Peter Thiel: You Are Not a Lottery Ticket | Interactive 2013 | SXSW

I thought I'd sort of take a somewhat different tack today and try to talk a little bit about what I think the biggest single philosophical question in all these startups and maybe even in life generally is that people have. And it's whether, is it all just a matter of luck or how much of this is luck? How much is not luck when you start one of these businesses and do one of these things? And it's sort of this big question that underlies a lot of these different ventures that people do. And I want to try to tackle that question at least indirectly today. I want to talk a little bit about the question of luck, why it's very hard to answer. I want to suggest to you that we live in a society where people are incredibly biased to thinking that things are dominated by luck, and I want to at least suggest that there are some alternate ways of thinking about the future that it's worth for us to explore.

Let me start with, this is probably sort of my general, the general slide that I always have on the nature of progress, the nature of the future. And when you think about how the 21st century's gonna unfold, you can think that there are basically two axes to the 21st century. There's a technology axis and a globalization axis. They're very different. People always use these words interchangeably. But globalization is basically about copying things that already work. It's the story of China and the emerging world. There's still much of the world, six billion out of seven billion people are still incredibly poor. And what they mainly have to do in the next few decades is just copy things that work.

There's some things where they can avoid copying bad ideas from the developed nations, but a lot of it is this sort of horizontal or extensive progress. and sort of going from one to n. But then there's also technology, doing new things, vertical or intensive progress, and it's sort of where you're the first person or business or inventor or artist in the history of the world to do something new. It's going from zero to one. And what I want to suggest is that there is something sort of very different about going from zero to one instead of one to n. One to n is sort of this law of large numbers and you can sort of run the experiment many times and sort of see how things work. But when you go from zero to one,

there's a sense in which every sort of event in the history of progress, in the history of technology or science, has something singular and non-repeatable about it. And so if we ask, is a given invention, a given startup, a given artistic achievement, was this something that would have happened anyway? Is it something that was a total fluke? It's actually a really hard question to answer because you only have sort of a sample size of one to go on. You can sort of say that with a sample size of one, the variance becomes infinite, so it's almost impossible to know whether you were lucky or not. And I think that's probably the sort of important starting point to have, is that it's completely unclear whether or not it's luck or not.

And you can have certain biases on this, but in anything where you're going from zero to one, it's very, very hard to say. Now, there certainly is some very mild anecdotal evidence that you can give that the anti-luck argument is that there are certain people who've succeeded in doing various businesses on a repeat basis. There's perhaps most famously still Steve Jobs with Apple and Pixar. Jack Dorsey with Square, Twitter, my colleague Elon from PayPal, who went on to start SpaceX and Tesla and was heavily involved in SolarCity. Of course, you know, there's always a counter-narrative with these things. You can say, well, this person just, each of these people had just one big breakthrough and then everything else was somehow leveraged off of that.

And so, you know, whenever you sort of drill down on this question, was it luck, was it not luck, it's actually really hard to say. It is striking, however, how much the way we talk about this has changed. And so if you go back in time, the classical way people used to talk about it was that luck was something to be overcome or to be mastered. So Thomas Jefferson: 'I'm a great believer in luck, and I find the harder I work, the more I have of it,' which again suggests that it's this thing to overcome or to, you know, that doesn't dominate things or, you know, even simpler, Samuel Goldwyn: 'The harder I work, the luckier I get.' Very much in contrast to that, you have something like today's dominant view where success stems from sort of this whole context.

The context is random. You know, maybe you were a member of the lucky sperm club, the lucky egg club. You know, you were lucky where you were born and stuff like that. And that sort of is what drives everything. And there's, of course, you know, a version of this that applies to startups, that the successful ones were accidental. It's pretty clear how big a role luck plays. I agree with Paul Graham on an awful lot of things, but again, I think this is sort of a place where it's just automatically channeling our default bias as a society, and it's worth asking how much of this is true and how much is not true. What I want to focus on today is not so much—there always are two different directions you can go with this question of luck.

