Welcome to The Nonlinear Library, where we use Text-to-Speech software to convert the best writing from the Rationalist and EA communities into audio. This is: Be less scared of overconfidence, published by benkuhn on November 30, 2022 on LessWrong.
When I was deciding whether to work for Wave, I got very hung up on the fact that my “total compensation” would be “lower.”
The scare quotes are there because Wave and my previous employer, Theorem, were both early-stage startups that were paying me mostly in fake startup bucks equity. To figure out the total compensation, I tried to guess how much money the equity in each company was worth, with a thought process something like:
Both of these companies have been invested in by reputable, top-tier venture capitalists.
The market for for-profit investments is pretty efficient, and most people who think they can do better are being overconfident.
Who am I, a lowly 22-year-old programmer, to disagree with reputable top-tier venture capitalists? I should defer to them about the valuations.
So I valued the equity by taking the valuation each company’s VCs had invested at, and multiplied it by the fraction of the company my shares represented. That number was higher for Theorem than for Wave.
Seven years on, the Wave equity turned out to be. a lot more valuable. That raises the question: how dumb was my take? Was the actual outcome predictable if I’d thought about it in the right way?
I don’t think it was perfectly predictable, but I do think I shouldn’t have been that anchored to the market-efficiency reasoning. Those respectable, top-tier VCs had YOLOed those valuations after a couple one-hour meetings, because that’s how early-stage VC works. Meanwhile, I had worked at Theorem for a year and my then-partner had worked at Wave for nine months. Heck, I had gotten more founder time than those VCs had just during my interview process. I had way more information than “the market.”
If I’d had the confidence to use that information, I might have thought something like:
After its funding round, Wave continued to add users at one of the fastest paces their investors had ever seen, whereas Theorem is struggling to grow.
Theorem is constrained by its ability to do sales, and the founders don’t seem to be acting with enough focus or urgency to unblock that constraint. Instead, they’re distracting themselves with things like hiring machine learning interns (i.e. me).
The founders of Wave seem much smarter, more relentlessly resourceful, and more trustworthy.
Given the above, I should value the Wave equity way more even though its naive expected value is less than the Theorem equity.
Fortunately, I chose Wave for other reasons. But this thought pattern—throwing away most information in fear of using it to make overconfident judgments—shows up all the time. I’m here to tell you why I hate it.
In January 2020, my entire Twitter timeline was freaking out about a novel-seeming respiratory disease spreading in Wuhan.
Part of me thought:
All the reputable, top-tier technocrats are ridiculing the freaked-out people.
Usually, when a ragtag band of Internet weirdos thinks they know better than a large group of reputable, top-tier technocrats, the Internet weirdos are being overconfident.
So the technocrats are probably right on this one.
Another part of me thought:
Huh, the simple model of “this thing has a fast exponential growth rate and spreads when people are asymptomatic so it’s very hard to stop” seems like a compelling reason to think things will be quite bad.
When reputable, top-tier technocrats say not to freak out, they don’t usually address the best arguments in favor of freaking out, and they often seem like they don’t understand how exponential growth works.
Maybe I’ll buy a lot of beans in case everything goes to shit.
(I also contemplated the fact that the stock market didn’t seem to be freaking out, but I decided that since most people can’t beat the stock market, I probably wouldn’t eith...