
If Everyone Else is Such an Idiot, How Come You're Not Rich? - CWuestefeld
http://www.theatlantic.com/business/archive/2011/12/if-everyone-else-is-such-an-idiot-how-come-youre-not-rich/249430/
======
sskates
If you've ever run a company or any sort of organization, you'll realize that
walking around blind is the default. It takes effort to get information on
what's going on. Because you can't wait forever for perfect information, you
end up taking calculated risks like Netflix did with Qwikster where it's not
clear in advance if it will pan out.

As the OP realized, this results in Monday morning armchair quaterbacking from
people who ask "why didn't they make the right decision in advance, are they
stupid or something?" When in fact, no, they are not stupid, they just don't
have perfect information about what will happen.

Incidentally, this is the largest advantage of startups- the cost of a risky
bet is much lower because you don't have to risk hemorrhaging hundreds of
thousands of customers each time you make a bet. As a result, you can take
many more risks and come to a better solution more quickly.

edit: downvotes? what?

~~~
balsam
it should be interesting to us, for you and only you to be able to see who
downvoted you.

~~~
davidw
That would be a fantastic way to promote "revenge" voting.

~~~
Mz
Also a fantastic way to promote grudges. People who have been "publicly" ugly
tend to want to justify it and are thus inclined to continue to be ugly as
"proof" that they were right to do so to begin with. I would rather people
have the chance to change their mind about me and move on. I have certainly
changed my mind about some people and am less inclined to downvote their
remarks than I once was (which sounds more personal and ugly than I mean it --
I am trying to say that getting to know someone better can change how you
interpret something they have said). First impressions aren't always accurate.

~~~
balsam
no, it's a means to encourage those above the karma threshold to be more
austere about their downvotes.

and only those below the karma threshold for downvoting should be able to see
who downvoted them. this deals with the problem of grudges. and as someone
mentioned below, the downvoter should also have the option of leaving
feedback.

~~~
Mz
I don't see how this deals with grudges because I am talking about the
psychological impact on someone who knows that it will be known they did the
downvoting, not the psychological impact on the person getting downvoted (plus
don't underestimate the long memories of some people who will still remember
who downvoted them a long time later, after they have their own downvote
privileges). Also, people who downvote currently have the option of leaving
feedback by simply replying. So I don't really understand where you are coming
from.

------
joebadmo
One of the important points I've heard Clay Christensen make is that incumbent
companies often get destroyed (disrupted) by small players not because they're
incompetent, or even because they're making bad decisions. Each decision along
the way seems perfectly rational. Christensen frames it ultimately as a
problem of measurement, that people are measuring the wrong thing, therefore
optimizing for or solving the wrong problem.

I think this article correctly points out that Hastings isn't stupid, but he's
in a tight spot, just because of the circumstances.

~~~
dredmorbius
Even more grossly significant than this is the fact that "logical and/or
beneficial at small / individual / short-term scale" need not equate to a best
solution or alternative for a population at large or long-term timescale.

A classic case in economics is explained very clearly in Mancur Olsen's _Logic
of Collective Action_ , which explains why group-based decisions are often at
odds with the interests of the group as a whole.

Another is Arrow's Impossibility Theorem, which hods that there is no method
for constructing social preferences from arbitrary individual preferences. In
other words, there is no rule, majority voting or otherwise, for establishing
social preferences from arbitrary individual preferences -- so long as you
also require unrestricted domain, non-dictatorship, Pareto efficiency, and
independence of irrelevant alternatives. In other words: democracy not only
may not, but _cannot_ deliver an optimum outcome.

There are many other such paradoxes and conflicts, many of which I'm becoming
increasingly convinced undermine key and manadatory assumptions of a properly
functioning free market economy.

What changes might fix these is of course a rather longer discussion....

~~~
rgraham
Winston Churchill was clear in his writing that America could not be trusted
as an ally in anything that required steadfast determination over longer
timelines. The winds of democracy make America a fickle ally. See 'The
Gathering Storm.' Public schools don't often teach any of the shortcomings of
a democratic society.

~~~
dredmorbius
The US has often turned to dictatorships for its "friends indeed", though this
doesn't always pay out particularly well.