One is sort of the past orientation, which is, you know, how did I get here? You know, what were the factors that contributed to success? But I want to focus instead, instead I want to focus on the future question of, of what, you know, what you can do next and where you go, where you go from here. Is this, is there sort of, is, and is the future a—is that something that's fundamentally dominated by chance, or is somehow thinking of this as being dominated by chance somewhat of a wrong way or an incomplete way to think about the future? I want to offer an alternate perspective on that. Now, I want to say a little bit about the structure of the future and how people can think about the future. And you can think of it, I think, most simply as being determinate or indeterminate.

And in particular, I have this sort of two-by-two matrix for the future. It's sort of a consulting-type idea. But you can basically, most simplistically, you can say that the future is either optimistic or pessimistic, and it's either determinate or indeterminate. An optimistic future is one where you believe things will be better than the present on whatever axis defines better. A pessimistic future is one where you think things will generally be worse. And then a determinate future is one where you can sort of map out reasonable amounts of it and plan against it. And then an indeterminate one is where you have absolutely no clue and it's sort of just a random walk all the way. Certainly, depending on which of these quadrants you believe

is basically correct about the future, it tells you some very different—it leads to some very different approaches that you would pursue in terms of how you think about your life or the kinds of things you're doing. And I want to sort of try to develop this framework a little bit more as we think about this. So, for example, most simply, a determinate versus indeterminate axis: you know, if you believe the future is determinate, you will act with some degree of conviction. You'll have specific ideas and you'll have some confidence to work towards those ideas. If it is indeterminate, the number one rule is to diversify because you have no idea what's going to work and you should just try lots of different things and you should have some sort of a portfolio approach to the future.

And so I think one of the things that's always very interesting when you think of this determinate versus indeterminate thing is that there are all these things that ultimately become self-fulfilling. So if you think it's determinate, and then you focus on doing one thing extremely well, that sort of leads to conviction, and then maybe that becomes self-fulfilling. If you think that it's fundamentally indeterminate, you end up with a portfolio approach, it's diversified, and it has maybe—that itself becomes self-fulfilling and becomes somewhat indeterminate, and it becomes more indeterminate in a way. There's, of course, on the optimistic versus pessimistic axis, the simple one is just, are you fundamentally afraid of it?

Do you think it's fundamentally something that's going to be better? And these sorts of perspectives also lead to very different ways to act. If you want to put this in sort of a historical context, I think that I'm going to try to explain why I put these different zones in these quadrants. But I think the U.S. in the '50s and '60s, and maybe even before then, was fundamentally optimistic and determinate. The future was clearly going to be better. People thought that every generation was going to be better off than the generation that came before. And it was, for the most part, in very specific ways. There was a determined way in which the frontier was going to be developed. There was a way that cars would get faster, planes would get faster, rockets would get faster.

There were sort of all these very specific ways that the future would get better from year to year and decade to decade. I think it's sort of a very different paradigm that the U.S. had for a quarter-century from 1982 to 2007, where the future was going to be better. That was the official religion. It was still sort of very optimistic, but if you asked how or why, people had no good answer for it. And so it was just this mechanistic thing that would automatically get better in one form or another. And so we were sort of in this quadrant of extreme indeterminate optimism, I would say for about a quarter of a century from the period of '82 to 2007. Indeterminate pessimism is probably what characterizes most of the rest of the developed world.

I would say Japan's been in this zone for the last 20 years. People have a sense the future is going to be not that great, maybe a little bit worse, and nobody has an idea of what to do. And I think sort of Europe has weirdly drifted into this indeterminate pessimistic quadrant as well, where people think the future's worse, but nobody has any idea what to do. You can sort of argue where you put China on this. Some people would put it in the determinate optimistic quadrant. I tend to put it on the determinate pessimistic quadrant. It's very determinate. People in China, they know what it's going to look like in 20 years. They're going to build out the highways and the cities. And for the most part, I think it is going to be

a somewhat poorer version of the developed world. People get old before they get rich. There's a very specific way to track against that. But China comes out on this quadrant that's very different from the U.S., '82 to 2007. If you think of these quadrants in terms of the sort of financial way you could describe this, which is that if you're optimistic, you don't need to save a lot of money. If you're pessimistic, you save a lot of money. So if you're super optimistic, you know the future is going to be better. There's no need to save any money. And so you end up with a savings rate that's very low. If you include government borrowing in the U.S. today, the U.S. savings rate today stands at minus 6%.

