Start-Up Culture, Martingales, and Why Vibes Matter: Statistical View of Life

Life is just a serendipity sing the Czech authors Ježek, Voskovec, and Werich, and it makes me wonder how they came across that thought. Every time I sit down to write my blog, I cannot help myself but think that I am actually tying observations from my life, ideas from conversations, cultural references and news of the week together into a story. I go through my life this way, continuously rebuilding this narrative about who I am and where I am going.

The story of this week starts, as any other good story, while I was at the toilet. It is the moment when our generation opens up our phones, and scrolls social media. For me, it is usually YouTube, the endless source of inspiration (low key true, reason why I started studying AI). I was watching the video “You’ve (Likely) Been Playing The Game Of Life Wrong” from popular science channel Veritasium. Actually, most of the content of the video goes on to talk about the power law distribution, and its heavy tail. It is a distribution that we often see in nature, where effects multiply together at every instance. The example that stuck with me is a wildfire: each time it goes off its size depends on how much unburnt forest around it can be used as fuel. Most wildfires will be tiny, but a couple will be huge (because they had plenty of unburnt fuel around them). The lesson: impactful events are unlikely, but still possible. Alongside that, the graph of human wealth is shown, which is a beautiful case for the power law: most have small wealth, but some have gigantic amounts, and the probability of that is not small. My mind went to interpret this using the title (which was definitely A/B tested for clickbaiting): you should cause a lot of small fires in life, the rich people are those who caused bigger wildfires. That is, of course, not literal. The fire in this analogy is pursuing an idea, building a company, or publishing an article. Most of your attempts will not cause anything, but a couple will be huge. Get one of those, and BAM you are moving along the distribution. Take opportunities, found more companies, publish articles, say things, and …maybe one will stick, and that is what makes your whole career.

This is the sentiment that not only I have, but also a lot of other people as it goes for this article on LessWrong about The Jackpot Age, which talks about trading. Whenever you flip a coin in real life, say you open a position on a market, you pay for it. The example in the blog is a fair coin: heads add 100% to your wealth, tails lose 60% of your wealth. Would you flip? Mean (expectation) of this coin is 20% gain. We should be flipping! Expected value even goes up with the flips. Amazing! Let’s flip. And the blog goes on and does: literally creating a simulation of players flipping coins. For the statistician, this is the spirit of the martingale betting strategy: keep doubling down, and ruin finds you eventually. The arithmetic mean of wealth among players stays around where it was, while the median goes down. With any finite starting capital, your wealth shrinks toward zero with probability 1. Hence, most people will go bankrupt in this game.

The reason, why I am talking about this is that recently, I have been exposed to the recruiters from the world of venture capital. Startups, usually backed by such firms, are extremely popular among young people, especially among those interested in AI. Many are starting a startup, changing industries with AI and machine learning. And the role models of our times are founders of startups: people like Alexandr Wang and Sam Altman are everywhere. And rightfully so, they have achieved insane outcomes. They were persistent, they worked hard, and they had the best networks and mentors among their peers. Yet, nobody talks about the other people in their startup accelerator batches. Our society celebrates those who have made it, without acknowledging those who did not. There is a certain survivorship bias to the hero story. Behind this is the rough truth of the capitalist math, if one of the startups on your portfolio explodes in value, you will make up for ten others that fail, and have a margin of profit. If some of those ten break even, you are doing even better. But nobody knows which one is which from the start. So at the beginning, the VCs tell everybody that they will make the best company and make them believe it: self-fulfilling prophecy for a small percentage of the people. As the blog above puts it, the mean return is high, but the median is low. Yet we celebrate those outliers, hoping we could be them, not knowing we all cannot be them at the same time.

What is the moral of the story? I think there is nothing wrong about taking your chances at life, however, one must know what are the costs of flipping certain coins. Because, maybe the best thing is to not flip the coin. Hold your money, buy a diversified portfolio, keep growing above the median. But if you go out and flip coins, then the most sustainable thing to do might be to flip the coins you believe in, the ones you are passionate about. Cause at the end of the day if everything goes wrong those are the outcomes you can justify, and if things keep going okay, this might be the lifestyle that is the most aligned with your soul and one that you can justify to yourself. Cherry on top: you get a story about how following your gut feeling led you to making big bucks.

It is terribly easy to fool yourself into liking things you are good at and being rewarded for. But meaningful choices might be elsewhere. A question that I always like to ask myself: would I still do this if nobody paid or admired me for this? I think it is a good compass for meaning. If that is your compass to found a VC-backed company or trade stocks, then I think you are doing great, keep spending money and energy there. But I had let VCs and stocks become the magnet of my own compass, and I think that is not good. At the end of the day, your vibes is all you got.

In the meantime, I believe that Ježek, Voskovec, and Werich had it right from the start: “who loves in their life should not lose hope”. If you love what you’re doing, no need to lose hope. You might not rise above the mean, or not even above the median, but you gonna have a great time.

PS: Excuse the non-rigorous use of math in the article.