It looks bad for a manager to have one of his projects fail. So to “cover his ass”, such a manager often tries to prevent any records showing that people saw failure coming. After a failure, he wants to say “this was just random bad luck; no one could have foreseen seen it.” His bosses up the chain of command tend to allow this, because they also want to avoid being held responsible for failures during their watch. So they also prefer the random back luck story.
Yes, but I recall that they weren't allowed to offer any substantial value to market winners - medical professionals were *very uncomfortable with letting winners get cash, so all winners got was "attaboys."
Robin, have prediction markets ever been employed in drug discovery and development? Lit says a core predictor of R&D productivity is ability to fail fast - kill bad drugs early. Seems a simple and very high value application for these markets.
> Always? Surely it's use to obtain information discriminating projects by likely success. (Whether it's worst its cost is always the question.)
'Always?' Probably not, but we are discussing startups here, an unusual and small area of the economy, and my previous points were startup-specific. 'Surely it's use'...? I don't know what you mean here. I'll assume you mean something like Brent Dill's point, 'surely startups should decide to close after one failure, and only refuse due to principal-agent problems'; I disagree for the previous reasons, and I'll add some more: why are you privileging your own perspective on the matter, and ignoring the obvious facts that many investors (like Paul Graham and other VCs) continue to invest in startup companies? And further, are not routinely using their leverage to break up or dissolve startups the instant it decides to pivot?
> Your point seems merely obstinate.
It's not obstinate to point out the repeated failure to reply to one's points.
if you have a good job at a startup (in boston, today, in my field, biotech, that means salary >150,000 per year) why would you jepordize it by shutting down the company ?the longer you stay where you are, the better off you are, on avg; the ultimate of this is the post ipo zomby, where you take the 20,40, million from the ipo and coast till retirement
i mean seriously, think about it from the day to day paycheck perspective of the worker
I agree. If failures were not tolerated then the failures of Apple Newton etc would never have lead to the successful IPHONE. If we don't encourage trying and instead punish all failures then we will never get anywhere.
This particular bias might be beneficial on its own. An individual is more likely to make an idea succeed if they imagine it is plausible and then single-mindedly try to make it real. Thus, we get better results as a group if individuals are sometimes wildly biased.
Courts take advantage of this bias, too. Each disputant has an advocate making their best case possible. The disputants are biased, but the overall system makes a better decision than if a circle of elders were to have a congenial chat about it.
I wonder how that would play out with those small bands of Ukrainian soldiers still holed up in isolated bases in Russia-controlled Crimea, refusing to surrender? Pretty much 100% chance of defeat. Should they just give up?
My favorite is the boss who would rather fail according to plan, so as to have good metrics to show data on a failure that failed as per usual; rather that than to have an underling engineer a better solution which might save the program.
"Probabilistically a company missing its earnings target is much more likely to be due to incompetence than long-term strategy."
Right, but with that attitude mankind would be doomed. It doesn't matter that 99% of the times it's incompetence, it matters that that 1% pays off so much that the world would be a worse place if we didn't let people businesses try to be among that 1%.
I've read a lot of material on prediction markets, though admittedly I'm of course less of an expert than you are and so may have missed some important paper.
All I keep finding on the problem I posed is that proponents say more traders will be attracted to the market to make a profit by betting against manipulators, you're addition to this seems to be that you existing traders in the market will take another look at their bets, putting more effort into getting information, and then bet more heavily against the manipulators, that's clever, but it a) depends on traders knowing there are significant attempts at manipulation and b) deep pockets of the non-speculative traders, for exampe they may have to spend a large multiple of what the manipulators are spending to restore the market price to something resembling the certainty of a scientific advisory report (additional problem: since extreme prices hint at manipulation then traders may be fooled into believing a genuine scientifically backed position is an attempt at manipulation). Even when the traders don't have to outspend the manipulators by much the market can still quickly run into real world limitations since income and wealth inequalities in the world are truly staggering (and foreign governments can literally print money if they run out). In of the papers you yourself admit real world limitations of the pocket depth of traders can be an issue and even limiting the amount of money a single trader can bet leaves the possibility of a conspiracy (conspiracies aren't very likely, what is likely is the Koch brothers setting up a multitude of paper companies each with their own bank accounts through which betting money can be channeled, or them simply giving their employees $1000 each and telling them they can bet on the Koch's desired position on the prediction market, or get their asses fired).
