Latticework and Venture Capital, Chapter 4 — Social Sciences

Note: This is the fifth post in a series on Robert Hagstrom’s Latticework and VC. Chapter summaries are in no way designed to be Cliff Notes on the chapters of the book, quite the contrary, please read the book for yourself!

Summary:

Emergent Phenomena — When a number of individual entities operate in an environment creating a complex system.

  • Norman Johnson’s maze simulation
  • Interesting enough, the essential characteristic a self-organizing system must contain in order to produce emergent behavior is diversity.
  • Diversity strengthens the resilience of systems, moreover, increases resistance to noise

Director of SIP, Norman Johnson expels on a deep reverence for the internet. The book is dated in the sense that, ironically, the internet is still understood more mechanistically, than as an extension of society. Johnson contends that one of the internet’s advantages over prior systems is its ability to process information ‘correctly’. Clearly, Johnson wasn’t able to predict social media and the swiftness with which incorrect information can take hold and travel worldwide. However, the speed with which misinformation has occurred in the past has led to a self-policing effect among many arbiters of the social media landscape.

Self-organized criticality, the Sand Pile Metaphor.

VC Analogues:

How do societal units emerge?

  • Creating a catalyst for self-organization within your platform/network
  • Self-organizing, self-reinforcing systems will see repeated patters of results, why VC firm returns reflect a power-distribution, why underrepresented founders (and VCs!) are a good bet. They are shocks to the system and have the ability to provide a unique perspective/identify mis-priced assets.
  • Overheated spaces. Valuations have been driven up. A high-profile failure, leaves other competitors addressing the vertical in the lurch with respect to fundraising, fairly or unfairly.
  • Sentiment, can function under self-organized criticality creating bubbles, panics, irrational exuberance (the on-demand economy, web 1.0).

Takeaways:

  • Platforms must be loose enough to allow for self-organization within the network, micro-networks boost network effects by orders of magnitude. Not only does the self-org of one create strength for its in-group, it’s very existence compels members of the out-group to create their own in response.
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