The Use of Knowledge in Society
I read this Hayek paper: The Use of Knowledge in Societ today. Had to use claude to decode some of the longer sentences. But this is exactly the sort of essay I've been looking for! I felt a good bit of swelling in my breast as it began to be delicious to me!
it will begin to swell within your breasts; and when you feel these swelling motions, ye will begin to say within yourselves—It must needs be that this is a good seed, or that the word is good, for it beginneth to enlarge my soul; yea, it beginneth to enlighten my understanding, yea, it beginneth to be delicious to me.
Alma 32:38
I've been so confused as to why some startups succeed and why some fail. Nile's modeling of novel value creation is genuinely useful. But it is not enough! Managers and their knowledge of timely and local circumstances is critical!
I've been wanting to write an essay on this weird analogy to paddleboard and canoeing steering mechanics. Lots of people internally model steering on both as: paddle on the left -> boat turns right and vice versa. And this is generally true! But when people apply this model, they perceive they have to be constantly switching which side they paddle with. The expert paddler realizes that the angle at which he paddles if acute enough can make: paddle on the left -> boat turns left. The expert paddler efficiently never has to switch sides of the boat he paddles on! He can adjust the angle of his paddle and steer anywhere using his most powerful arm without having the downtime of switching!
But beware the paddle-angle model is much more susceptible to variations in input! What do I mean? If the paddler is on a paddleboard and paddling on the left the paddle must be coming into the center of gravity to turn left. But if the paddler is on the back of a canoe he must paddle out away from the center of gravity to turn left! A complete reversal in the heuristic! Lovers of Occams razor will say this is not parsimonious and should count as a strike againts the paddle-angle model. To which I scream fools! You're not supposed to overfit or underfit! The latter of which they make in invoking occams in this case.
What's more the paddle size, the distance from the center of gravity, and how your fellow paddlers react to your steering all need to be incorporated in your model if you are trying to efficiently steer in a competitive regatta. All of which are too hard to model internally ahead of time and are best led to empirical measurements of the paddler.
To tie it back to business. The basic business bro says: make a deal, be conscientious, tell a story, never give up, and figure out your own path. this is the equivalent of paddle on the left to turn right. The economically minded are disturbed! Such a simplistic model that doesn't help us understand at all why Uber succeeded but Zipcar failed. Both had founders that were conscientious, told a great story, were perseverant and tried to find their own path. The economically minded build models of unique customer value creation, economies of scale, and trajectories of growth. Analogous to the paddle-angle models of steering. But like paddle angles these models are highly susceptible to minor variations in inputs!
The keynesian beauty contest model of VC funding, where you model VCs as investing in you if they think other VCs will invest in you is super chaotic with different inputs! Maybe you should go to finishing school and harvard and kiss up to investors? Maybe you should do the opposite and be a freak like SBF to mystify Seqouia into thinking you're the next mega-unicorn messiah. Reversals in strategic heuristics might pop up all over the place. This is currently my best causal explanation for why Scott's piece on reversing advice is useful.
My Hegellian synthesis is that the economicist have the "truer" models, but you got to be locally and temporally tapped into the empirics of your context. You got to know the size of your paddle, how far you're away from the center of gravity, and watch how others react to your actions. Especially when you're in competition and anyone whose not empirically modeling these things efficiently is eliminated. In other words, in a competitive business world to stick around you can't just do abstract financial modeling stuff in excel, you actually got to go into the back room and check your inventory.