This just isn’t plausible on reasonable priors. You need to assume that multiple investment firms working in different sectors, whose survival in a highly competitive environment in large part depends on being skilled at scrutinizing a company’s financials, would miss warning signs that should have been apparent to folks with no relevant domain expertise. See also Eliezer’s Twitter thread.
Some people are asking whether people who accepted FTX money should have “seen the red flags” or “done more due diligence”. Sometimes this is from outsider critics of effective altruism. More often it’s been effective altruists themselves, obsessively beating themselves up over dumb things like “I met an FTX employee once and he seemed to be frowning, why didn’t I realize that this meant they were all committing fraud?!” Listen: there’s a word for the activity of figuring out which financial entities are better or worse at their business than everyone else thinks, maximizing your exposure to the good ones, and minimizing your exposure to the bad ones. That word is “finance”. If you think you’re better at it than all the VCs, billionaires, and traders who trusted FTX—and better than all the competitors and hostile media outlets who tried to attack FTX on unrelated things while missing the actual disaster lurking below the surface—then please start a company, make $10 billion, and donate it to the victims of the last group of EAs who thought they were better at finance than everyone else in the world. Otherwise, please chill.
I would disagree, there are numerous examples such as Theranos and WeWork which show that sophisticated investors do not necessarily scrutinize potential investments thoroughly. Thus I don’t think assuming they do is a good prior. I think this is actually a reason these problems happen, since everyone else assumes that Respectable Company/Person X has scrutinized it.
I agree with the point that in general one should expect less from “unsophisticated” investors/parties than from sophisticated ones. I do not disagree with that.
I was disagreeing with “This just isn’t plausible on reasonable priors.” which seemed to mean that you disagreed with Stuart’s comment.
But I also don’t think VC scrutiny is necessarily a high bar in general in the absolute sense, and Stuart has posted some warning signs here in other comments such as the hiring of Friedberg. Then considering how important FTX and SBF was to the EA community it could have been investigated more, i.e. the low VC scrutiny bar could have been surpassed by hiring experts or something similar. To a VC firm this is just another losing bet among many they expect to make. This is why I don’t think the comparison with VC firms is very apt.
I was disagreeing with “This just isn’t plausible on reasonable priors.” which seemed to mean that you disagreed with Stuart’s comment.
Stuart’s comment was in reply to the claim that “It’s not clear to me how the Future Fund people, who to my knowledge are not forensic accountants or crypto experts, would have had a better ability to pick up on funny business.” I disagreed with Stuart’s comment in the sense that I disputed the reasonableness of expecting unsophisticated outsiders to do better because sophisticated investors sometimes perform poorly. I did not mean to dispute that sophisticated investors sometimes perform poorly; indeed, there’s plenty of evidence of that, including the evidence you provide in your comment.
I wouldn’t be very confident in the level of due diligence undertaken by supposedly sophisticated investors:
https://twitter.com/zebulgar/status/1590394857474109441
This just isn’t plausible on reasonable priors. You need to assume that multiple investment firms working in different sectors, whose survival in a highly competitive environment in large part depends on being skilled at scrutinizing a company’s financials, would miss warning signs that should have been apparent to folks with no relevant domain expertise. See also Eliezer’s Twitter thread.
ETA: Alexander:
I would disagree, there are numerous examples such as Theranos and WeWork which show that sophisticated investors do not necessarily scrutinize potential investments thoroughly. Thus I don’t think assuming they do is a good prior. I think this is actually a reason these problems happen, since everyone else assumes that Respectable Company/Person X has scrutinized it.
I am making a comparative, not an absolute, claim: however bad the professionals may be, it is unreasonable to expect outsiders to do better.
I agree with the point that in general one should expect less from “unsophisticated” investors/parties than from sophisticated ones. I do not disagree with that.
I was disagreeing with “This just isn’t plausible on reasonable priors.” which seemed to mean that you disagreed with Stuart’s comment.
But I also don’t think VC scrutiny is necessarily a high bar in general in the absolute sense, and Stuart has posted some warning signs here in other comments such as the hiring of Friedberg. Then considering how important FTX and SBF was to the EA community it could have been investigated more, i.e. the low VC scrutiny bar could have been surpassed by hiring experts or something similar. To a VC firm this is just another losing bet among many they expect to make. This is why I don’t think the comparison with VC firms is very apt.
Stuart’s comment was in reply to the claim that “It’s not clear to me how the Future Fund people, who to my knowledge are not forensic accountants or crypto experts, would have had a better ability to pick up on funny business.” I disagreed with Stuart’s comment in the sense that I disputed the reasonableness of expecting unsophisticated outsiders to do better because sophisticated investors sometimes perform poorly. I did not mean to dispute that sophisticated investors sometimes perform poorly; indeed, there’s plenty of evidence of that, including the evidence you provide in your comment.
Yeah that makes sense, I think I overinterpreted your comments.
In retrospect, I think my original comment was insufficiently clear. Anyway, thanks for the dialogue.
And that’s what Sequoia proudly publicly posted themselves