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There have been calls in the community for more humility and less confidence in our conclusions, and one way to do that is to start valuing inside views less, and pay more attention to trends and reference classes with base rates, also known as the outside view.

An example in crypto

Nathan Young argues that the failure rate of crypto is 5% annually, and if this is right as a base rate, it would have been insane to be so over invested in cryptocurrency, because without unjustified assumptions of specialness, sooner or later EA would lose a whole lot of it's income, and that's what happened here.

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What are the implications for EAs?

  1. Focus more on base rates and trends, and less on your models.

  2. Have a higher bar for suggesting that base rates won't apply to you or that a trend will end.

  3. Do more outside view investigations and datasets so that you don't need to rely on your inside view here.




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If you want to talk about base rates of business failure in general, then according to the Bureau of Labor Statistics, approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years.

Crypto, like every industry, has a long-tail distribution of a few big players and many many small start-ups. The small start-ups do have a high failure rate, but I'm not sure that the rates are higher than for businesses in general, or tech start-ups in general. And the small start-ups (like FTX) can often grow extremely big in terms of revenues and valuations, long before they grow established in terms of corporate governance, checks and balances, corporate culture, and maturity of leadership.

I guess EA fund-raising could focus only on soliciting money from huge, long-established corporations with deep pockets, proven business models, media connections, and heavy political influence. But that might raise all kinds of other conflicts of interest.

More specifically, it was insane for EA to stake so much money on something that could wipe out your entire value.

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