So we're still incredibly optimistic about the future. We don't need to save any money because the future will automatically be better. And so we're still maybe in an Indian summer of, of indeterminate optimism. On the other hand, for example, I would describe China as quite pessimistic because it has a savings rate of something close to 30% of GDP gets saved. And so people, even though there's some ways in which things are getting better from year to year, people still think they'll be old before they get rich, and therefore they need to save a lot of money. So you have this low-savings to high-savings axis from optimism to pessimism. And then if you sort of—and that's like investing in cash or bonds or things like that, saving in cash or bonds or things like that.

If you invest in specific things, there are specific companies, buildings, ideas you invest in. If you have a definite, determinate view, you'll have a high investment rate. If it's indeterminate, you will not know what specific things to invest in, and so you'll end up with a low investment, low investment rate. And so one of the strange things about indeterminate optimism is that it's the quadrant that has both low savings and low investment. And the question I will come back to towards the end is whether that's a stable quadrant at all. Is it possible for the future to be better when no one saves and no one invests because no one's thinking and everyone's outsourcing all the thinking to other people?

One of the other ways you can sort of describe this difference—I want to give a few different axes for describing this shift from determinate to indeterminate views of the future. The mathematical version is that the dominant form of mathematics used to be calculus and it's shifted to probability and statistics. The structural way is that in a determinate world, you're focused on substance. There are some specific substantive things you focus on. In an indeterminate world, all that you end up focusing on are processes. And so what people talk about in our world is what's the process for doing something much more than what is the specific thing you're trying to do. To talk about specific things,

is too definite, and that seems too weirdly wrong. In practice, you can sort of think of these very different types of quadrants that dominate. The indeterminate optimistic world is dominated by finance and law, because these are the kinds of process-oriented disciplines that you pursue if you have no idea about the future, if it's fundamentally about making sure that the piping of the system works, but you have the sense the system just sort of works automatically. In a determinate optimistic world, that's probably a world in which there's much more room for engineering, art, you know, very specific things. It's people who have ideas about the future that are radically different from the present.

It's people who have dreams about the future that nobody else shares and that they're, you know, willing to work towards and where the dreams are of a substantively different and radically better world are not subsumed towards some sort of random process. Determinate pessimistic would be wartime rationing, you know, indeterminate pessimistic—all you end up doing is buying insurance. I've spoken in some contexts about there being a bubble in education, and I think you can think of the education bubble as a form of indeterminate pessimism where people are—they don't really know what the education's for, but it fundamentally acts as an insurance policy to avoid falling through the larger and larger cracks in our society.

And so anyway, you can sort of think about these different quadrants and depending on which one dominates, there's sort of very different kinds of industries that end up dominating. To have a picture of what definite optimism or determinate optimism looked like, we can go back to these classic examples from U.S. history. So there are things like the construction of the Transcontinental Railroad in the 19th century, where it was a radically different future, where the world would be connected. It's a gigantic undertaking by today's standards. Nobody would do it. People would say, 'Why are you building this railroad to nowhere? It doesn't make any sense. It's costing too much money.' But somehow, as it was built, the future sort of took care of itself.

You know, the classic mid-20th-century example I always like to cite is Robert Moses, who was this somewhat forgotten figure. He was probably the most important person in New York, more powerful than the mayor or the governor of New York City, New York State, respectively, for about a quarter-century. He started by becoming the parks commissioner. He ended up having 17 different positions in government. And he'd sort of show up with his bulldozer and build parks and level some neighborhoods and build some highways so people could have access to the parks. He built all the sort of roadways on Long Island, the FDR Drive. And there was sort of one thing after another that got rebuilt. It sort of stopped in the mid-1960s when he planned to build a highway connecting Brooklyn and New Jersey.

