Reading Roundup - November 2024
A monthly roundup of random readings from around the web.
Prediction markets, Facebook and AI, fintech business models, startup fun, having kids, the rise of Florida, the decline of Rome, the fall of Germany, and more. Enjoy!
(1) From Prediction Markets to Info Finance
Prediction markets entered the mainstream during the 2024 election. While they currently seem like the latest version of degenerate gambling (crypto, meme stocks, sports betting, etc.), there is a path to prediction markets having pro-social utility. All markets reveal information (through the price mechanism), but this is usually a positive externality instead of an intentional goal. Prediction markets can be designed with info revelation as the explicit goal: “start from a fact that you want to know, then deliberately design a market to optimally elicit that info from the market.” The article offers various real-world applications, but I see the most potential within bureaucracies… prediction markets could create a market mechanism for resource allocation inside the command economies of governments and corporations. Seems hard in practice.
“Meta is in fact the most well-placed company to take advantage of generative AI [and] has the potential to be the most valuable company in the world.” Several insights: (1) Meta should win a greater share of advertising revenue (and margins) by using generative AI for outsourced capital substitution of labor intensive activities, such as creative production and campaign management; (2) “at some point ads will be indistinguishable from content;” (3) “the real impact of AI is to make everything ad inventory […with Meta VR] everything in the world will be potential ad inventory;” and (4) counterintuitive economics: “[if everything is inventory then] the price-per-ad on Meta will approach $0 basically forever. [Competitors already struggle] to compete with Meta’s […] resources in a probabilisitic world. To do so with basically zero price umbrella [is] impossible.”
(3) A Cynic’s Guide To Fintech
The various business models of fintech. Most of them are bad: (1) reinventing the past mistakes of the banking industry because you do not know about adverse selection; (2) thinking that a bunch of transaction data is more valuable than it is; (3) thinking that a group that mistrusts each other will trust you instead; (4) trying to use someone else’s network and only paying the marginal cost to do so; and (5) thinking that regulators will be more inclined to listen to your complaints than those of incumbents. Some models that the author likes: (1) giving customers a worse service for a lower price through unbundling; and (2) better implementation of some industry standard (e.g., international money transfers). One mistake is overweighting the “tech” in fintech—financial services have many issues, but the root cause isn’t a shortage of MacBooks.
(4) Consciousness Will Slip Through Our Fingers
An argument about AI and consciousness in line with Godel, Escher, Bach: “We don’t need to understand consciousness in order to predict the behavior of physical systems. [One] impact of technology will be to produce systems that have “intelligent” behavior while also being “legible” in the sense that the internal state of the systems are known. This includes AI, simulated brains, and normal brains in [MRI] brain scanners. There are severe limits as to how much we can learn about consciousness by examining the behavior of these systems because the rules that govern their behavior do not depend on which theory of consciousness is true. [Even if we accept] that consciousness exists, it’s a mystery why we would say we’re conscious. If consciousness can’t do anything, then evolution has no way to know about it, and no reason [for] us to say we have it.”
(5) Why No Roman Industrial Revolution?
The Romans built aqueducts, roads, complex administrative systems, and a dominant military. But they never invented the steam engine. Why didn’t we have the Industrial Revolution two millennia earlier? This article has several explanations: Rome’s slave-dependent economy discouraged innovation (a classic capital substitution problem); Italy’s lacked accessible coal deposits to power a shift to fossil fuels (or to incentivize the original reason for developing the steam engine); a culture that prioritized public works and military greatness over innovation; a legal system that had zero protections for intellectual property; and a zero-sum mindset of growth from conquest (which was the global default until the positive growth shock from discovering the New World).
“[Being a CEO is a] bizarre cognitive environment [in which] your life is a series of unpleasant surprises of varying magnitudes. [An] organization is a mechanism for processing information and getting it to the appropriate party to make a decision. It’s also a system for simultaneously having an effective CEO and not subjecting this CEO to a nervous breakdown. And what that means is that founder-led companies tend to have their org charts designed around the mental quirks of the founding team and their top executives. [Managing] a company or a portfolio is partly a matter of managing emotional states, [and] that is easy to talk about until you try to make that concrete, because concretely, this means having present-you take a paternalistic approach to managing future-you's emotional instability. But that's an essential part of the process: setting up an org chart or structuring a portfolio is, among other things, a special application of psychotherapy.”
(7) Interview of Graham Weaver from Alpine Investors
“The best advice on building, leading, and managing teams [is that] top leaders at a company should be spending at least 30-50% of their time recruiting, training, or developing top talent. Leaders will almost always say people are important, but if you look at their calendars, they usually spend very little time — if any — working on recruiting or on creating great cultures. Creating a great team and culture is the job of top leadership — not the job of HR […] rules, bureaucracy, and red tape are designed because you have the wrong people on your team.”
(8) Billionaire Stephen Ross Believes In South Florida—And Is Spending Big To Transform It
Steve Ross is having a fun retirement in Florida. The developer behind Hudson Yards (who got his start buying funeral homes) is investing heavily in West Palm Beach. His real estate firm, Related Companies, has been slowly acquiring property in the city for two decades and now owns half of the downtown office supply. Ross is building luxury condos, walkable streets, a Brightline high-speed rail stop, and convincing Vanderbilt to open a satellite campus there. Whether it’s for the low taxes or the warm weather, it seems like everyone is betting on Florida. Or maybe it’s just another Bubble in the Sun.
“When people had babies, I congratulated them enthusiastically, because that seemed to be what one did. But I didn't feel it at all. "Better you than me," I thought. […] But what changed, of course, is that I had kids. Something I dreaded turned out to be wonderful. […] Ordinarily I had never gone to places with kids, so the only times that I encountered them were in shared bottlenecks like airplanes. Which is not exactly a representative sample. Flying with a toddler is something very few parents enjoy. What I didn't notice were all the great moments parents had with kids. People don't talk about these much […] but one of the great things about having kids is that there are so many times when you feel there is nowhere else you would rather be.”
(10) Sick Man of Europe? Germany’s Bosses Sound Alarm on Staff Illness
The Teutonic work ethic is no match for the GDP(R)eduction mindset: “[German] workers missed an average of 19.4 days because of illness in 2023. [Executives] lament a complete unwillingness [among] younger workers to understand the sacrifices needed to maintain prosperity.” The abuse of sick leave policy has worsened due to pandemic changes “allowing patients receive sick notes from doctors by telephone without a face-to-face examination.” Generous laws provide an incentive to take sick days: “In Germany, all employees are entitled by law to six weeks’ sick leave a year at full pay. If an employee [gets sick on] holiday, and obtains a doctor’s note to prove it, they can claim those days of leave [to use] another time.” In the wise words of Kim Kardashian…
(0) Miscellaneous
A day in the life at the email factory. The link between competition and TFP growth. Reversing efficient markets in life. Techniques for breaking message encryption. The most underrated utilitarian is Henry Sidgwick. A critique of Cliff Asness on efficient markets. The 25th anniversary of Fight Club. Introducing the double decker air fryer. The real measure of wealth. A goldmine called Greenland. The decline and fall of the Ronald Perelman empire. Ernie Garcia III is the GOAT. How to beat jet lag. Religious mobile apps in India. Detailed profile of Citadel Securities. The 24 hour “do nothing” challenge. Behind the scenes at the coffee startup Cometeer. Founders and perpetual dissatisfaction. “When you’re weighing cash flow against cancer, you tend to get grim results.”