4 ms·

The overconfidence paradox

16 points by mblakele 17y ago

rottencupcakes 17y ago
"The main aim of an academic is to achieve tenure; getting the same job for life. This is not the mindset one needs to start a business." Is that true? I'm not sure that's representative of most of my professors. For example, rtm's one of my professors at school, and he's certainly not the only one to be involved in other ventures. Professors are involved in cutting edge research - they need to make risky decisions, based on little information, of what to invest their time in, knowing full well that most of their research won't be overly influential. Sounds a lot like starting a company to me. Also, I'd argue that dropping out of school is no different than quitting your day job. If you're starting your own company, you certainly don't need to prove your credentials to anyone by having a degree - if you know enough to start the company, more time in school would just be wasted time.
- biohacker42 17y ago
  Well it may be true until you tenure, then you can do whatever you want.
- dpark 17y ago
  > For example, rtm's one of my professors at school, and he's certainly not the only one to be involved in other ventures. Professors are involved in cutting edge research - they need to make risky decisions, based on little information, of what to invest their time in, knowing full well that most of their research won't be overly influential. Sounds a lot like starting a company to me. It's very easy to get involved in "risky" ventures on the side. Because your professors have steady jobs at the university, they are afforded the opportunity to get involved in projects that may flop, because their real job is there to mitigate the risk.
- nostrademons 17y ago
  "If you're starting your own company, you certainly don't need to prove your credentials to anyone by having a degree - if you know enough to start the company, more time in school would just be wasted time." Starting a company is easy. Finishing one is hard.
- scott_s 17y ago
  I think there are some real parallels between being an academic and being an entrepreneur, but academia is orders of magnitude more forgiving than the market. The research an academic pursues may end up not having any real impact, but as long as it's novel, it's a contribution. Such researchers don't become famous, but they can attain tenure and continue doing research no one cares about. When starting a business, you don't get points for making something novel that no one wants. You just fail.
biohacker42 17y ago
The paradox of overconfidence is that it may be necessary for an entrepreneur. I think this is true. A lot of brilliant people don't start their own business not for lack of ability or ambition or hunger but because we have such a detailed and clear view of ALL the things that go wrong. That's why pg's essays explaining just how little downside there is to failure when you're young are so great.
mrshoe 17y ago
This just makes me glad that pg encourages hackers to be entrepreneurs. In my experience, engineers could use a little dose of overconfidence, but that's probably the last thing finance guys need. I say this because most business/finance guys I know are alpha male former jock types, while engineers are often brilliant and shy. There are, of course, tons of exceptions.
christofd 17y ago
In Finance Theory/ Market Microstructure there is the concept known as "Noise Traders" (Finance Theory, see Journal of Finance, is a playground for mathematicians and physicists btw). Noise Traders create a market niche for themselves by taking risks that other informed traders will not take, as such they crowd out "normal traders". This allows them to command a higher return on investment.
jeffcoat 17y ago
"markets can experience 25 standard deviation events" Maybe. But what's the probability that your model is just wrong?

16 points by mblakele 17y ago

"The main aim of an academic is to achieve tenure; getting the same job for life. This is not the mindset one needs to start a business." Is that true? I'm not sure that's representative of most of my professors. For example, rtm's one of my professors at school, and he's certainly not the only one to be involved in other ventures. Professors are involved in cutting edge research - they need to make risky decisions, based on little information, of what to invest their time in, knowing full well that most of their research won't be overly influential. Sounds a lot like starting a company to me. Also, I'd argue that dropping out of school is no different than quitting your day job. If you're starting your own company, you certainly don't need to prove your credentials to anyone by having a degree - if you know enough to start the company, more time in school would just be wasted time.

biohacker42 17y ago
Well it may be true until you tenure, then you can do whatever you want.
dpark 17y ago
> For example, rtm's one of my professors at school, and he's certainly not the only one to be involved in other ventures. Professors are involved in cutting edge research - they need to make risky decisions, based on little information, of what to invest their time in, knowing full well that most of their research won't be overly influential. Sounds a lot like starting a company to me. It's very easy to get involved in "risky" ventures on the side. Because your professors have steady jobs at the university, they are afforded the opportunity to get involved in projects that may flop, because their real job is there to mitigate the risk.
nostrademons 17y ago
"If you're starting your own company, you certainly don't need to prove your credentials to anyone by having a degree - if you know enough to start the company, more time in school would just be wasted time." Starting a company is easy. Finishing one is hard.
scott_s 17y ago
I think there are some real parallels between being an academic and being an entrepreneur, but academia is orders of magnitude more forgiving than the market. The research an academic pursues may end up not having any real impact, but as long as it's novel, it's a contribution. Such researchers don't become famous, but they can attain tenure and continue doing research no one cares about. When starting a business, you don't get points for making something novel that no one wants. You just fail.

biohacker42 17y ago

The paradox of overconfidence is that it may be necessary for an entrepreneur. I think this is true. A lot of brilliant people don't start their own business not for lack of ability or ambition or hunger but because we have such a detailed and clear view of ALL the things that go wrong. That's why pg's essays explaining just how little downside there is to failure when you're young are so great.

mrshoe 17y ago

This just makes me glad that pg encourages hackers to be entrepreneurs. In my experience, engineers could use a little dose of overconfidence, but that's probably the last thing finance guys need. I say this because most business/finance guys I know are alpha male former jock types, while engineers are often brilliant and shy. There are, of course, tons of exceptions.

christofd 17y ago

In Finance Theory/ Market Microstructure there is the concept known as "Noise Traders" (Finance Theory, see Journal of Finance, is a playground for mathematicians and physicists btw). Noise Traders create a market niche for themselves by taking risks that other informed traders will not take, as such they crowd out "normal traders". This allows them to command a higher return on investment.

jeffcoat 17y ago

"markets can experience 25 standard deviation events" Maybe. But what's the probability that your model is just wrong?