It was going to go through the southern end of Manhattan. They were going to sort of raze Greenwich Village to the ground. The neighbors sort of objected. They started saying, 'We're not quite sure that the future actually is any better than the present. There's going to be this highway with sort of skyscrapers right on top of the highway.' And it sort of stopped. And at that point, people basically—and once there was no longer a definite view of the future, you also ended up with a place where people stopped building things in New York. And so it's possible that Moses was very wrong, that most of the things were misdirected, but it did have this sort of powerful coordinating function. And once the idea of the future disappeared and people no longer believed that there was a future that looked very different from the present and that was radically better than the present, people stopped being able to build anything and nothing new in an infrastructure sense has been built in New York State for close to half a century on any meaningful scale.

Again, to sort of illustrate how different past ideas of the future were, for those of you familiar with the San Francisco Bay Area, there was this thing called the Reber Plan in sort of the late 1940s. It was a plan to basically build two large earth- and rock-filled dams. One was between Marin County and Richmond, the other between San Francisco and Oakland. It was going to turn the North Bay and the South Bay into two giant freshwater lakes. There'd be 20,000 acres of new landfill. There's going to be a 32-lane highway built around the entire Bay Area. And you'd have sort of 30-story skyscrapers built around the entire San Francisco Bay. You know, Reber was sort of a schoolteacher, amateur theater producer.

But in the world of the 1950s, this idea was taken seriously enough that you had congressional hearings. There was a giant mock-up of the plan. It was concluded there would be too much evaporation and it wouldn't quite work. And so people sort of gave up on it after a while. But again, you cannot even imagine someone, someone who's a school teacher, an amateur theater producer, being able to have a plan to just re-engineer a huge geographical area like this and change the world in a radical way. This is again sort of where we're in this world that's extremely different from the world of just 50 or 60 years ago. And of course, you know, all the classic versions of science fiction—cities underwater, cities on the moon, cities on Mars, cities in outer space—sort of radically different and very definite ideas of the future that would sort of become self-fulfilling prophecies of one sort or another.

And when you sort of look at these pictures today, these things look, they don't look futuristic. They look dated. They look like they really are sort of from the past, which is sort of, again, sort of this very strange way in which things have changed. The classic, by contrast, the classic version of indefinite optimism is portfolio investing theory. It is that you should invest in a stock market index. That's the way you get the highest risk-adjusted returns, because the motion of stocks is like the movement of atoms in the universe. It's fundamentally random, and we can't know anything about it. We can just, actually, we can maybe describe the laws, the statistical laws that describe the randomness.

But what specific stocks or specific companies or specific projects you should invest in, you can never know. But you know the stock market generally moves in a northeasterly direction. And therefore, the most important thing is to find the way to get maximum diversification at minimum cost and do something like portfolio investing. You know, in this shift, one of the strange things that happens in this shift from definite to indefinite views of the future is that there is this shift from engineering to finance. And one of the things that happens is that money somehow becomes much more important. And sort of the soundbite version of this is: in a definite world, money is a means to an end because there are specific things you want to do with money.

In an indefinite world, you have no idea what to do with money. And so money simply becomes an end in itself, which seems always a little bit perverse. You just accumulate money and you have no idea what to do with it. That seems sort of like a bit of a crazy thing to do. But I think that's actually what happens a great deal. And so to illustrate one way that this flow might happen, if you start a successful business, you know, you sell the company or you sell shares to investors in an IPO. You make some money. Question: what do you do with the money? You have no idea because nobody knows what to do with anything. And so you give the money to a large bank to help you do something. What does the bank do?

It has no idea. So it gives the money to a portfolio of institutional investors. What does each institutional investor do? They have no idea. And so they all just invest in a portfolio of stocks. Not too much in any single stock ever, because that suggests you have opinions or you have ideas. And that's very dangerous, because it suggests that you're somehow not with it. And then what do the companies do that get the money? They've been told that all they should do is generate free cash flows, because if they were to actually invest the money in specific things, that would suggest the companies had ideas about the future, and that would be very dangerous. And so one of the worst things you can ever have...

