act irrationally as individuals, someone has to take those risks, otherwise the society as a whole would be out-competed. And that's why some people have evolved (not me :-)) to take more risks, at the personal expense.

zanny 10y ago

Startups are not much risk, though. You start out without, you try to make something, if it doesn't work out just having the experience as long as it wasn't a total catastrophe makes you hirable anywhere you want or you try again. The most you might lose is the support of friends and family if your dreams aren't fully realized. Which can be a lot, but that is why the people who have the most to lose don't try startups.

js8 10y ago
There is opportunity cost which is working for a big company from the start. If startups are not risky enough to be irrational to get involved, are you saying then the big companies are acting irrationally when not getting involved? That's of course a dual view. But it seems to me that the big corporation is more likely the one that calculates the correct expected ROI than the startup in the unknown space..
pc86 10y ago
Founding a failed startup does not "make you hireable anywhere you want."
- Strom 10y ago
  Of course not, it's hyperbole. Your criticism can be applied to anything [1], because nothing will make someone hireable everywhere. The point is that if you go through a decent period [2] of running a start-up you will acquire experience and skills that will make you much more attractive for hire compared to yourself without that experience. What's more, the quality of this real world experience will most likely far surpass anything you would gain in a classic university in the same amount of time [3]. -- [1] Depending on how literal we want to be with these word games, there are some tricks that can be done with the "you want" part of the phrase to adjust how much it applies. [2] Let's say 6 months full-time minimum. [3] There's no way to give a universal estimate here for everyone. However for people who are capable of self-teaching, the startup experience can be orders of magnitude more useful than university time.

nabla9 10y ago

Capitalism don't require irrational behavior. What is needed are things like comparative advantage and economic profit[1]. Someone who has capital has different incentives than someone who whose major offering is labor or expertise. Newton's studies were motivated by his dislike of farming and need to revenge a bully. He got time for his most productive work because plague closed the University for two years. ---- [1]: if you are not familiar with these terms, look up definitions, because they don't mean what you think they mean.

js8 10y ago
Do you agree there is a difference in behavior between startups and big companies, though? In the way they are willing to invest into something? If you agree, then how can you say both act rationally? Why wouldn't rational people who have labor to offer, instead of joining a startup, go work for a big company? The pay is usually better I hear. Addendum: I am sure you can explain the difference in behavior by invoking "preferences" or "utility" (which is actually meaningless in humans, cf. https://news.ycombinator.com/item?id=13276760 https://news.ycombinator.com/item?id=13276760, but that aside) of monetary rewards; however, that doesn't explain why there is the difference in the first place. If some entities are rational, they should perceive the world the same way and thus have the same preferences.
- nabla9 10y ago
  You can explain it using prospect theory https://en.wikipedia.org/wiki/Prospect_theory https://en.wikipedia.org/wiki/Prospect_theory >If some entities are rational, they should perceive the world the same way and thus have the same preferences. This is incorrect. Rational economic behavior is sequence of choices that gives the optimal level utility for the actor. Utility function is given and outside rationality. Different people have different capabilities and resources available to them. Even if they had different utility functions they would behave differently for the reasons I described above.
- ajuc 10y ago
  > If you agree, then how can you say both act rationally? Why should there be only 1 optimal way to play this game? Example of a game with 2 optimal ways to play - tossing a coin and betting on head or tail.

ue_ 10y ago

Capitalism is also quite rational - feeding human greed while exploiting the proletariat. Initially, it can be irrational to take some risk, but beyond that, it's clean-cut rationality, and a business must behave rationally (considering rising returns as a consequence of rational conduct) or be out-competed or fail.

marcosdumay 10y ago

About the people on the garage, I don't think you can say it is irrational if they get a big non-monetary benefit from doing it.

pbhjpbhj 10y ago
Depends, is non-monetary benefit rational? Doing something that risks your food/shelter/comfort/family without guaranteed material return is probably always irrational; doing something for the thrill, or out of love, for friendship, to have the experience, etc.. All ultimately irrational wastes of energy. There is no rational reason for you to live, you can - and hopefully do - want to, but that's not rationality. That's irrational humanity, or based on irrational axioms.
tonyedgecombe 10y ago
Nor if they do it for non-monetary benefit.

maverick_iceman 10y ago

How's taking a calculated risk an irrational behavior? By your definition rational behavior would require perfect knowledge about the future, a goal forever beyond those of us mere mortals.