I started the book with the question: what exactly do real estate developers do? … Why don’t you or I take out a $100 million loan from a bank, hire a company to build a $100 million skyscraper, and then rent it out for somewhat more than $100 million and become rich?
As best I can tell, the developer’s job is coordination. This often means blatant lies. The usual process goes like this: the bank would be happy to lend you the money as long as you have guaranteed renters. The renters would be happy to sign up as long as you show them a design. The architect would be happy to design the building as long as you tell them what the government’s allowing. The government would be happy to give you your permit as long as you have a construction company lined up. And the construction company would be happy to sign on with you as long as you have the money from the bank in your pocket. Or some kind of complicated multi-step catch-22 like that. The solution – or at least Trump’s solution – is to tell everybody that all the other players have agreed and the deal is completely done except for their signature. The trick is to lie to the right people in the right order, so that by the time somebody checks to see whether they’ve been conned, you actually do have the signatures you told them that you had.
Now I wonder whether it is actually “blatant lies” or more like the pretend to pretend to develop the real estate.
Relevant Joke: I told my son, “You will marry the girl I choose.” He said, “NO!” I told him, “She is Bill Gates’ daughter.” He said, “OK.” I called Bill Gates and said, “I want your daughter to marry my son.” Bill Gates said, “NO.” I told Bill Gates, My son is the CEO of World Bank.” Bill Gates said, “OK.” I called the President of World Bank and asked him to make my son the CEO. He said, “NO.” I told him, “My son is Bill Gates’ son-in-law.” He said, “OK.” This is how politics works.
Regarding the “tell everyone that everyone else has signed”, is this an issue that can be solved with assurance contracts, or is there vague politics involved where you’re not even willing to sign your name to a thing if you’re not confident it’s going to succeed?
I’d expect a fair amount of optimization to have gone into finding assurance contract solutions if they actually worked in this instance.
I have seen this in real life in small: Getting a startup off the ground. Investors want to see a business plan, capable team, and prospective customers. Employees want to work for a company that has a chance to succeed and is able to pay their salary. And you need customers who want a supplier with a track record and great products. Assurance contracts wouldn’t work even less than in the real estate developer case because the volume is too small, and even worse, you often don’t even know what your product or customers will be in the end. How does this work at all? It is not blatant lies. It is more like coming up with a great future state that appears doable and positive and getting some tentative commitment. With this, you go to the next person(s) and grow the vision. And include the latest tentative commitments. Repeat until you succeed. This will only work with participants that are sufficiently risk-tolerant (angel investors, students, people open to experience, etc.), but for these, this can create a sufficient positive reinforcement that the endeavor takes up.
So is this simulacrum level 3, or is it something different, or a combination?
In this case, I’d guess that for many parties, signing an assurance contract is about as expensive up-front as signing a contract, since they need to set aside resources to fulfill their commitments—e.g. banks need to earmark some cash, a contractor needs to not accept alternative jobs, or a renter needs to not sign another lease.
Mmm. So maybe part of the thing is the contract needs to be an exploding contract (i.e. gives everyone maybe a week to read and sign, so they don’t need to tie up their resources too long), but then also exploding contracts are super annoying and everyone hates them and also institutions literally can’t move that fast. So you’re back to square one.
+1 and I like that this provides an intuition for why high energy bluster would be so effective here. Creates a sense of ‘things happen around this person, they’ll get it done.’
I think that “blatant lies” case applied for newcomer real estate developers (RED); but well known RED can use their reputation and common knowledge about this reputation as part of simulacrum-3.
If there is common knowledge about many previous successes of this particular RED, then the bank can believe that everyone else will hunt this stag. Thus, the bank will sign the papers.
But newcomer RED can’t afford just to pretend to pretend that everyone else is hunting the stag. The bank will not believe that RED’s intention to build the skyscraper will be sufficient to convince other parties to hunt the stag. The RED must pretend that other parties already signed the papers to convince the bank to hunt the stag.
So, without good reputation, you must use blatant lies (S2) to convince people to hunt the stag. But having such reputation (and common knowledge about it) you can just pretend to pretend that you stag is the best choice (S3) - people will gladly join your hunting.
This reminded me of a summary of the job of real estate developers by Scott Alexander:
Now I wonder whether it is actually “blatant lies” or more like the pretend to pretend to develop the real estate.
Relevant Joke:
I told my son, “You will marry the girl I choose.”
He said, “NO!”
I told him, “She is Bill Gates’ daughter.”
He said, “OK.”
I called Bill Gates and said, “I want your daughter to marry my son.”
Bill Gates said, “NO.”
I told Bill Gates, My son is the CEO of World Bank.”
Bill Gates said, “OK.”
I called the President of World Bank and asked him to make my son the CEO.
He said, “NO.”
I told him, “My son is Bill Gates’ son-in-law.”
He said, “OK.”
This is how politics works.
Regarding the “tell everyone that everyone else has signed”, is this an issue that can be solved with assurance contracts, or is there vague politics involved where you’re not even willing to sign your name to a thing if you’re not confident it’s going to succeed?
I’d expect a fair amount of optimization to have gone into finding assurance contract solutions if they actually worked in this instance.
I have seen this in real life in small: Getting a startup off the ground. Investors want to see a business plan, capable team, and prospective customers. Employees want to work for a company that has a chance to succeed and is able to pay their salary. And you need customers who want a supplier with a track record and great products. Assurance contracts wouldn’t work even less than in the real estate developer case because the volume is too small, and even worse, you often don’t even know what your product or customers will be in the end. How does this work at all? It is not blatant lies. It is more like coming up with a great future state that appears doable and positive and getting some tentative commitment. With this, you go to the next person(s) and grow the vision. And include the latest tentative commitments. Repeat until you succeed. This will only work with participants that are sufficiently risk-tolerant (angel investors, students, people open to experience, etc.), but for these, this can create a sufficient positive reinforcement that the endeavor takes up.
So is this simulacrum level 3, or is it something different, or a combination?
In this case, I’d guess that for many parties, signing an assurance contract is about as expensive up-front as signing a contract, since they need to set aside resources to fulfill their commitments—e.g. banks need to earmark some cash, a contractor needs to not accept alternative jobs, or a renter needs to not sign another lease.
Mmm. So maybe part of the thing is the contract needs to be an exploding contract (i.e. gives everyone maybe a week to read and sign, so they don’t need to tie up their resources too long), but then also exploding contracts are super annoying and everyone hates them and also institutions literally can’t move that fast. So you’re back to square one.
+1 and I like that this provides an intuition for why high energy bluster would be so effective here. Creates a sense of ‘things happen around this person, they’ll get it done.’
I think that “blatant lies” case applied for newcomer real estate developers (RED); but well known RED can use their reputation and common knowledge about this reputation as part of simulacrum-3.
If there is common knowledge about many previous successes of this particular RED, then the bank can believe that everyone else will hunt this stag. Thus, the bank will sign the papers.
But newcomer RED can’t afford just to pretend to pretend that everyone else is hunting the stag. The bank will not believe that RED’s intention to build the skyscraper will be sufficient to convince other parties to hunt the stag. The RED must pretend that other parties already signed the papers to convince the bank to hunt the stag.
So, without good reputation, you must use blatant lies (S2) to convince people to hunt the stag. But having such reputation (and common knowledge about it) you can just pretend to pretend that you stag is the best choice (S3) - people will gladly join your hunting.