Sunday, October 17, 2010

Thoughts on The Social Network and The Olympic Games


I watched 'The Social Network' this evening, and found it excellent. I think Scott Adams got it right when he said that (regarding the portrayal of Zuckerberg) the movie was "massive respect from a genius in one field (Sorkin) to a genius in another". The guys who should be really cut are the Winklevoss twins, mercilessly portrayed as pampered stuck-up rich kids without enough talent to start a real company.

Anyway, the movie left me with a feeling I can best describe as 'life choice envy' for Silicon Valley types starting their own companies and attempting to change the world. Actually, 'envy' isn't quite the right word, as there wasn't any sense of resentment of their success.It was more a feeling of being impressed by people who really are trying to do something big with their lives, and a slight hollow sense that one's own aims and achievements are insufficiently ambitious.

I originally encountered a similar sensation when watching the Olympics as a teenager. There was a dawning sense that a) this was something that I'd abstractly wanted to do when I was a child, and b) I wasn't ever going to get there. There are two potential ways of interpreting this. The first is that one should have tried harder, as in aiming for world-beating success in some endeavour, and that one's own decisions were too slack and unambitious. This was always the initial feeling I got when watching the Games. The second interpretation (which usually came after a day or two's reflection) is that one is simply envying an outcome, not a decision - what you really want is the
feeling of great success and winning a gold medal, not the whole package of the gold medal plus what's required to actually get it. 

Once I learned enough economics to think about the problem in econ terms, for the Olympics specifically it became apparent that it was probably a very poor thing to aim at. The Olympics is a classic tournament, and people tend to be overconfident when estimating their chances of winning, and hence overinvest in tournaments. The other big-time mistake is that people screw up the expected benefit by focusing on the highly salient outcome of the gold medal, and not the many, many non-salient parts, including:

a) The guys who came 2-8th in the final and always wondered 'what if I tried a bit harder?'

b) The guys who didn't make the final at all, and felt like complete failures

c) Everyone, winners and losers, spending years and years denying themselves tons of pleasures to do nothing but train, a cost that is spent before you have any idea whether you'll succeed at all, and

d) The winners themselves after their sports career is over, feeling hollow and aimless as the rest of their life will always pale into comparison with that one high point, drifting ever further into the past

America's Michael Phelps has won his fourth and fifth gold medals in Beijing and his 10th and 11th overall.

Salient, but not frequent

Inconsolable: Paula Radcliffe can't hide her disappointment at finishing in 23rd place

Frequent, but not salient

So the Olympics itself is mainly option b) - you're really envying a feeling, not a decision. I personally think that the Olympics bet has a negative ex ante expected value for the vast majority of people actually competing, let alone for guys like me who started without an amazing natural ability. (I'm athletic, but well aware of where I fit in the distribution).

Which brings me back to The Social Network. For me, computer science was in many ways the Road Not Taken. I'm happy with the road of finance and economics, but my pursuits are mainly academic. It's hard not to feel a sense of being impressed by guys who actually start tech companies, employ people, struggle to meet payroll every month and eat ramen instead of pulling several hundred K salaries, all because they're aiming at creating a world-changing company. I remember thinking this when meeting for the first time a friend of a friend who is my age, and is out in Silicon Valley doing just that. Starting a tech company, in other words, was the Olympics that I might have actually had a chance in. 

All in all, I don't think I would want it, for similar reasons I don't want to enter the Olympics - starting up a business isn't actually a tournament, but it does have highly skewed payoffs, and tends to attract overconfident people who underestimate their probability of failure. 

But I did leave with the feeling that I used to be more ambitious in the tasks I am doing. And that I should aim higher, and be willing to fail. Risk and Reward are generally correlated, in life as in finance. That is the correct lesson, I think - focus on picking bets with good expected payoffs ex-ante, but don't be afraid of working hard and betting big if the price is right.

As Daniel Burnham put it:

Make no little plans; they have no magic to stir men's blood and probably will themselves not be realized. Make big plans; aim high in hope and work, remembering that a noble, logical diagram once recorded will not die.”

Preach it, Mr Burnham! Onward!

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