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Comment by tarkofski | Hacker News Reader

"He admits the models will never be perfect, but thinks that even a model that’s only right about 50 percent of the time could help investors and entrepreneurs avoid particularly bad ideas that, to the untrained eye, look like excellent opportunities."

He basically admits his model is no better than a monkey

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Not necessarily, as the distribution of startup returns is highly skewed and you don't know the correlation of his model prediction vs relative return.

Ie, if his model consistently predicts success of those companies deep in the right tail (ie, your Facebooks and Twitters), but is less correct about just 'mildly' successful startups, the algorithm will greatly outperform a coin flip.

Eh, this isn't a statement about his own models, and it's obviously a gross oversimplification anyways. You should focus on some of the earlier statements which give an indication of that his models aren't just a "GOOD/BAD" classification. As a silly example, if my model which predicts age based on a photo was right 50% of the time, that's pretty good because there are more than two ages. If it predicted birthday and was right 50% of the time, that would be incredible.

Furthermore, the models should probably be described as forecasts and not predictions, and as such can't be right or wrong. Which is mainly just to emphasize that the statement is an oversimplification.

> He basically admits his model is no better than a monkey

Well, technically, a monkey with a coin to flip. "Heads this startup will succeed, tails it will fail"

Now coin flip wouldn't be anything near 50% accurate, unless there is a world where more than a small fraction of startups survive!

What? A coin flip would still be 50% accurate. If 10% of startups succeed, and we say that heads is "succeed" and tails is "fail":

5% of startups will be predicted to succeed and will succeed (correct prediction)

5% of startups will be predicted to fail and will succeed (false prediction)

45% of startups will be predicted to succeed and will fail(false prediction)

45% of startups will be predicted to fail and will fail (true prediction)

50% true predictions, 50% false predictions. A coin flip is always 50% accurate.

A coinflip is always 50% accurate, no matter how improbable the event you're trying to predict. If I flip a coin to predict whether Cthulhu will rise tomorrow, I have a 50% chance of getting it right.

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