Byrne Hobart - Optionality, Stagnation, and Secret Societies

**Dwarkesh Patel** (0:04)
Alright, today, I have the pleasure of speaking with Byrne Hobart, who's a writer, consultant, and investor who writes at diff.substack.com. That's D-I-F-F dot substack.com. Here's my first question, Byrne.
You wrote an article called Foxes and Hedgehogs, and here's the final line in the article. If it looks like somebody doesn't have a single big idea, they probably do, and it's a good one. Now, you're somebody who writes every single day, and you're every single weekday, and you're writing about all kinds of things in finance, technology, and so on. And it might seem like you don't have one big idea, but that's exactly why I should expect you to have one big idea. So here's my guess of what your big idea is, and you tell me if I'm wrong or right.
Basically, most human decisions, whether made by individuals or by institutions, can be boiled down to some simple financial concepts, like expected value, optionality, volatility. And because other people are missing this, they're not reporting on the important trends or they're reporting about them in a way that misses the long-term impact these trends will have. How far off am I?

**Byrne Hobart** (1:05)
I think that's a good mental model, and it's one that I've used a whole lot. I do think that it's definitely true that financial concepts can be usefully applied in a lot of different contexts, but it's like any other model that you want to use the model, but you also want to be aware of the deficiencies in the model. Like half the point of the model is to make predictions. Half the point of the model is to say, here's a list of assumptions you have to make in order to make a reasonable prediction, and if you can't make all those assumptions, then the model does not actually apply, or you should at least not be surprised to be surprised.
So it is definitely a big part of how I think. I would say maybe the big idea is more of the big question, which is just, how do people coordinate when they're solving complicated problems? Because a lot of the interesting problems in the world, you can't have one lone genius solve them, and there are various institutions that try to solve them, but a lot of times, the institutional mandate is not to solve that problem, it's something else, and maybe there's a real mandate and there's a fictional one. Like a lot of the mission-driven public companies out there, they will have both the mandate of like SpaceX, we're going to go to Mars, but also we're trying to maximize shareholder value, and it's never clear which one is actually the external story that they're just telling you so that they can really accomplish their internal goals. It's actually not clear which of those is which.
And maybe even within SpaceX, there are people who think, okay, the Mars stuff is like that's how we recruit good engineers, that's how we raise a bunch of money. When we go public, that's why the stock price will be really high. But that really SpaceX is trying to maximize earnings per share on a 10 or 20 year time frame. And then there may be other people at SpaceX who are like, yeah, everyone thinks that SpaceX is just this company that's trying to make money. And of course, we will make money. But the real point is to make humans an interplanetary species. So coordination, it's just a really hard problem to solve. It's a hard problem to think about.
Even when you think about how these different institutions have different goals, different stated goals, they may have internal goals that are unstated but exist. And a lot of the time, those goals are just, whoever's there wants to stay there and wants to get raises and wants to feel important. And if they fail to accomplish their goals, but the problem they're working on keeps getting bigger, they could stay important for a really long time.
So given that there's naturally just a lot of double talk about this, and given that if you're coordinating between different groups of people who have different goals themselves that you need to do some double talk, it's just a really hard problem to study, and it ends up being a problem that shows up in a lot of different domains. So I've talked about it in finance, it shows up in tech companies all the time, it shows up in politics, and both the politics in the sense of who gets elected, which bills get passed, and then in the much broader sense of just how do humans with intractable desires resolve them to one party's favor or another, or just figure out some way that they can all come to an accommodation.