[metamemetics]

> They don’t need to be rewarded for risk, because they actually get utility out of risk itself. In other words, they like adventure.

Completely flawed. Every sane person seeks to reduce risk. What entrepreneurs also seek is to maximize gains. Increased risk is merely often required to do so.

[raganwald]

Careful, the expression "every sane person..." treads awfully close to "No True Scotsman..." http://en.wikipedia.org/wiki/No_true_Scotsman

More importantly, distinguishing gains from risk is only meaningful if gains are entirely decoupled from risk. I claim that many entrepreneurs seek non-monetary gains like prestige or autonomy, and pursue strategies that maximize prestige or autonomy at the expense of their risk-adjusted financial gain.

A taste for risk and/or a taste for the pure satisfaction of managing risk is a non-monetary gain. If we accept my claim that some entrepreneurs seek some non-monetary gains, how can we be certain that no entrepreneur seeks risk as its own reward?

My unprofessional opinion is that some entrepreneurs seek risk and rationalize their risk-seeking behaviour as a quest for maximal financial gains. I'd extend that risk-seeking and rationalizing behavior to explain why many people join early-stage startups. When you look at the average risk-adjusted return of being a startup employee, a great deal of rationalization is necessary to claim that you're in it for the money.

[metamemetics]

> non-monetary gains like prestige or autonomy

"Gains" obviously did not refer to strictly cash. Gains refers to anything you value. Cash is just a tool. I would go further than you and say the vast majority of entrepreneurs seek autonomy. Use occam's razor when interpreting the statements of others.

[barrkel]

I don't agree. "Sane" people introduces something which is frequently a false dichotomy; whether you are driven by your rationality, or by more visceral and deep-seated spirits. The problem is the difference between rationality and enlightened rationality: what is good for you personally in the short term, versus what is good for everybody in the longer term. These things can give contradictory advice, and both can be labeled as rational. But the second isn't intuitive to most people: it generally needs to be supplied from somewhere else, usually emotions.

Let's say you need to get drinking water from the river, but there are crocodiles down there too. If you minimize your risk, you'll get just enough water for yourself. On the other hand, if you get more than enough water, you'll be able to share your surplus, increase your social standing, find a more attractive mate, etc.

Ah! you say - but the "minimizing risk" here isn't actually minimizing risk, but increasing another risk, a risk that you'll never get anywhere in life, won't raise a family and pass on your genes, etc.

But that's an intellectual risk. It's not likely to dawn on you unless you're quite introspected, or perhaps until it's too late and you're in relative middle age.

What if there was a different mechanism? What if exploring the boundaries of your capability, your talents, was its own reward? You can't explore those boundaries without risk of failure, even where failure might include death. A simple mechanism for that could be risk homeostasis, whereby a certain manageable amount of risk becomes its own visceral reward, attracting you to those boundaries and encouraging you to expand them.

In other words, getting utility out of risk itself - "liking adventure".

[metamemetics]

> What if exploring the boundaries of your capability, your talents, was its own reward?

Then you're gaining something (discovery of new assets, freedom, happiness, sense of accomplishment, self-actualization, etc.) and seeking to maximize gains. Risk does not magically become utility. If gains are held constant, nearly everyone chooses the one with less risk because it has a higher expected value. Entrepreneurs are gain maximizers. Risk is only _ utility _ in the case of masochism.

[barrkel]

I think you're missing my point. There are first order effects and second order effects. Animals (including people) don't usually understand second order effects very well; so we have evolved mechanisms to encourage us towards desirable second-order effects, even when the first order effects may be negative.

I'm pointing to the rewards of manageable risk as a mechanism - probably an evolutionary mechanism - for exploring boundaries and thereby gaining things, even if you didn't know they existed.

It's all very well to talk about the rewards of new assets, freedom etc., but the reward from a risky venture isn't necessarily obvious; it may even be utterly unknown in the history of human kind. But if the risk itself being rewarding is a mechanism, it may encourage the discovery of such rewards.

The key misunderstanding problem here is the overloading of language. We have this talk of rationality, of evolutionary psychology, of emotions and drives. The key thing to understand, though, is that all may simply be different ways talking about the same things.

I'm saying that both things can be true: that it's rational consideration of long-term goals that cause us to risk things; and that it's the intrinsic utility of risk itself as encoded in the genome and proteome for the self-directed organisms we call humans. What I think is wrong is to take only a single terminology, and use it to say the other terminology is mistaken.

[metamemetics]

>What I think is wrong is to take only a single terminology

Utility is a basic textbook economics term and the context of Arrington's article. Also, Arrington was an economics major. I think sticking to one terminology is highly preferable over acontextual obscurism.

