Cognitive Deficits in Entrepreneurs


Starting your own company is, on average, economically irrational. If you work for a big enterprise you have access to their capital and their brand. If you become a dentist or physician (or have sex in Massachusetts, New York, or Wisconsin with a couple of dentists or physicians), you’ll probably make more money than the typical entrepreneur and with a lot less risk.

The Wall Street Journal piece “Why Some Entrepreneurs Feel Fulfilled—but Others Don’t” contains a hidden gem:

When it comes to schooling, for instance, more of it doesn’t always lead to greater satisfaction. Researchers in the Netherlands have found that entrepreneurs with high levels of general education—say, from an Ivy League university—actually end up less satisfied with the income their startups generate than those who had more practical, specific professional and educational experiences.

The reason: Many Ivy Leaguers overestimate their abilities, only to end up disappointed when they don’t find quick success or earn what they think they deserve. “People tend to have high expectations when they are highly educated,” says Ingrid Verheul, an assistant professor of entrepreneurship at the Rotterdam School of Management, who co-wrote the 2011 Netherlands study. “They expect to be good at things. They have higher opportunity costs, and often expect to be working higher-level jobs.” …

It isn’t that Ivy League types do any better or worse than people with more specific educational experiences, says Ms. Verheul. Rather, she says, income satisfaction is in many ways tied to how people think they stack up to their peers. In the Ivy League, peers may go on to earn huge salaries in high-level management, which could make the typical entrepreneur’s salary seem small. People educated in more specific fields see their peers go into similar businesses, so they set more realistic expectations.

A similar dynamic is at work with people who started businesses with lots of initial capital, Ms. Verheul says. According to the study, those who begin with a lot of money are likely to expect high financial returns. When their returns aren’t as high as expected, they aren’t satisfied.


  • Tips for Startup Companies
  • this post about Ellen Pao with a former co-worker’s comment: “… employers have continued to hire her for jobs with increasing responsibility, wrongly hoping that she will one day live up to the promise shown at Princeton and Harvard, only to be disappointed; and, Ellen still can’t accept that she can’t repeat her academic success in the business world, …”

NYT Style Section: Divorce Saloniste for Women


“A New Cadre of Experts Helps Women Navigate Their Divorces” is an interesting July 18 NYT article. The amoral adult-centered world of divorce litigation is reflected in that the editors chose to put this in the “Style” section and that the negative effects on children are alluded to just once, in a “How are you going to help your children heal?” quote from an interviewee (the academic psychologists and epidemiologists whose papers are cited in Real World Divorce found that, in general, children do not heal after a typical U.S.-style divorce). The journalist does not mention that children effectively pay for 100 percent of the cost of a divorce, including for the consultants interviewed, because children will receive a smaller inheritance (and the time, energy, and money that their parents put into litigation is not available for parenting).

The profitability of divorce for a thoughtful American is apparent from the facts reported. The main interviewee runs divorce salons for women out of “century-old Brooklyn Heights carriage house that had been remade into the sort of place location scouts covet: an aspirational set for the next Nancy Meyers movie” with a “soaring glass-walled living room and backyard.” How did Elise Pettus, “trained as a journalist and filmmaker” (but whose name shows up in IMDB on just three films, the most recent of which is from 1990, and in low-level production assistant-type jobs), manage to obtain a multi-million dollar house in New York City? She herself is divorced…

The rest of the article is interesting because it shows what is on the minds of contemporary Americans who have sued their spouses or defended against a lawsuit by a spouse in New York, a typical winner-take-all jurisdiction (the victorious parent gets the house, the kids, and most of the cash; Census data from March 2014 shows that 91 percent of the winners in NY were women).



Why is it exciting that Amazon made a 0.4 percent profit?


Can someone explain why investors are excited about Amazon earning $92 million on revenue of $23.2 billion (nytimes)? That’s a 0.4 percent profit. Does the stock going up 17 percent on this news make a mockery of the Efficient Market Hypothesis?