Is a company that's not profitable in this indefinite world. And sort of the contrarian idea that I always like saying is that we always like investing in companies that are losing money. We don't like investing in companies that are making money because the companies that are not profitable are actually the companies that have a lot of ideas about what to do with their money. Whereas a company that's massively profitable on some level is a company that's out of ideas. And it's especially crazy in a world where the interest rates are zero, and you actually get paid less and less on the money. And then, of course, the companies are profitable. They generate cash flows. The cash flows eventually go back to people, and you sort of cycle and repeat.

And this is the rough flow that happens in the world of indefinite optimism. Is—this is a bit of an extreme picture. But in effect, it's a hermetically closed loop. And at the end of the day, no one's doing anything real with the money. It's completely abstracted. And what ends up happening is there are fewer and fewer things you can do. And one of the sort of financial ways to illustrate this is if you look at the real interest rates on 10-year bonds in the US, which is—this is a measure of how much interest you earn on bonds minus what the expected inflation rate is. And it's basically been trending steadily downwards. Today, it's at minus 0.6%. So 10-year bonds are yielding about 2%. The expected inflation for the next decade is 2.6%.

So when you invest in bonds, in real terms, you're expecting to lose minus 0.6% a year for a decade. And this shouldn't even be surprising because there's no one in the system who has any idea what to do with the money. This has been sort of a consistent critique of the huge deficits the US is running. People constantly are saying, 'There's a point where the bond market is going to blow up and the interest rates will go higher.' And one of the really big mysteries is that this has not happened for year after year. And I think the fundamental reason this has not happened is that people actually have no idea what to do with the money. The last big idea people had on what to do with money that was not sort of circular was to buy houses and to invest in housing.

And that was sort of the idea of the last decade. That idea has gone out of fashion. Now that people no longer want to buy houses, they have absolutely no ideas what to do with money. The real interest rates are going steadily more negative. And so there's some sense in which this system of indefinite optimism is gradually sort of running out. There's a way in which the natural drift is for something from finance to insurance. I'm not going to give my whole anti-Warren Buffett lecture here, but I think there's a way in which Buffett was prescient and ahead of the curve, and basically reoriented most of his businesses towards insurance companies in disguise, which is sort of the world of indefinite pessimism.

And that's what dominates in that sort of world. And we can sort of see how this indeterminacy affects us in very, very many different fields. So if we look at politics, in an indeterminate world, the most important position in politics is the pollster. And what do you do in politics? Nobody has a clue. But what you do is you take a poll, and the polls tell you what to do. They don't really tell you anything on a long-term basis, but they sort of tell you incrementally what you do at any given time. And as we've tracked towards this more and more indeterminate world, there's a way in which poll-taking has become more and more dominant. And so the way we talk about political campaigns and elections is sort of how are people doing in the polls much more than what ideas they're talking.

It's sort of, you know, if Martin Luther King were here and said, 'I have a dream about a future that's really different,' you know, the question would be, 'How does that poll?' It would never, and that's sort of the way we avoid this. There obviously are cases where this goes very badly wrong. My sort of exhibit A, and my apology to all the Sarah Palin fans in the audience here, but people always say it's this incredible mystery why McCain picked Palin in 2008. I think it's not a mystery at all. The basic heuristic was that you looked at all the Republican senators and governors. In 2008, Republicans weren't very popular. They were mostly running around 40% in the polls. Palin was at 85% in Alaska because when oil was $140 a barrel, Alaska was like Kuwait.

Everybody was getting huge checks from the government of the state of Alaska. She was polling extremely well. And so there was no question that you would go with the person who polled the highest, and so you went with Palin, even though perhaps it couldn't scale to the U.S. as a whole because the U.S. was not producing way more oil than it was consuming. And so, you know, and then there's sort of other ways in which, you know, the 2012 re-election gets recast as a contest between, say, Nate Silver and Dick Morris. Silver was a better poll taker and so he won, rather than that Obama had better ideas or the ideas resonated better or that's what people wanted to hear. It's not the substantive way that we talk about politics.