So I reiterate, who's going to do something about the Koch brothers and their ilk pouring billions into prediction markets, what solution do you offer? Does Google have enough money to crush upcoming promising competitors by manipulating prediction markets on the future succes of those competitors.
The UK is the perfect test ground for prediction markets (almost no gambling regulations and a public eager to place bets). Any large scale tests with open prediction markets should take place there and then we can see how prediction markets fair against expert predictions.
" Investors, if anything, pay too little attention to bad news."
I agree with the general sentiment of what you're saying, but I think the picture is more complex. Depending how/when you measure it stocks outperform on earnings release dates by 0.1-0.5%. This suggests that most times investors are biased to expecting unknown information to be worse than it actually is. A similar phenomenon occurs across the broader market on Fed announcement days.
But in general you are right, quant finance tells us that companies that have missed their most recent earnings strongly underperform. Managers want to convey the sense of long-term value building. But for every Steve Jobs there's 100 mediocre CEOs. Probabilistically a company missing its earnings target is much more likely to be due to incompetence than long-term strategy.
I gave two reasons why it's better for investors for them to not give up at the first pivot.
Always? Surely it's use to obtain information discriminating projects by likely success. (Whether it's worst its cost is always the question.) Your point seems merely obstinate.
Let's say I'm the CEO of a startup, with a regular working relationship with my employees, and a contractual obligation to repay my investors. My employees are people that I interact with, day in and day out. I know their lives and their needs.
I see that my venture might turn out unsuccessful. I have a choice: I can transfer the remaining money to my employees, by continuing to pay their salaries and "hope for a turn-around" while letting them know that things are going south, or I can close up shop, dump them all on the street, and repay my distant investors.
As a human being, which am I more likely to want to do? Therefore, which am I more likely to find a rationalization for?
Further, those investors took a substantial known risk betting on my venture. The employees just needed a place to work. Who is better equipped to survive not getting their money? Who is more likely to *expect* to not get paid?
(From an economics perspective, this is terrible. But we aren't always homo economicus).
"...managers often use the "public is too focused on quarterly earnings" excuse..."
ha yup, and yet, the persistence of downside momentum/drift/serial-correlation is much greater than rising. Investors, if anything, pay too little attention to bad news.
Among financials, provisions for loan losses drift, too. Rising provisions predict more rises, though if accounting rules were followed, q to q provisions should be independent.
Yes, but I recall that they weren't allowed to offer any substantial value to market winners - medical professionals were *very uncomfortable with letting winners get cash, so all winners got was "attaboys."
Robin, have prediction markets ever been employed in drug discovery and development? Lit says a core predictor of R&D productivity is ability to fail fast - kill bad drugs early. Seems a simple and very high value application for these markets.
My dad actually recently received a check back from a start-up he put money into because they realized it wasn't going to work out.
Kind of crazy when people are responsible like that.
> Always? Surely it's use to obtain information discriminating projects by likely success. (Whether it's worst its cost is always the question.)
'Always?' Probably not, but we are discussing startups here, an unusual and small area of the economy, and my previous points were startup-specific. 'Surely it's use'...? I don't know what you mean here. I'll assume you mean something like Brent Dill's point, 'surely startups should decide to close after one failure, and only refuse due to principal-agent problems'; I disagree for the previous reasons, and I'll add some more: why are you privileging your own perspective on the matter, and ignoring the obvious facts that many investors (like Paul Graham and other VCs) continue to invest in startup companies? And further, are not routinely using their leverage to break up or dissolve startups the instant it decides to pivot?
> Your point seems merely obstinate.
It's not obstinate to point out the repeated failure to reply to one's points.
if you have a good job at a startup (in boston, today, in my field, biotech, that means salary >150,000 per year) why would you jepordize it by shutting down the company ?the longer you stay where you are, the better off you are, on avg; the ultimate of this is the post ipo zomby, where you take the 20,40, million from the ipo and coast till retirement
i mean seriously, think about it from the day to day paycheck perspective of the worker
I agree. If failures were not tolerated then the failures of Apple Newton etc would never have lead to the successful IPHONE. If we don't encourage trying and instead punish all failures then we will never get anywhere.
This particular bias might be beneficial on its own. An individual is more likely to make an idea succeed if they imagine it is plausible and then single-mindedly try to make it real. Thus, we get better results as a group if individuals are sometimes wildly biased.
Courts take advantage of this bias, too. Each disputant has an advocate making their best case possible. The disputants are biased, but the overall system makes a better decision than if a circle of elders were to have a congenial chat about it.
