Sad that they fail to mention the lower left corner of their chart is anchored by 'prostitution' and the upper right corner by 'flying cars' :-)
Most of the venture folks I've talked with over the years talk about "stacking risk" rather than uncertainty but its the same thing. Trying to figure out if you can eliminate the risk of something before the big investment pays huge dividends. A lot of the 'create a signup page' kinds of ideas are built around this.
I am interested to know what the correlation is between uncertainty and returns. Are companies that succeed in highly uncertain spaces more profitable than those which succeed in well known markets? If you include companies that fail in uncertain spaces, is the average return still greater than those in more certain markets?
I would think yes, otherwise we would all be sticking with mining precious metals.
Do you know about Modern Portfolio Theory and Capital Asset Pricing Model?
Granted, they don't refer to "uncertainty" exactly, but rather about quantifiable risk in the form of volatility. Also, the key word is "returns" (not exactly profits, but roughly the ratio of total profits over the initial investment). Basically, while investors have different levels of risk tolerance, a rational investor requires higher expected returns for higher expected risks.
While a lot of researchers have been questioning the validity of MPT and CAPM (because these e.g. rely on a lot of questionable assumptions), empirically the answer to your question seems to be "yes". Small cap stocks historically have higher returns than large cap stocks, and tech stocks have higher returns than utilities.
"... fortunately, experiments with customers trump opinions at Google. Following the advice of then CEO Eric Schmidt to “get 100 happy users inside Google,” Bucheit prototyped solutions that eventually proved demand and won the day. ..."
source of the 'a handful of users who really love you' idea pg sprinkles in his essays?
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[ 0.20 ms ] story [ 20.8 ms ] threadMost of the venture folks I've talked with over the years talk about "stacking risk" rather than uncertainty but its the same thing. Trying to figure out if you can eliminate the risk of something before the big investment pays huge dividends. A lot of the 'create a signup page' kinds of ideas are built around this.
I would think yes, otherwise we would all be sticking with mining precious metals.
Granted, they don't refer to "uncertainty" exactly, but rather about quantifiable risk in the form of volatility. Also, the key word is "returns" (not exactly profits, but roughly the ratio of total profits over the initial investment). Basically, while investors have different levels of risk tolerance, a rational investor requires higher expected returns for higher expected risks.
While a lot of researchers have been questioning the validity of MPT and CAPM (because these e.g. rely on a lot of questionable assumptions), empirically the answer to your question seems to be "yes". Small cap stocks historically have higher returns than large cap stocks, and tech stocks have higher returns than utilities.
source of the 'a handful of users who really love you' idea pg sprinkles in his essays?