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Proph3t90

If too much people pay attention to adverse selection, I'd argue that there's an opposite effect: advantageous selection.

Imagine a world where every venture capitalist only invests in 'hot' rounds. Like this post advocates, they become wary when they're easily able to trade their cash for a company's equity. In this world, the market is inefficient. Supposing you have the cash to keep your portfolio companies alive (e.g., you're SoftBank), you'd be much better off only investing in the companies that other investors don't want to touch. This is because even though the hot startups are on average better startups (because of adverse selection), the low prices you pay for the not-hot startups should more than make up for it. Warren Buffet famously recommends "to be fearful when others are greedy and to be greedy only when others are fearful." And it's a rule of markets that in order to make outsized returns, you need to be both right and contrarian.

The rule I apply is considering the quality of the average market participant's information. Back to your Alice's Restaurant vs. Bob's Burgers example, it'd matter a lot whether the typical eater is a local or a tourist. If it looks like most eaters are locals, they likely have very good information on both places: almost all of them have likely tried both multiple times. But if they're all tourists, people may have just gone to the restaurant because they saw others there. In effect, there's a speculative bubble in Alice's food. So you're probably better going off the beaten path: although Bob's burgers is ceteris paribus of lower quality, the extra benefits (e.g., better service, chef can pay attention to crafting you an excellent burger) will ceteris paribus make up for it!

Thus the statement 'If I am the king of England, the moon is made of blue cheese' is 'true' (assuming I am not the king of England), and so is the statement 'If I am the king of England, the moon is NOT made of blue cheese'. Thus, 'B' AND 'not B'. 

This doesn't prove B and not B, it proves (~A OR B) AND (~A OR ~B), which is true since A is false (you are not the King of England).

Another way to frame this: correct for biases in your sensitivity to new information.

Enron was too insensitive to new information. It biased itself towards insensitivity by rewarding those who stuck to the party line.

Conversely, a founder who gives up after hearing a few 'no's from investors is likely too sensitive to new information. They're biased in the opposite direction: it's often easier to give up than to trudge on.

Eliezer's point is that most of us are too insensitive to new information because it's painful to admit that we were wrong. I can agree with this, but it's also not a universal truth because there are times where it's painful to admit that we were right. The universal truth is that it's good to correct for biases in your sensitivity to new information.

Examples:

  • Alice moves to Examplestan, where everyone believes that 3+2=7. Alice should be less sensitive to new information on the sum of 3 and 2 because it's easier to conform.
  • Bob is a fervent ateapotist (someone who doesn't believe that there's a teapot between Earth and Mars), has mostly ateapotist friends, and heads up the local ateapotist club. If NASA publishes new images of a teapot between Earth and Mars, Bob should be more sensitive to those images than he's inclined to be because it's easier to stick with what he already believes (and retain his friends) than to discard what he believes (and lose his friends).