[barrkel]

Well, even staying within the bounds of economics, there are problems: are you talking about homo economicus, or behavioural economics? The latter brings in portions of the other systems into the economic model in order to better reflect the workings of the real world organism.

Economics is about the study of choice; but we can split that up into at least two broad categories, the most efficient choices, and the actual choices made by people. You can stay strictly within a so-called rational model for the first - and you must, in order to justify the inputs to your utility function - but the second is experimental, and relies on observed inputs necessarily defined by disciplines other than economics.

The insight of behavioural economics is that it's not so much rational maximization of gains that drives us, but rather imperfect mechanisms implemented in the organism, whose outcomes have been tuned by evolution to approach rational maximization. Leaving out the behavioural aspect means your model won't correspond as well with the real world, the only thing worth talking about. And I'm asserting that seeking a certain amount of risk is just one of those mechanisms.

[metamemetics]

If you want to go to Kahneman & Tversky, yes different heuristics people may use for estimating risk and reward are probably biased estimators (although I hope all pirate-entrepreneurs are using a little math and obtaining feedback ). That certainly does not mean risk, independent of gains, becomes intrinsic utility for the non-masochistic.

[cabalamat]

> Ah! you say - but the "minimizing risk" here isn't actually minimizing risk, but increasing another risk, a risk that you'll never get anywhere in life, won't raise a family and pass on your genes, etc.

This is a useful insight, that minimising risk at one level can mean maximising it at another.

[jacquesm]

Did I just hear you call me insane?

I don't seek to reduce risk all the time. Sometimes I actually enjoy taking a risk. For instance, when given the opportunity to leave this house to go shopping I take a risk that I don't need to take. After all, I could get mugged, driven over or any other one of a thousand things that could go wrong on a trip to the shopping mall. It would be much safer to mail order everything in.

And that's not counting my decision to maybe do it on a bicylce, which we all know is less safe than my car (but I enjoy being out there). And I might not even wear UV protection risking skin cancer. And not wear a breathing mask to enjoy the not-so-fresh air.

Life is risk. Sane people (or at least I hope they are the sane ones, if not I'll be off to the funny farm tomorrow) will balance the risks they take against the upsides and will not seek to reduce risk per se.

Entrepreneurs are not unique in this respect, everybody does it, all the time.

Increased risk and knowing how to balance risk is a requirement for a normal life.

And that's not getting in to things like skydiving and bungee-jumping yet.

[loewenskind]

I think you're missing the parent's point. Your focus going to the mall isn't "oh man, I may get killed! That's so awesome!" but rather you're focusing on what ever you think you'll get by going to the mall. Likewise, skydiving and bugee-jumping provide an adrenaline dump. A "high".

[jbert]

You could make it fit your worldview by:

- defining anyone who likes adventure as "not sane" in your book

- including "risk of regret over having had an unadventurous life" into your risk calculation

- just run an analogy with casinos, where the gamblers are purchasing 'fun'

Or you could explore the idea that rational choice theory isn't a set of fundamental axioms of human behavior but a (mostly successful) attempt at a descriptive theory.

[nl]

Every sane person seeks to reduce risk.

That's simply not true (or else your definition of sane is very limited)

Just as a random example, the death rate for climbing Mount Everest is 10% (!) If sane people always seek to reduce risk then only insane people would climb Everest.

[metamemetics]

>or else your definition of sane is very limited

or else your definition of gain is very limited.

You seem to be implying a mountain climber makes no gains by tackling Mt. Everest. The risk is not what is preferred, the sense of accomplishment and fulfillment is what is preferred. Without gains to be had, the mountain climber would cease to choose decreased lifespan unless they intrinsically enjoyed suffering.

[DougBTX]

Aah, but the accomplishment. It's accomplishment is all the bigger because other people took the risk, and died.

[nl]

Of course you are right.

But I'd argue that "gain" is quite similar to the utility a entrepreneur gains from doing a risky company.

[artsrc]

I have read an analysis of the teaching profession where highly motivated people choose against become teachers not just because of a low salary, but because of low salary variability. Expected teacher salaries don't get much worse even if the teacher does not try, and is not good at teaching.

Most people will not choose an outcome distribution which is highly concentrated on one spot, even if that has the highest expected return. People who are highly motivated are even less likely to choose it.

Most people will choose less expected return (sacrifice gains), and more risk by buying a lottery ticket.

I think the notion of lower risk being good comes from the financial world where you can use leverage on a lower risk position to create a higher return one.

I think people choose outcome distributions that are quite different than a low risk one.

[gaius]

That is obviously not true and it's easy to prove: betting on sports is wildly popular. And here the thing, people don't want to win per se; they want to share in the outcome for their team, positive or negative.

Never underestimate the tribal drive in humans.

[fraserharris]

We are living, breathing maximizing expected outcomes functions.