Discourse and action in our society are increasingly dominated by the idea that the world cannot be known. But to what degree issuccess in this world dominated by luck? How much of our lives can be planned for, and can the future be achieved in a world dominated by indeterminate thinking? 

In an hour, we'll look at the evolution of determinate to indeterminate thinking in our society, and we'll consider its many implications.

I thought I'd 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, 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, and how much is not luck when you start 1 of these businesses and do 1 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 is going to unfold, you can think that there are basically 2 axes to the 21st century.

There's a technology axis and a globalization axis.

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, you know, much of the world, 6 billion out of 7 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 1 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.

And what I want to suggest is that there is something sort of very different about going from 0 to 1 instead of 1 to n.

1 to n is there sort of is this law of large numbers and you can sort of run the experiment many times and see how things work.

But when you go from 0 to 1, there's a sense in which every 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?

It's actually a really hard question to answer because you only have sort of a sample size of 1 to go on.

You can sort of say that with a sample size of 1, you know, 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 0 to 1, it's very, very hard to say.

Now, there certainly is some very mild anecdotal evidence that you can give that certain, that the anti-luck argument is that there are certain people who've succeeded in doing various businesses on a repeat basis.

You know, there's perhaps most famously still Chief Steve Jobs with, you know, Apple and Pixar.

You know, 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 1 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, you know, 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.

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, 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—and there always are 2 different directions you can go with this question of luck.

1 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 on the future question of what, you know, what you can do next and where you go from here.

Is this, is there sort of, And is the future, 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, 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 1 where you believe things will be better than the present on whatever axis defines better.

A pessimistic future is 1 where you think things will generally be worse.

And then a determinate future is 1 where you can sort of map out reasonable amounts of it and plan against it.

And then an indeterminate 1 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 1 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 1 of the things that's always very interesting when you think of this determinate versus indeterminate thing is that all these things that ultimately become self-fulfilling.

So if you if you think it's determinate, and then you focus on doing 1 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, you know, on the optimistic versus pessimistic axis, The simple 1 is just, you know, 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 develop, explain why I put these different zones and 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 determinate way in which the frontier was going to be developed.

There was a way that, you know, 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.

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 1 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

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 is 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.

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 will 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

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 a government borrowing in the U.S.

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 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

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 rate.

And so 1 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 1 saves and no 1 invests because no one's thinking and everyone's outsourcing all the thinking to other people?

1 of the other ways you can sort of describe this difference, I want to sort of give a few different axes for describing this shift from determinate to indeterminate ways 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 willing to work towards, and where the dreams of a substantively different and radically better world are not subsumed towards some sort of random process.

Determinant pessimistic would be wartime rationing.

Indeterminate pessimistic, all you end up doing is buying insurance.

I've spoken in some context 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's 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 1 dominates, there's sort of very different kinds of industries that end up dominating.

You know, to have a picture of what definite optimism or determinate optimism looked like, you know, we can go back to these classic examples from U.S.

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.

People would say, why are you building this railroad to nowhere?

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 who was probably the most important person in in New York, more powerful than the mayor or the governor of New York City and 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 Expressway, and there was sort of, you know, 1 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 raise Greenwich Village to the ground.

They started saying, we're not quite sure that the future actually is any better than the present.

It was going to be this highway with skyscrapers right on top of a highway.

And it sort of stopped, and at that point people basically, you know, 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 Rubber Plan in sort of the late 1940s.

It was a plan to basically build 2 large earth and rock fill dams.

1 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 2 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.

Reber was sort of a school teacher, 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 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 1 sort or another.

And when you sort of look at these pictures today, these things look, they don't look futuristic.

They look like they really are sort of from the past, which is sort of against 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 a portfolio investing.

You know, in this shift, 1 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 and 1 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 1 way that this flow might happen, if you start a successful business, you sell the company or you sell shares to investors in an IPO, you make some 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.

So it gives the money to a portfolio of institutional investors.

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 1 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 0 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 sort of, this is the rough flow that happens in the world of indefinite optimism.

The problem is, you know, it's somewhat of a, you know, 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.

And what ends up happening is there are fewer and fewer things you can do.

And 1 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.

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 it shouldn't even be surprising because there's no 1 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 U.S.

People constantly are saying, you know, there's a point where the bond market is going to blow up and the interest rates will go higher.

And 1 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.

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