Hanscom Field will be spared from Donald Trump’s 757 clogging up the ramp


The Boston Herald reports that the government will protect our tender ears from Donald Trump until he recants his thoughtcrime:

“I just don’t agree with him at all,” Boston Mayor Martin J. Walsh told the Herald yesterday. “I think his comments are inappropriate. And if he wanted to build a hotel here, he’d have to make some apologies to people in this country.”

Uber regulatory risk: Politicians who will never use Uber


Uber continues to have a tough time with politicians and the government regulators whom those politicians appoint. I’m wondering if part of this difficulty is that politicians are now so segregated from the rest of the population (Marie Antoinette/Louis XVI) that they will never use Uber (and, since Uber is fairly new, never would have used Uber in their pre-success days).

Let’s look at Hillary Clinton, for example. The Daily Caller says that she can’t go anywhere on a plane smaller than a Gulfstream G450 (about $50 million factory-new, depending on how pimped out the interior is). One thing that one does not see is a Gulfstream G450 land at Teterboro and the passengers come out to summon Uber from their phones.

The mayor of a smaller city may not travel around in a G450, of course, but he or she probably gets a car and driver and hence will never have a personal need for Uber.

Readers: What else do politicians regulate that they never have to use personally? And should there be some kind of requirement that regulators also be customers of the industry that is being regulated? Otherwise, why wouldn’t it be trivial for a well-funded lobbyist to get rules established to eliminate competition?

Italian tourism in the smartphone age


Here’s a Facebook posting from a friend who is in Italy with his family:

As we approached the city, we stopped to get fuel at a normal rest area with an Esso station. It was expensive – 1.609 Euros per liter, (I had previously never paid over 1.2) but Italy seemed to be that way at every station. My wife filled up the van while I went inside to buy ice cream for me and the kids. I bought three Magnum bars that came to 6.9 Euros total. I started to hand my Amex card to the guy on the left. The guy on the right signaled for me to give the card to him. I did, and he handed me a receipt, and then the guy on the left handed me another receipt. I walked out to the van, and my phone popped up an Amex “foreign transaction” alert for 69 Euros. I looked at the first receipt and it said 69 Euros. I went back inside, took the photos of the guys, and then demanded my 69 Euros back. They acted surprised, and like it was a mistake. I waited for the money. They asked me if cash was ok, and handed me 69 Euros from the register. I left.

I then asked my wife how much the fuel came to. She said 130 Euros. That seemed like a lot, even for 1.609 per liter. I did the math and they would have needed to put in 80.8 liters to come to that. The van has an 80 liter tank, and it was almost 1/4 full when we pulled in. I estimated that he overcharged us by almost 30 Euros. It was odd that the receipt had no details on it. I went to the guy who ran the pump, and asked for 30 Euros. I don’t understand Italian, but he was pretending nothing was wrong. I then went inside and talked to the guy who had ripped me off for the iced-creams, and he went into the fuel computer and eventually pulled out a transaction for pump 21 that was for 130 Euros and 80 liters and claimed that was mine. I didn’t accept it, as it was not possible to put 80 liters into my tank, and asked for my 30 Euros again. He then pulled out a second transaction that was for 106 Euros and 65 liters. That was as expected. He then called over someone who may have been a manager, and I showed him the two receipts. I then went to the guy who ran the pump again and asked for my money again, and said I would call the Police. The manager-looking guy asked him to cough up the money, and he gave me 24 Euros from his own wallet. We learned to pay by cash in Naples.

We drove away, and then had to pay a toll when entering the city. It was over 56 Euros – the largest toll I have ever heard of. This time, we used cash and handed 70 Euros. The toll booth attendant shorted us 10 Euros of change. I would not leave or let other cars behind me go until he gave me 10 Euros. I then got his attention and took his photo. Lesson number two – use only exact change when you pay in cash.


I’m wondering what the Italian translation for “That American from Hell” is….