Um, to talk about government more generally, um, you know, um, even though government spending is still about the same as it has been for the last, uh, 50 or 60 years as a percent of GDP, more and more of it is shifted towards transfer payments, which are, of course, a way of saying that the government has no ideas in what to do with the money. It simply moves it to other people, and, it's assumed, that the people have ideas, but you don't have specific ideas of what to do. There's a way in which you can see indeterminacy in literature. If you take some classic science fiction, you know, 1960s Space Odyssey classic, you know, 'The text was updated automatically every hour; one could spend an entire lifetime doing nothing but absorbing the ever-changing flow of information from a new satellite.'

So a specific, definite view of a radically different future, which, you know, maps reasonably closely to today's Internet. Neuromancer, 1984: 'The sky above the port was the color of television, tuned to a dead channel.' The future is fundamentally static. If you think of it in terms of philosophy, there sort of are different ways to map these quadrants, but I would say the optimistic indeterminate quadrant is fundamentally the quadrant of someone like Rawls or Nozick. People normally think of them as opposites, but they're really both in the same category. Nozick is sort of the libertarian version. You have no idea what to do, and therefore the individual is paramount. Rawls, you're in a veil of ignorance.

You have no idea what society you will be born in, and therefore social democracy is paramount. You get to very different ideas, but they both take their starting point from sort of complete indeterminacy about the state of the world. The classic determinate one, you could be on the left, you could be on the right, but there was some sort of Marx, Hegel, all these people where there was, you know, even going back to Bacon or Locke, there was some sort of definite way that things would get better and you could sort of work towards a better future in one way or another. And then of course you have the determinate pessimistic, indeterminate pessimistic, which I think tend to be the more classical ones.

The determinate pessimist would be like Plato and Aristotle: there's a definite way things happen, even though there's sort of limits and you can't be too hopeful about technology or really improving the state of the world in any fundamental way. And then probably the classic version of indeterminate pessimism—and I think this is sort of the philosophical category that we're back in—is sort of the Epicurean-Lucretian view of the universe, where there's nothing but atoms in the void, the atoms randomly move throughout the void, they sometimes bump into each other, stuff happens, eventually they break apart, things fall apart, chance erodes everything. There's nothing specifically you can do that makes any sense.

Things sort of all go to pot. Marijuana farming might be a good thing to go into in this world. But basically, this is actually in some ways become the dominant, the dominant view, and it ends up being sort of strangely Stoic because there's really nothing you can do about these larger forces that will ultimately buffet you, and the most you can hope to achieve is a certain amount of equanimity and indifference about the fundamental randomness and meaninglessness of the universe. You know, indeterminacy and death: we think about the process of aging and death very differently from the way we used to. Sort of the classic early modern science version was that death was a specific problem to be solved. There were specific diseases to solve, specific ways to conquer death.

The contemporary way to think about it is fundamentally through the prism of insurance, which is, again, sort of indeterminate, more on the pessimistic side. And the main thing we can do is the actuarial math. What is the probability that you are going to die in a given year if you are that old? So if you're 30 years old, you have about a 1 in 1,000 chance of dying in the next year. If you're 80 years old, you have a 1 in 10 chance of dying in the next year. And all we can do is sort of describe these probabilities. And I'm not saying that, you know, by the way, that this probabilistic view has nothing to it. I just want to sort of illustrate how it sort of dominates our thinking. And so instead of trying to find a cure for death or a solution to the problem of aging, the best we can hope to do is figure out better ways to calculate the probabilities, better ways to give people, sell people various life insurance policies, and

And thereby suggest the sort of pseudo-mastery of a process that's fundamentally random and indeterminate. Of course, you know, the basic problem is that eventually the luck runs out. Oops. Let me see how this works.

No. 1958.

All right.

It changes.

And so I think this question of whether indeterminate optimism is possible in the long run is this core question. And is something like this frame that we've had where it's just one coin toss after another, and, you know, you're probably not going to die in the next hour or the next six months—you'll probably be lucky, you'll probably land heads for the time being, but you never think very far about the future—is that actually an ultimately stable quadrant or not? And so, you know, if you want to sort of frame this as a general question, you could say: could an iterative process lead, if not to the best of all possible worlds, at least to a world where there's a path of monotonic and potentially never-ending improvement?