While there's a limit to the amount of pain a democracy will shoulder, there's
also a pretty strong tenacity to its true friendships. Such as, say, the
"special relationship" much heralded between the United States and Britain.
Once we got over some initial sore feelings, by the late 19th century,
economic and cultural ties had pretty solidly cemented the two countries
together.

By comparison, the USA' s dictatorial allies have been steadfast ... for
roughly the duration of the dictatorship, if that. And the fall of same can
leave a very long period of mistrust and poor relations: Iran, and much of
Latin America are testament to this.

Public schools are indeed a fairly mediocre source, but fortunately we're not
limited to the knowledge spooned out in them. I found university to be rather
interesting in this regard, and have made some study of related matters since.

So: I'd take odds with Mr. Churchill's assessment.

~~~
rgraham
Churchill was not speaking in regard to feelings and a relationship with
another nation, but rather dependability in mutual long term pursuits. I think
what he says remains true and a useful filter at times.

------
sanjiallblue
This article ignores a very central tenet of becoming rich:

Luck.

Most people didn't get in the position they were because they were geniuses.
Few individuals fill that role. They get there because they were lucky. Bill
Gates certainly wasn't the best programmer of his day and he most definitely
wasn't the most adept businessman and he wasn't the most brilliant thief.

He was lucky.

He turned out a product that everyone wanted at exactly the right time. Now,
as businesses have evolved alongside technology there certainly is slightly
less luck (I would personally contend only slightly). But the founders of
Netflix probably weren't the first people to think about mailing rental DVDs
to customers, they just had the money and the capital to make it happen when
the market was just enough ready to accept their existence. They developed
expertise in that particular business, mailing DVDs to customers, and killed
an entire other industry (for all intents and purposes) in the process.

How the author relates this to their streaming model (what was motivated the
change) is baffling to me. Her entire premise seems to try and imply that the
wealthy are somehow more intelligent and that, pardon the frankness, is
fucking idiotic.

Netflix didn't become a giant through streaming content. They parlayed DVD
money into a streaming business because the whole industry was making a very
obvious shift in that direction. I mean hell, if they were half the geniuses
that the author makes them out to be they wouldn't have selected Silverlight
as the backbone of their service.

All I saw was a group of lucky people in one industry try to jump into another
industry that appeared deceptively similar, and just because Hastings is their
CEO doesn't make me think he's intelligent. If anything he's demonstrated that
he doesn't fully understand the economics of splitting media.

The Quickster Announcement came off to me as a very stubborn businessman,
tricked into thinking himself intelligent and a captain of industry by his
fabulous luck, making a rash decision to vindicate a strong opinion he had
behind closed doors.

The only thing I can take from this article is that money does a very good job
of making the rich think that they're intelligent.

~~~
nazgulnarsil
this belief pays little if any rent.

~~~
gwern
It pays _plenty_ of rent. It tells us to expect all the usual randomness
results about Wall Street, traders, hedge fund managers, etc. It tells us to
expect something that looks like a random distribution like a Poisson in most
terms of business success. It tells us to expect plenty of leaders to flame
out simply because they got where they were through random rolls of the dice
and for once their dice came up snake eyes.

~~~
nazgulnarsil
I'm sorry but quantifying the role chance plays in some given process DOES pay
rent, the general belief "X is like Y because of luck" isn't useful.

------
tsunamifury
After working in finance I've come to believe that most wealth is accumulated
through brute force. You get money by using leverage to take other peoples
money -- its actually very simple from an intelligence perspective. It may
take some genius to gather the resources necessary to forcefully gather
wealth, but the actual gathering of it is not a matter of 'smarts'.

~~~
codyrobbins
No. Perhaps most of the wealth that you saw, working in finance, may have come
from brute force (although I would disagree with that claim, prima facie, as
well); but that doesn’t mean _most_ wealth is accumulated that way.

 _You get money by using leverage to take other peoples money_

No. That theory is called mercantilism, and we figured out that it’s wrong
about three hundred years ago. You get money by bringing about the
manifestation of value into the world. People who make money via leverage are
doing that in a very specific way, but it’s far from the only way to do it.

