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All of Michael Dickens's Comments + Replies

A LessWrong Crypto Autopsy
Michael Dickens30

My understanding is that VCs only invest in about 1% of startups, even though probably 5-10% of startups have reasonably good stories for why they'll be super successful, and where you could argue "surely they have at least a 0.1% chance of succeeding, so let's invest in all of them." If VCs lowered their standards by 5-10x, they would not make any money; that's what I was trying to say.

The question isn't how do you distinguish bitcoin from the 1% of startups that are worth investing in; it's how do you distinguish it from the 5-10% of startups that look like they're worth investing in according to the arguments in OP?

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3PeterBorah
It seems to me that you're conflating "succeeding" and "returning 5000x my money". I think it's obviously true that most startups don't have a 0.1% chance of returning 5000x your money. Notice that the most important factor in that calculation is generally not "chance of success", but rather "chance of 5000x return, given success".
A LessWrong Crypto Autopsy
Michael Dickens10

I am not convinced that people in 2011 should have bought bitcoin. If you gave 2011 me the epistemic skills of 2018 me, I would not have bought bitcoin. I don't know how one could reliably distinguish bitcoin from, say, a penny stock that makes promises of 10,000x growth.

Or perhaps a slightly stronger argument would be venture capital. Many startup founders have plausible stories of why their company will one day be worth billions of dollars. Surely it's worth investing even if there's a 0.1% chance that they are correct? But if VCs invested... (read more)

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4PeterBorah
This is pretty much exactly what they do, if by "0.1%-plausible" you mean "has a 0.1% chance to give us a 10,000x return". The vast majority of VC investments lose money, and that's fine, because one 10,000x pays for a lot of failures. Paul Graham has a good essay on it: http://www.paulgraham.com/swan.html Now, that probably doesn't mean VCs shouldn't filter startups at all (though I'd be interested to see someone try that as an experiment). So it's worth considering what made Bitcoin "not nonsense". My first take is that it was a genuine technological innovation, which also got interest from a decent number of smart people. But this is a really unintuitive game. You have to be OK with usually losing all your money. Your system 1 isn't going to like that.