That's sort of the core idea of this world of indeterminate or indefinite optimism. You know, the paradigmatic pro-indeterminate optimist example is Darwin and Darwin's theory of evolution, where, you know, you basically, over billions of years, develop this proliferation of different life forms. And that's sort of the paradigmatic example that we apply to all these different fields, and we think that things like that work. Now, I do think there are some paradigmatic counterexamples. The one that I want to sort of highlight is the paradigmatic counterexample: failed indeterminism is failed cities. And you can certainly give various examples. There's Los Angeles, which probably should have been the greatest city in the United States with fantastic weather.

And somehow, everything gradually went wrong with the sprawl. L.A. is still one of the better places in the world. You know, there's the example of São Paulo. I was there for a day about a year ago. It's about a 12-mile drive from the main downtown area to the airport. It takes about 35 minutes if there's no traffic, four hours if there's traffic on the nine-lane highways. You sort of take the helicopter at dusk, which is sort of endless lines of red-lit cars backed up bumper to bumper. It's sort of 30 million people living in enclaves of a quarter to half a million each. And of course, São Paulo is still vastly better than places like Mumbai or Lagos, Nigeria, or places like that. And if you had to sort of give a single reason why

The convergence theory of globalization is probably going to fail. Is that most cities in the developing world look something like this, and they will not actually be improved in any incremental, step-by-step way. Sorry, there's no actual incremental way to improve something like this. And if you look at the populations, most of the people in the world at this point are living in these sorts of places. The sort of policy debates we have at this point are things like economics versus environmentalism, which we describe as these radically different perspectives on the world, but they're really just differing views of different indefinite futures. Maybe economics can be a little bit more optimistic.

Environmentalism is a little bit more pessimistic. I personally think that as long as that's the frame, environmentalism will always win because indefinite optimism is unstable. And the ecological critique of economic thinking is that, is that the economist says we don't need to think about the environment because people will solve problems every step of the way. And then the counterargument is this probably does not work. But of course, the issue with both is that somehow you're subject to these much, much larger forces. It's the market. It's nature. They're fundamentally sort of random, unknowable, statistical. And you can't think about them coherently in one way or another. And, of course, this kind of approach is also sort of very endemic to the way people think about when they start businesses, just to sort of segue back to that.

And what one sees most commonly are sort of this methodology where you have no idea what you're doing, but it should basically be a never-ending form of A/B testing. Darwinistic A/B testing might work if you have billions of years, but in practice you tend to run out of money well before then. And the problem is that somehow the search space of all businesses is much bigger than the search space of great businesses. So it's somehow the A/B testing, I think, generally is a somewhat too inefficient process. And there's sort of an iteration process, but you end up with this question. You just end up on some very low-hanging hill, where the iteration is we're going to do something that incrementally improves things at every step in time.

But maybe you just end up in a slightly better part of an infinitely large slum, or something like that, to use the failed city example. There's machine learning, and there's sort of all these different ways where you do not think about the future. It's most strongly characterized, I think, in a way by the very short time horizons. And I think one of the things that's true both on the startup side and maybe even more true on the side of people who invest in startups is that anything that takes longer than a year is considered unreal and fake because we can have no opinions about the future, and so everything has to be on a super short time horizon, and we're sort of dominated by people who do these kinds of things.

And there's a question, you know, how well does this actually work? And this is the official religion that we have today. And I don't believe in the official religion, but I want people just to at least be aware that this is the religion, that it's all statistical, it's all luck-driven. And I do think the most striking thing is that the most successful businesses in some ways don't quite seem to fit this pattern even though, you know, we end up talking about it. And so, you know, after the 2007 crash, we have seen this return to technology, but it was most characterized by businesses that had very definite ideas. I think the iconic one for the last number of years, at least till Jobs passed away, was Apple, which was, of course,

very much the opposite of an indeterminate business. Apple was one where there was a multi-year vision of the future that was sort of being executed against. There are legitimate concerns whether it still has that vision now that Jobs is no longer there. But that's really what is going on. And of course, that's not really the way we typically talk about it. We typically talk about, and we look at, how mean Jobs was to all the employees. And so there are people I know who are running businesses, and they hand out books describing how bad Jobs was to his employees to make their employees feel better about themselves. And I think the real question you need to ask about something like Apple is, why did the people put up with this bad behavior?