~~~
jbooth
1949 was 300 years ago?

~~~
codyrobbins
1700 was three hundred years ago, when John Locke pointed out in his _Second
Treatise_ that the amount of wealth in the world is not fixed.

~~~
mindblink
Interesting... I would be like to look up the direct quote. Would you have the
chapter or section reference?

~~~
jerf
You need a citation that some guy once said that the amount of wealth in the
world is not fixed? What would the world look like if it weren't true? There's
no reasonable or useful definition of wealth for which the world of today has
exactly as much wealth as the world of 10,000 years ago. (Or 1,000, or 100.
10, well, that can be successfully argued either way. It's not been a great 10
year run.)

~~~
chc
I believe he's looking for a reference that Locke was a proponent of the idea,
not that the idea is true. Similar to how you might ask for a reference if
somebody suggested Shakespeare as the originator of the Theory of Relativity —
it's not that you disagree with relativity itself, just the history given.

------
starwed
Reminds me of the following Terry Pratchett quote:

>A European says: _"I can't understand this, what's wrong with me?"_ An
American says: _"I can't understand this, what's wrong with him?"_

>I make no suggestion that one side or other is right, but observation over
many years leads me to believe it is true.

This post is about exactly those two attitudes, though here it has nothing to
do with what side of the Atlantic you're on!

------
BrokerChange
A company in the 70's sold 500 of it's restaurants (it's main source of
revenue) and the "pundits" called them crazy. The stock took a hit but the CEO
remained on course. He stuck to his guns.

30 years later, it is one of the most successful companies in its industry.
You may have heard of them- Walgreens.

The CEO of Netflix is not dumb. He killed Blockbuster. He knew what he was
doing when he split the company to save the future of his company.

His only mistake was not sticking to his guns.

~~~
pyre
That seems like a bit of confirmation bias. You're arguing that Neflix can do
no wrong because:

1) They took out a large incumbent competitor, therefore it's impossible for
them to make bad decisions.

2) A single company in the past made an unpopular decision that worked out
well for them.

I could similarly say that Apple firing Steve Jobs was the best thing that
they ever did. Just look at them today!

~~~
nuclear_eclipse
I imagine there are quite a few people who would agree with you; had Jobs
stayed on at Apple, he wouldn't have learned the hard-won lessons from
starting Pixar and NeXT.

~~~
ceejayoz
Yes, but the lesson learned should be "sometimes things unexpectedly wind up
working out well", not "fire your CEO and you too could become the highest
market cap company in the world"...

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onedognight
> Hastings wanted to get the DVD-only customers off of Netflix so that he
> wouldn't have to pay for streaming rights they weren't using (or paying
> for).

I've heard this argument multiple times now, but it flies in the face of the
much more logical argument made in the very next paragraph that the content
companies want to replace their cable income (no matter what). Meaning in this
case if he splits the company in two then they double their prices on the
streaming. Given this, splitting seems like a big step for a temporary
reprieve.

------
bryanh
Wealth does not necessarily correlate with intelligence.

~~~
sandee
Yes. "Smart people make more money but don’t end up any wealthier" is the more
accurate statement

[http://tierneylab.blogs.nytimes.com/2007/04/25/smart-
doesnt-...](http://tierneylab.blogs.nytimes.com/2007/04/25/smart-doesnt-equal-
rich/)

~~~
danielsoneg
Wealth accumulation roughly follows the process of "1. Earn money 2. Don't
spend it" - It doesn't strain credulity that IQ might be correlated with the
former, but not the latter.

I'm curious as to the effect on quality of life - measuring wealth in dollars
is easier, but a pretty imprecise measure of the overall effect on someone's
life of a few IQ points.

I'm even more curious as to the effects on happiness...

Edit: Not much, apparently: [http://www.quora.com/Happiness/Is-it-true-that-
less-intellig...](http://www.quora.com/Happiness/Is-it-true-that-less-
intelligent-people-are-happier-than-smart-people-Why-or-why-not)

------
nostromo
I think the issue is more about timing your business decisions, not making
smart or stupid ones.

Netflix is worried about the end of physical media, as they should be. They
are looking 3 or 5 years down the road and trying to position the company to
be successful then (as well as today).

However, for the average customer today, DVDs are still very important. And
for the average investor, next quarter's earnings are much more important than
earnings in 2015.

I think Netflix made the right decision for next year, or maybe 2013 -- but
made it too early; they got ahead of their customers. (An easy thing to do
when you live in Silicon Valley.)

