Active inference interpretation of the startup culture

Active inference agents minimise the expected free energy over a trajectory of actions. Free energy over a trajectory is the divergence between the variational distribution Q(o|π) of expected outcomes, o, given the action policy, π, and P(o|C): the conditioned probability of outcomes, o, upon some desired state of affairs, C, plus the expected ambiguity over outcomes. An agent chooses the policy that minimises their expected free energy.

Startup outcomes are usually less certain than the outcomes of lifestyle businesses or mittelstands. Then, the following interpretations of why people still choose to make startups rather than bootstrapped businesses are possible:

  • Bootstrapping certain types of R&D-intensive businesses is hard, therefore, the expected result is low financial security (increasing the founder’s uncertainty about their personal outcomes), and the outcomes of the business are ambiguous. There are not enough ways to finance mittelstands.
  • Founders believe that greater returns from startups, in the long run, ensure greater financial stability and that successful startups are more stable businesses than successful mittelstands or lifestyle businesses (although this is actually dubious).
  • Founders mimic successful unicorn founders they already know from the media: they read the stories about their beginnings (the prototypical “dropping out of college” and “starting to hack something from a garage with a friend”), recognise the same traits in themselves, conclude that they are “startup founders”, and then adjust their behaviour to match this belief about themselves by actually trying to start something.
  • Founders act as a part of a larger system, the industry, the society: they infer some belief about the future states of the world, such as that the world must not have ICE cars in thirty years, given their desired state of affairs (mitigated climate disaster), and then try to adjust the trajectory of the industry or the society by making their startup (e. g., Tesla). The low chance of success is irrelevant in this case because there is (arguably) no way to scale up a company very quickly with a high chance of success, so there are no better ways to decrease the free energy of the industry or the society.

This post was originally published on Substack.

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