Cell phone tower data, Fitbit data, and the court system


For those interested in both tech and the legal system… “When Prosecutors Believe the Unbelievable” is a Slate article about a criminal rape prosecution and conviction that hinged on data from cell phones. “Woman staged ‘rape’ scene with knife, vodka, called 9-1-1, police say” is about the contradiction between a crime victim’s testimony and Fitbit data (how did the police get hold of the Fitbit data? This ABC story has some info).


Equal Pay for Female Soccer Players?


My Facebook friends have been signing petitions demanding that women soccer players be paid as much as men (apparently they didn’t realize that FIFA executives are more likely to be persuaded by briefcases full of cash). A variety of articles (example) point out that men generate more spectators and therefore more revenue, so therefore Econ 101 says that the men should be paid more.

Why does Econ 101 apply here, though? FIFA seems to be an unregulated monopoly. Various other monopolies, such as Major League Baseball, have moved money from the most profitable teams to teams in smaller media markets. The goal, as I understand it, was to make the season more competitive. But given that market economics are not applicable, what would be wrong with FIFA moving money from uber-profitable men’s teams and giving the money to women’s teams?

Separately, could it be the case that simply paying women a lot more would increase the number of spectators? A lot of sports figures are celebrities partly because they are rich and do things that mostly rich people do and that the public gets excited about. If female soccer players get a 5X boost in pay, for example, they might show up in the media a lot more often and then people would want to go the the stadium or turn on the TV to watch them play.

What do readers think? Would be it be fair or unfair for FIFA to insist that male and female soccer players, on average, are paid the same?

Ashley Madison data breach: time to buy Bitcoin?


Halfway through Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money and now comes news that the Ashley Madison customer database has been compromised. The company’s motto has been “Life is short. Have an affair.” I’m wondering if the new motto will be “Chinese and Russians are smarter than North Americans; Use Bitcoin.”

Correct me if I am wrong, but a site such as Ashley Madison doesn’t need to know the real names or addresses of any users other than to bill credit cards. If so, had the users paid with a dedicated Bitcoin wallet there would be no interesting data for hackers to steal? (If you keep your Bitcoin with a single public/private key pair anyone from whom you buy something can also see everything else that you’ve ever bought ( Or does Bitcoin actually make things worse because the people who sell Bitcoin need to keep a record of who bought what and therefore if the Bitcoin currency trader gets hacked, a la Mt. Gox, then the people who obtain that database can see everything that people have bought across a wide range of merchants?

What do readers think? Would a “Bitcoin-only” payment policy have resulted in more or less privacy? Will the publicity around this latest breach give Bitcoin a significant lift?

Lockheed Martin buys Sikorsky for 1.1X revenue


“Lockheed Martin to Buy Sikorsky for $9 Billion” is a Wall Street Journal story about how one defense contractor bought another. The actual cost to Lockheed Martin is only $7.1 billion due to some tax law complication. Sikorsky annual revenue is $6.5 billion per year. That makes the company worth 1.21 revenue.

Being a defense contractor is supposed to be crazy profitable, but 1.1X revenue is less than the 1.8X average for the S&P 500 (chart). Uber is trading for about 100X revenue (Fortune). Can it truly be the case that coordinating rides is worth seven times as much in aggregate as being a core member of the military-industrial complex?

This other WSJ article says that there are only $150 million in “annual synergies” from combining the two companies. It also notes that the new Lockheed/Boeing long-range bomber will cost $80 billion (why not buy Airbus A380s and toss bombs out the side?). An inset video features Lockheed CEO Marillyn Hewson talking about the challenges of running her enterprise. (It is too bad that there isn’t a comment section; Ellen Pao could log in and remind fellow readers that “If Marillyn Hewson had been a guy, she could have had a really successful career.”)

What do readers think? Is it truly possible that collecting tens of billions of tax dollars for decades-old designs, such as the Black Hawk, is not more profitable than the latest Silicon Valley fad?


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