~~~
WalterBright
>And for the average investor, next quarter's earnings are much more important
than earnings in 2015.

I hear this all the time, and it's just not true. I see stock moves all the
time based on the prospects for distant future earnings - Amazon is a prime
example. So is any stock with a high P/E.

~~~
chollida1
This can be true:

> I see stock moves all the time based on the prospects for distant future
> earnings - Amazon is a prime example. So is any stock with a high P/E.

and this statement can also still be true:

>And for the average investor, next quarter's earnings are much more important
than earnings in 2015.

~~~
WalterBright
Investor sentiment is accurately reflected in the stock price. If investors
were incorrectly letting short term thinking dominate their buy/sell activity,
then a long term investor should be able to make higher-than-market investment
returns by betting against those incorrect short term thinkers.

I don't see this happening, hence I don't buy the idea that investor sentiment
is incorrectly biased towards short term thinking.

Consider Amazon again - its stock zoomed for many years after its IPO and
despite losing vast sums every quarter and many predictions that it would
never climb out of those losses. Obviously, investors were pricing the stock
based on a very long term outlook (and were amply rewarded for their
prescience).

------
sinzone
You're assuming that all the smartest want to become rich.

Maybe not.

~~~
sandee
Yes. Ask Stallman, Linus et al

~~~
_delirium
Also all the old Bell Labs people who're now at Google. I'm sure Rob Pike
could get more money than he does at Google if he wanted to go into the
startup game, but he isn't interested.

------
mikeash
I can think of a couple of counterarguments.

First, the video rental business was ripe for disruption once DVDs became
sufficiently popular. Once you had a video medium that was small enough to
cheaply ship through the mail and durable enough to keep in circulation for a
while, it was inevitable that somebody would challenge the incumbent brick-
and-mortar stores and win. Netflix may have simply been in the right place at
the right time through sheer luck.

Second, intelligence isn't a single thing. It's a blanket term for a huge
collection of disparate characteristics. The intelligence which lets me write
code at a level well beyond most of the population is not the same kind of
intelligence that would make me succeed in business. Perhaps the kind of
intelligence that lets a person build a successful business from scratch is
not the same kind that lets a person _sustain_ an existing large business.

I think the article makes a good point, that we tend to ignore complication
and subtlety in favor of simplistic explanations like "he's stupid", but I
think it goes way too far in the other direction. Rather than assume the CEO
is stupid because his company is having trouble now, the author assumes the
CEO is smart because his company had success in the past, which is no better.

------
27182818284
It was a good plan executed too quickly. First price increase to make mail
less attractive, then split the companies down the road, then get rid of your
part with mailing DVDs completely and then truly become the _Net_ flix company
you want to be. The only thing they seemed stupid about was how fast they
could execute those steps. They did it too quickly and it unnerved customers
and investors.

------
jonnathanson
While I am opposed to blatant armchair quarterbacking, we must be careful to
avoid the "appeal to accomplishment" fallacy
(<http://en.wikipedia.org/wiki/Appeal_to_accomplishment>), or any derivative
thereof. Analysts can be justified in critiquing a CEO's strategies, even if
they've never been CEOs themselves. Critics can knock a bad movie, even if
they've never personally directed a movie. Sports commentators can critique a
basketball player's performance, or a coach's call, even if they've never
played or coached. Etc. You don't have to have done something in order to form
a cogent opinion of it.

Of course, it is certainly unfair to label Reed Hastings an "idiot," or to
claim that Netflix, as a whole, has "no idea" what it's doing. History has
proven both of those positions wildly untrue, barring a few hiccups here and
there.

