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On some level I'm surprised this approach isn't more common. With diminishing marginal utility of wealth, a small chance of making millions has a much higher ex
by metaxy2 10y ago
On some level I'm surprised this approach isn't more common. With diminishing marginal utility of wealth, a small chance of making millions has a much higher expected value than an almost zero chance of making billions. Plus, even if the billions were worth proportionally more, we actually tend to underweight high risk/high reward scenarios compared to a perfect expected value maximizer. E.g. you wouldn't pay much to get a 1/10,000 shot at unimaginable bliss, even if the expected value math works out.
I'm guessing part of it is that at some point, say under a 5% chance, we stop calculating altogether and it just becomes "so you're saying there's a chance!" If you have a 1% chance of making something as big as Basecamp and a 0.001% chance of starting Facebook, they both feel about the same, so might as well shoot for the moon.
- sokoloff 10y agoI agree with the first half of your post, though I think it's clearer in the second sentence to say that the expected utility is higher rather than the expected value.
- deleted 10y ago[deleted]
- diafygi 10y agoThis approach is more common. It's called starting and running a small business (that maybe someday grows naturally into a big business). Small businesses are way more prevalent than startups, even in tech. Small business loans are orders of magnitude more voluminous than VC and Angel investments. However, remember that we're in a VC funded forum right now, so we're in a bubble where the growth-over-profits is portrayed as equal or preferred to simple slow growth profit. I'd highly recommend checking out your local small business owners' group or meetupss. They are just as smart as you are, but just never got sucked into this bubble here.
- metaxy2 10y agoI suppose I did mean more common within our circles--the corner of the culture that reads Hacker News. I'm from Western Mass, which has way more small software businesses than startups, so I'm not sheltered from the idea. I think you're right there's a certain groupthink that goes into it.