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archive: https://archive.is/https://www.ft.com/content/5ffe19c3-20ec-4115-9a69-f71133b700f6 https://archive.is/https://www.ft.com/content/5ffe19c3-20ec-... Pap

archive: https://archive.is/https://www.ft.com/content/5ffe19c3-20ec-4115-9a69-f71133b700f6 https://archive.is/https://www.ft.com/content/5ffe19c3-20ec-... Paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5270031 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5270031 OK, I'm very skeptical of the correlational results, and feel a bit guilty posting this. But... on the other hand: 1) This is pretty entertaining! 2) Pollution aside, I do buy into the narrative that selection bias for lucky risk-takers explains a lot of bad leaders: >Superfund CEOs, by contrast, are more likely to take high-variance internal risks — such as aggressive restructuring — that sometimes generate standout outcomes. When these gambles pay off, they are difficult to distinguish from skill. Firms, observing only results, may systematically promote risk-takers...

bberenberg 1y ago
Just keep in mind that lucky risk-takers who can do this on a risk adjusted basis are a good thing. The problem is when they can't risk adjust and burn everything down.
- bluefirebrand 1y ago
  Another problem is when they are extreme narcissists and burn everything down themselves to fuel their own egos
paulddraper 1y ago
> In short, Superfund CEOs display performance with essentially lower mean but higher variance. Outcomes however are not evenly distributed, large success typically has outsized rewards. This is why VCs have the investment strategies they do: invest in 10, 7 fail, 2 don't matter, and 1 is everything.
- glalonde 1y ago
  which makes sense in a portfolio, but a company only has one CEO in their basket. But I suppose if CEO elections represent stock holders with many companies, then perhaps it may still be optimized like a portfolio with multiple CEOs.
  - ebiester 1y ago
    Only one at a time, but a CEO is still chasing that monumental success that their reputation can ride on later.
  - paulddraper 1y ago
    Correct. The effect is more mild, not necessarily because the profile is different but because public companies don’t usually have 100x upside.
darth_avocado 1y ago
> I do buy into the narrative that selection bias for lucky risk-takers explains a lot of bad leaders It’s not even actual lucky high risk gambles that are successful that are rewarded. A lot of times, it’s just perceived success. Plenty of leaders fail upwards. Reward for incompetence and failure is a promotion that is mostly dictated by who you know in the organization. And perceived success is a huge factor in “who you know”.
- bonoboTP 1y ago
  Much more likely that what you see as failure by certain criteria was an overall success by the criteria of the people who make decisions about hiring them "upwards".
  - darth_avocado 1y ago
    If running massive vanity projects for years, that get completely scrapped, while you get so far behind your competitors that you have to layoff half the org and then spend hundreds of millions to acquire those competitors is called success by some metrics, then I would say you’re prioritizing the wrong metrics.
    - gopher_space 1y ago
      If there aren't really any failure states for you on a personal level why even spend time planning?
  - nosianu 1y ago
    You are not contradiction the parent commenter, you actually say the same. A key point was/is that they use the wrong criteria. The parent commenter wrote > it’s just perceived success and the abstract from the paper says > suggesting firms reward observed success without recognizing underlying risk tolerance
- CGMthrowaway 1y ago
  >It’s not even actual lucky high risk gambles that are successful that are rewarded. A lot of times, it’s just perceived success. Or, perhaps relatedly, short-term success which sets up long-term failure - but by then the leader has moved on from the role.
quantified 1y ago
If the companies crash and burn, but the CEOs succeed more personally (money, sex, fame, whatever floats their boats), then it's a selfishly useful adaptation.
pkasting 1y ago
> selection bias for lucky risk-takers explains a lot of bad leaders For example, it explains Elon Musk entirely.
- nickff 1y ago
  No, Musk has not just been lucky. He founded three companies which came to be valued over a billion dollars, each in a different industry; this is more than luck.
  - wtdo 1y ago
    Which three? Cause Tesla wasn't founded by him, neither was Twitter.
    - nickff 1y ago
      I’d argue that he did found the Tesla as it exists now, but if you want to discount that, you could choose XAI, SolarCity, or OpenAI.
      - pkasting 1y ago
        Musk did not found SolarCity; that was Peter and Lyndon Rive. I don't know what "found the Tesla as it exists now" means. Founding and leading are distinct. Musk has been a key leader at Tesla; he was not a founder of it or any merged or acquired company.
        nickff 1y ago
        Founding is not the same as incorporating or being the first to work on. For example, the founding fathers of the USA were not the first people to live in the thirteen colonies, and many of them were only involved with some part of the origination of the country.
        kttjoppl 1y ago
DebtDeflation 1y ago
> I do buy into the narrative that selection bias for lucky risk-takers explains a lot of bad leaders It explains a lot more than bad leaders, it explains almost everything in society. The winners write history and you can't really win unless you take big risks.
selimthegrim 1y ago
Alphaville is usually free to read.
shermantanktop 1y ago
At work I’m watching a skilled, proven VP take a huge gamble that is out of his control even though he doesn’t seem to realize it - his confidence clearly blinds him and causes him to acknowledge the risk but claim everything is 100% according to plan. Even while many senior people are quitting due to this gamble, some of whom were less effective, but some are virtually irreplaceable. I’ve worked with this guy for a long time and he’s a risk taker but nothing like this. What seems to have triggered this is his fascination with LLMs. I have a feeling this is happening to a lot of execs in tech right now.
- bgnn 1y ago
  LLMs brought an environment of speculation/gambling about its impact in thr future. Pretty much every exec and investor is blinded by it.