------
alexholehouse
I think this boils down to the fact that if you look at historic proceedings
the outcome seems obvious, because the details which make it obvious are the
ones reported. There is a total bias to write what looks like a progressive
narrative, when the reality is usually far from it.

i.e. A->B and B->C then CLEARLY A->C. Except when A went to B, A could also
have gone to D, E, or F, but you don't write about that, because clearly
covering all your bases would be ridiculous, and it's generally difficult to
evaluate the likelihoods of any options except B, where the likelihood of B is
100%.

------
pasbesoin
Because the idiots compromised my health before I knew better, or rather knew
how to get away from and effectively avoid this.

This is the part of abuse that people persistently don't get: It often works,
by chronically if not permanently disadvantaging the victim. There are people
who succeed in spite, but you're down to talking about individual
circumstances and variables, then.

~~~
Mz
Health issues and abuse (largely separate issue) are a big part of my story.
I've been recovering from both, but at high cost -- like I'm deeply in debt
and being evicted from my apartment. Perhaps not the best place from which to
be giving "money" advice (not that this is really that). In my case, I'm clear
my finances would be far worse if I had not recovered my health, that my
current fairly dire situation is still an improvement over what I would face
with conventional treatments/accepting the problem. I'm still trying to figure
out how best to share information on how I accomplished that. It's possibly
stupid (and often goes over very badly) to try to offer encouragement in that
regard given the large gap between that encouragement and my ability to
adequately convey what I did.

Suffice it to say you have my sympathies and agreement.

~~~
pasbesoin
Thanks for stepping forth to respond.

I... without trying too hard to find my own words -- understand, or experience
for myself, the difficulty in trying to communicate about such a situation.

These days, I no longer try too hard, and I tend to keep things brief, myself.
Only if someone seems both genuinely interested _and_ capable of
understanding, will I willingly go further. (I still kick myself for those
times when I slip and say more than my intuition tells me is wise.)

I also should qualify my comment by saying that I don't want to cast myself
and the worst of victims.

Such experiences are so personal. And it's difficult when someone wants to
"lay them out on the table" with a measuring stick, and probably also whatever
brand of Scotch tape they happen to carry.

:-)

~~~
Mz
Agreed: Trying to play "who's the bigger victim" does no one any good. Just
saying that one can heal more than most people seem to be aware and I try to
gently spread the word, where possible. Even though that journey has been
quite the challenge, I feel it has been well worth it.

------
quinndupont
The answer to that question is simple, but unpopular: ready access to capital
(i.e., being rich). There's a reason why all the money in the world is held by
less than 1% of the people, and this has nothing to do with the 1% being the
smartest.

~~~
gnosis
A very rich man was asked by a journalist how he made his first million.

The rich man answered that he started off with just a few pennies, put them in
a pay phone and made a phone call: "Dad, can you please lend me a million
dollars?"

------
chippy
The rich don't think everyone else is an idiot - they think everyone else as
marks, johns, consumers, customers.

------
Sherlock
MS. McArdle is a journalist with strong insights in tech and finance. Her blog
is a good read, if you skip the politics content, which isn't so bad either.

------
zobzu
Just to take the headline without the context: being rich and being smart are
not necessarily synonymous and one never required the other.

In other words, smart people often do NOT aim to be rich. They have more
interesting goals and they usually either sacrifice "common wealth" for them,
or are just ok with a decent amount of money. Money's nothing. Money's not a
goal. Never been. Smart evil people go after power control and knowledge.
Money is a side effect. Dumb people only go after money (which comes and go,
really).

~~~
marknutter
Well, smart people also choose to pontificate about topics on which they
consider themselves smart. If your aim isn't acquiring wealth, you may not be
the best authority on the topic of acquiring wealth.

------
CPlatypus
This same principle often applies to reading others' code. It's common to look
at it, see something inscrutable, and decide that the author was an idiot.
Then you try to rewrite it, trip over all the same bugs that the author had
learned to avoid, and maybe - if you're smart and honest with yourself -
accept that you had unfairly maligned your colleague. I've written about this
before, as have many others including Joel Spolsky. My favorite is this:

<http://notinventedhe.re/on/2010-4-22>

If you re-read the article with an eye toward how it describes the behavior of
programmers even more than it describes that of business people, it becomes
much more valuable.