And I think it was because it was actually this very countervailing narrative of the future, that in a determinate world, one of the most important metrics is the robustness of the plan, what I often call the secret plan, that you're working against. The kinds of companies that we've looked at at Founders Fund over the years, the ones that have done best have been ones that have somehow tracked against this very, very long-term vision of the future. And I think sort of the one closing thought I would have on this is that the one most characteristic thing of companies with a plan is that they do not sell. And there often are times that you should sell businesses. I started PayPal. There were reasons that it was the right decision for us to sell the business when we did in 2002 to eBay.

But I do think that the most successful businesses somehow have an idea of the future that's very different from the present. It's not fully valued. And therefore, there is no point at which you should sell. I've told this anecdote before, but the most important moment in my mind in the history of Facebook occurred in July of 2006. The company had been around for about two years. At the time, it was still just a college site. There were maybe eight or nine million people on the site. The revenues were, I think, tracking to about 30 million, no profits. And we received an acquisition offer from Yahoo for a billion dollars. And so we had the board meeting on Monday morning in July 2006. There were three of us on the board, Zuckerberg, myself, Jim Breyer.

And full disclosure, I think that both Breyer and myself, on balance, thought we probably should take the money and run. But, you know, Zuckerberg started the meeting and first thing he said was, 'Well, you know, it's kind of a formality. We have to have a quick board meeting. It shouldn't take more than 10 minutes. You know, we're obviously not going to sell here.' And then we said, 'You know, we should actually talk about this a little bit more. You know, a billion dollars is a lot of money.' And we, in some ways, rehashed the entire discussion we had today here. It was sort of like, 'You own like 25% of the company. There's so much you could do with all the money you'd make.' 'Well, I don't really know what I'd do with the money.'

'I'd just start another social networking site. But I kind of like the one I already have, so why should I sell?' And it was in some ways sort of an encapsulation of this entire discussion. And of course, the immediate aftermath was that there was an almost infinite number of—not infinite, but there was a large number of—stories about how in the world could you have a CEO who was so crazy that he wouldn't sell the company, who didn't know that you should take a billion dollars. This is what you got when you had someone who's 22 years old, when you didn't have any adults in the company. It was just the worst decision anybody had ever made. I was a little bit worried about it. The sort of Founders Fund ideology we had was that we should always back the CEO, we should always back the founder.

And so we just went with that as a framework. But I think the one partial rationalization I was able to come up with for not taking the money was that I looked at the history. And Yahoo—there had been two other companies where they'd offered a billion dollars that had been turned down. It was eBay and Google. And so I concluded that at least you could actually make a pseudo-scientific argument that every case where someone had been offered a billion dollars and had rejected it, it had been the correct thing to do. But the argument that Zuckerberg finally came down on was that there were all these new things that we were going to build at Facebook. And it was clear that Yahoo wasn't valuing any of the products that had not yet been released.

And he wanted to have a chance to build those products. And since he was pretty confident that Yahoo had—and this is not an anti-Yahoo thing, this I think would be true of almost all these companies—that they had no definite idea about the future and therefore did not properly value things that did not yet exist, they were therefore undervaluing the business. And I think this is sort of the challenge all of us have is to to work towards a future that's not just static, like a dead channel on television, but that's a definite future, and that is a radically better future that can motivate and coordinate and inspire a number of people to change the world and to go to a world where luck is something for us to overcome and to deal with as we go along the way, but not for something that becomes this absolute dominating force that stops all thought before it even starts.

Thank you very much, and I'm not going to say best of luck. Thank you.