I just read this transcript from Tyler Cowen’s interview of Peter Thiel.

I found myself not being able to fully evaluate many of the claims that were made. I don’t know if this is because Cowen and Thiel are simply operating from a much deeper knowledge based than myself, or because they were just being vague and non-linear. It is likely some combination of the two.

Anyways, I did agree with this from Thiel:

If you are starting a computer software company, that costs maybe $100,000, to get a new drug through the FDA, maybe on the order of a billion dollars or so. If the FDA were regulating video game technologies, and you had to do a double-blind study to make sure that the video games weren’t addictive, damaging to your brain, etc.

In short, there are some sectors, predominantly health and education, where over-regulation hinders innovation.

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I’m currently reading Black Swan and AntiFragile by . (HT Ethan Fletcher)

Taleb has so many strong opinions, some of which seem clearly false, that it makes hard to know which of his ideas to trust. But many of his ideas do seem insightful.

I was particularly drawn to his emphasis on options as being a model for how we should think about innovation. Basically, an option minimizes downside while maximizing upside, in that, for a price, you get the option to buy at a certain price without having to commit to buy at a certain price.

His point is that with innovation you similarly want to minimize downside risks while maximizing upside opportunity.

The VC sector basically works on this model: make a bunch of (relatively) small bets, all of which have very high upsides, and hope that one of them works.

In this sense, options are a way of incorporating intellectual humility into bets about the future.

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Recently, Matt Candler has been advocating for Tiny Schools.

One way to think about Tiny Schools is that they are just that: schools with not a lot of kids. An entrepreneur opens a Tiny School, educates some kids, and hopefully the school succeeds.

Another way to think about Tiny Schools is as options: an entrepreneur starts a schools with 15-20 kids and tries to get the model right. If the school doesn’t work, 15-20 kids get a subpar education experience for a few years. Not really the end of the world, though of course not ideal. If the school does work, then the entrepreneur can attempt to scale the model, either by opening more Tiny Schools or by converting the Tiny School into a Regular School.

In short, launching Tiny Schools minimizes downside risks (less kids, no need to buy a large facility) and maximizes upside potential (the schools that do well can then be scaled).

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What regulatory structure might allow for Tiny Schools to thrive?

One model is just to keep Tiny Schools private. This is fine, but requiring tuition inevitably limits who will be served.

Another model is to use public funding, but to make the regulatory model very thin.

I discussed this with Adam Hawf and landed at the following:

• Market Size: A state would limit the amount of Tiny Schools that received public funds in any given year: perhaps 100 Tiny Schools with no more than 50 students each in any given year. This equates to roughly 5,000 students /  $50 million a year, assuming $10K in public funding per student. This limits the downside for taxpayers.
• Entry: The application process would be a slimmed down version of a charter application. The entrepreneur would need to have a budget, brief description of the model, and a basic opening plan. 30 pages at most.
• On-going Regulation: On-going regulations would be based on homeschooling regulations. Basic reporting on students served and finances, but very little oversight.
• Back End Accountability: There would be no back end accountability. Zero testing requirements or anything of the sort. Rather, the license to operate a Tiny School would be a one time, four year license. Once the license expired, the operator would either need to apply to become a charter school or a private school. From there, the school would enter what ever accountability system the state used for the chosen sector.

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If even ten states adopted this model, at any time we’d have a 1,000 different Tiny School pilots going on around the country.

The downside would be very small.

The upside could be incredibly high.