I wonder how that would play out with those small bands of Ukrainian soldiers still holed up in isolated bases in Russia-controlled Crimea, refusing to surrender? Pretty much 100% chance of defeat. Should they just give up?
My favorite is the boss who would rather fail according to plan, so as to have good metrics to show data on a failure that failed as per usual; rather that than to have an underling engineer a better solution which might save the program.
"Probabilistically a company missing its earnings target is much more likely to be due to incompetence than long-term strategy."
Right, but with that attitude mankind would be doomed. It doesn't matter that 99% of the times it's incompetence, it matters that that 1% pays off so much that the world would be a worse place if we didn't let people businesses try to be among that 1%.
I've read a lot of material on prediction markets, though admittedly I'm of course less of an expert than you are and so may have missed some important paper.
All I keep finding on the problem I posed is that proponents say more traders will be attracted to the market to make a profit by betting against manipulators, you're addition to this seems to be that you existing traders in the market will take another look at their bets, putting more effort into getting information, and then bet more heavily against the manipulators, that's clever, but it a) depends on traders knowing there are significant attempts at manipulation and b) deep pockets of the non-speculative traders, for exampe they may have to spend a large multiple of what the manipulators are spending to restore the market price to something resembling the certainty of a scientific advisory report (additional problem: since extreme prices hint at manipulation then traders may be fooled into believing a genuine scientifically backed position is an attempt at manipulation). Even when the traders don't have to outspend the manipulators by much the market can still quickly run into real world limitations since income and wealth inequalities in the world are truly staggering (and foreign governments can literally print money if they run out). In of the papers you yourself admit real world limitations of the pocket depth of traders can be an issue and even limiting the amount of money a single trader can bet leaves the possibility of a conspiracy (conspiracies aren't very likely, what is likely is the Koch brothers setting up a multitude of paper companies each with their own bank accounts through which betting money can be channeled, or them simply giving their employees $1000 each and telling them they can bet on the Koch's desired position on the prediction market, or get their asses fired).
So I reiterate, who's going to do something about the Koch brothers and their ilk pouring billions into prediction markets, what solution do you offer? Does Google have enough money to crush upcoming promising competitors by manipulating prediction markets on the future succes of those competitors.
The UK is the perfect test ground for prediction markets (almost no gambling regulations and a public eager to place bets). Any large scale tests with open prediction markets should take place there and then we can see how prediction markets fair against expert predictions.
You have no idea how refreshing that was to read, coming from you. Props.
" Investors, if anything, pay too little attention to bad news."
I agree with the general sentiment of what you're saying, but I think the picture is more complex. Depending how/when you measure it stocks outperform on earnings release dates by 0.1-0.5%. This suggests that most times investors are biased to expecting unknown information to be worse than it actually is. A similar phenomenon occurs across the broader market on Fed announcement days.
But in general you are right, quant finance tells us that companies that have missed their most recent earnings strongly underperform. Managers want to convey the sense of long-term value building. But for every Steve Jobs there's 100 mediocre CEOs. Probabilistically a company missing its earnings target is much more likely to be due to incompetence than long-term strategy.
I gave two reasons why it's better for investors for them to not give up at the first pivot.
Always? Surely it's use to obtain information discriminating projects by likely success. (Whether it's worst its cost is always the question.) Your point seems merely obstinate.
From a purely resource-allocation perspective:
Let's say I'm the CEO of a startup, with a regular working relationship with my employees, and a contractual obligation to repay my investors. My employees are people that I interact with, day in and day out. I know their lives and their needs.
I see that my venture might turn out unsuccessful. I have a choice: I can transfer the remaining money to my employees, by continuing to pay their salaries and "hope for a turn-around" while letting them know that things are going south, or I can close up shop, dump them all on the street, and repay my distant investors.
As a human being, which am I more likely to want to do? Therefore, which am I more likely to find a rationalization for?
Further, those investors took a substantial known risk betting on my venture. The employees just needed a place to work. Who is better equipped to survive not getting their money? Who is more likely to *expect* to not get paid?
(From an economics perspective, this is terrible. But we aren't always homo economicus).
"...managers often use the "public is too focused on quarterly earnings" excuse..."
ha yup, and yet, the persistence of downside momentum/drift/serial-correlation is much greater than rising. Investors, if anything, pay too little attention to bad news.
Among financials, provisions for loan losses drift, too. Rising provisions predict more rises, though if accounting rules were followed, q to q provisions should be independent.
Bad info flows slowly everywhere.