bberenberg 1y ago

Just keep in mind that lucky risk-takers who can do this on a risk adjusted basis are a good thing. The problem is when they can't risk adjust and burn everything down.

bluefirebrand 1y ago
Another problem is when they are extreme narcissists and burn everything down themselves to fuel their own egos

paulddraper 1y ago

> In short, Superfund CEOs display performance with essentially lower mean but higher variance. Outcomes however are not evenly distributed, large success typically has outsized rewards. This is why VCs have the investment strategies they do: invest in 10, 7 fail, 2 don't matter, and 1 is everything.

glalonde 1y ago
which makes sense in a portfolio, but a company only has one CEO in their basket. But I suppose if CEO elections represent stock holders with many companies, then perhaps it may still be optimized like a portfolio with multiple CEOs.
- ebiester 1y ago
  Only one at a time, but a CEO is still chasing that monumental success that their reputation can ride on later.
- paulddraper 1y ago
  Correct. The effect is more mild, not necessarily because the profile is different but because public companies don’t usually have 100x upside.

darth_avocado 1y ago

> I do buy into the narrative that selection bias for lucky risk-takers explains a lot of bad leaders It’s not even actual lucky high risk gambles that are successful that are rewarded. A lot of times, it’s just perceived success. Plenty of leaders fail upwards. Reward for incompetence and failure is a promotion that is mostly dictated by who you know in the organization. And perceived success is a huge factor in “who you know”.

bonoboTP 1y ago
Much more likely that what you see as failure by certain criteria was an overall success by the criteria of the people who make decisions about hiring them "upwards".
- darth_avocado 1y ago
  If running massive vanity projects for years, that get completely scrapped, while you get so far behind your competitors that you have to layoff half the org and then spend hundreds of millions to acquire those competitors is called success by some metrics, then I would say you’re prioritizing the wrong metrics.
  - gopher_space 1y ago
    If there aren't really any failure states for you on a personal level why even spend time planning?
- nosianu 1y ago
  You are not contradiction the parent commenter, you actually say the same. A key point was/is that they use the wrong criteria. The parent commenter wrote > it’s just perceived success and the abstract from the paper says > suggesting firms reward observed success without recognizing underlying risk tolerance
CGMthrowaway 1y ago
>It’s not even actual lucky high risk gambles that are successful that are rewarded. A lot of times, it’s just perceived success. Or, perhaps relatedly, short-term success which sets up long-term failure - but by then the leader has moved on from the role.

quantified 1y ago

If the companies crash and burn, but the CEOs succeed more personally (money, sex, fame, whatever floats their boats), then it's a selfishly useful adaptation.

pkasting 1y ago

> selection bias for lucky risk-takers explains a lot of bad leaders For example, it explains Elon Musk entirely.

nickff 1y ago
No, Musk has not just been lucky. He founded three companies which came to be valued over a billion dollars, each in a different industry; this is more than luck.
- wtdo 1y ago
  Which three? Cause Tesla wasn't founded by him, neither was Twitter.
  - nickff 1y ago
    I’d argue that he did found the Tesla as it exists now, but if you want to discount that, you could choose XAI, SolarCity, or OpenAI.
    - pkasting 1y ago
      Musk did not found SolarCity; that was Peter and Lyndon Rive. I don't know what "found the Tesla as it exists now" means. Founding and leading are distinct. Musk has been a key leader at Tesla; he was not a founder of it or any merged or acquired company.
      - nickff 1y ago
        Founding is not the same as incorporating or being the first to work on. For example, the founding fathers of the USA were not the first people to live in the thirteen colonies, and many of them were only involved with some part of the origination of the country.
        kttjoppl 1y ago

DebtDeflation 1y ago

> I do buy into the narrative that selection bias for lucky risk-takers explains a lot of bad leaders It explains a lot more than bad leaders, it explains almost everything in society. The winners write history and you can't really win unless you take big risks.

selimthegrim 1y ago

Alphaville is usually free to read.

shermantanktop 1y ago

At work I’m watching a skilled, proven VP take a huge gamble that is out of his control even though he doesn’t seem to realize it - his confidence clearly blinds him and causes him to acknowledge the risk but claim everything is 100% according to plan. Even while many senior people are quitting due to this gamble, some of whom were less effective, but some are virtually irreplaceable. I’ve worked with this guy for a long time and he’s a risk taker but nothing like this. What seems to have triggered this is his fascination with LLMs. I have a feeling this is happening to a lot of execs in tech right now.

bgnn 1y ago
LLMs brought an environment of speculation/gambling about its impact in thr future. Pretty much every exec and investor is blinded by it.