Very interesting and logical. The same logic applies to all kinds of other activities. For instance, in the academia there is also often a trade-off between going for “normal science”, with a low but relatively risk-free return, and wilder speculations, which are riskier but where the potential upside both for the individual and for the community is far greater. Risk-averse and self-interested people often settle for the former, but if they’re rather thinking for the good of the whole research community, they should, in many cases, go for the latter (the “entrerpreneurial” alternative).
While risk-aversion obviously make people take less risky decision, there is one important factor that plays in the other direction, namely wishful thinking. People often overestimate how good their entrepreneurial ideas are, or how good their seemingly revolutionary scientific ideas are. As a result, even risk-averse people often take decisions that are, in fact, quite risky. This might be bad for the individual entrepreneur (since as a result, he will fail to maximize his expected utility), but it is good for society, given that the average entrepreneur creates a lot of value. If I remember correctly, Kahnemann calls wishful thinking for “the engine of capitalism” for precisely this reason.
Now if you, in effect, remove the risk-aversion (by removing the self-interest), then it seems wishful thinking will be even more of a problem. Entrepreneurs or scientists who aren’t risk-averse but who remain wishful thinkers will try out ideas which have a very low probability of success. It should be noted that the vast majority of the entrepreneurs that constitute the article’s statistics are self-interested, and hence at least somewhat risk-averse. Hence they probably have a higher threshold for trying out an idea than altruists have (ie altruists would try out “worse” ideas). This factor seems to drive altruists’ success rate down.
On the other hand, it might of course be that there are some ideas with a very low probability of success but with a huge potential utside that aren’t tried out by self-interested people (because of risk-aversion) but which altruists should try out. So the issue is quite complicated.
Very interesting and logical. The same logic applies to all kinds of other activities. For instance, in the academia there is also often a trade-off between going for “normal science”, with a low but relatively risk-free return, and wilder speculations, which are riskier but where the potential upside both for the individual and for the community is far greater. Risk-averse and self-interested people often settle for the former, but if they’re rather thinking for the good of the whole research community, they should, in many cases, go for the latter (the “entrerpreneurial” alternative).
While risk-aversion obviously make people take less risky decision, there is one important factor that plays in the other direction, namely wishful thinking. People often overestimate how good their entrepreneurial ideas are, or how good their seemingly revolutionary scientific ideas are. As a result, even risk-averse people often take decisions that are, in fact, quite risky. This might be bad for the individual entrepreneur (since as a result, he will fail to maximize his expected utility), but it is good for society, given that the average entrepreneur creates a lot of value. If I remember correctly, Kahnemann calls wishful thinking for “the engine of capitalism” for precisely this reason.
Now if you, in effect, remove the risk-aversion (by removing the self-interest), then it seems wishful thinking will be even more of a problem. Entrepreneurs or scientists who aren’t risk-averse but who remain wishful thinkers will try out ideas which have a very low probability of success. It should be noted that the vast majority of the entrepreneurs that constitute the article’s statistics are self-interested, and hence at least somewhat risk-averse. Hence they probably have a higher threshold for trying out an idea than altruists have (ie altruists would try out “worse” ideas). This factor seems to drive altruists’ success rate down.
On the other hand, it might of course be that there are some ideas with a very low probability of success but with a huge potential utside that aren’t tried out by self-interested people (because of risk-aversion) but which altruists should try out. So the issue is quite complicated.