Patrick McKenzie: evaluation

Transcript context

…Do you ever encounter sectors where there’s less fraud than what you had been expecting? Or is there just more evil all around, and you were naive and now you’re wiser? I broadly think people overpredict evil and underpredict competence. I thought I was sophisticated for believing this, and then got to my adult life and realized, “Oh, wait, evil actually exists. I need to increase my predictions, but maybe not to the level that society generally predicts it.” Places where there is much less fraud than I expect there should be — one place where we detect much less fraud than I would expect us to detect is in insider trading and other forms of, obviously, illegal market manipulation. I’m undecided on whether that is truly, truly rare relative to the size of all market participation, or we are just abominably bad at detecting people that do it with a B-plus-student level of execution ability. When the SEC announces, “Hey, we got this person for insider trading. Here’s the evidence. They did it on their work computer at Goldman Sachs after googling, ‘How do I get away with insider trading?’ on their work computer at Goldman Sachs.” That is barely an exaggeration, by the way. Then they left a huge paper trail. This repeats in all the SEC’s press releases, and so I’m wondering, am I getting a biased look at the world? Or are we only detecting the dumbest possible criminals? Or is it that no one does insider trading after they achieve some level of competence because there are easier ways to make money that don’t involve going to prison? For a while and continuing, I thought that crypto was drawing a lot of the fraud out of the more traditional sectors of the economy, because if you do it in crypto, that wasn’t fraud, or it was fraud that you would get away with and make a substantial amount of money doing. You could do it in broad daylight and still get invited to the best parties. But I don’t think that is fully explanatory. My model is that there should be much, much more fraud happening in the legitimate parts of the economy than there is in crypto. Yet we can see the obvious frauds in crypto and the investigation of those obvious frauds. We don’t have nearly that level of visibility into it in the real economy, so I continue to be conflicted by this. As we’re speaking in October of 2023, Elon Musk has suggested that he will take X — formerly Twitter — and turn it into some kind of universal payments app. What’s the chance he can succeed with this? If you’re bearish on it, what’s the fundamental problem?…

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