Why it is optimal to be optimistic

Adam and Ben want to start coffee shop chains in country C. Adam estimates the potential market size to be 1 billion. This estimate turns out to be correct in the end. Ben estimates the potential market size to be 10 billion. He argues that people in country C drink little coffee. The potential market size for coffee is huge. Ben, being optimistic and energetic, is an infectious promoter. He raised 10 billion dollar in the capital market. Adam, meanwhile, raised 1 billion dollar in the capital market.

Ben’s company has ten times more cash to burn than Adam. Ben sells coffee at great loss. To attract customers, Adam has to sell at loss as well. Soon, Adam’s company run out of cash and went bankrupt. Adam lost everything, including his own 100 million dollar seed money. With the bankruptcy of Adam’s company, Ben becomes the monopoly in coffee business. His company valuation jumps to 20 billion dollars. At this point, Ben exercises all the options and liquidates his shares. Ben becomes a billionaire.

Eventually, the market settles down. Ben’s company valuation settles around one billion dollar. Adam was right. The market size is indeed around one billion dollar. Ben overstated market value by ten times. Yet Ben becomes billionaire. Adam loses everything.

Ben’s success is credited to his foresight about the coffee business. Adam, being a loser, loses all his credibility.