Kalshi sued its regulator because the upside outweighed the risk

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 42:50

   So there's this concept of expected outcome and outcome. Yup. And they're oftentimes not the same. There's a variance for the outcome and the expected outcome is, you know, based on your decision-making where it should land and then there's a bunch of variance in the word that pushes you in the direction and the world doesn't reward you for expected outcomes they reward you for outcomes expected outcomes what you have control over is like the work you do and it's interesting because I think at that point like the coin flip landed against us and the entire world is like wrong strategy wrong execution etc and it's interesting because that was the same time where I am a big messy fan so so Argentina won the work I was super happy but you know the day after I just not want the workup I don't know if you

2. 43:25

   you know know this but the french you know the the the france the country really the population wanted to kick ass the french coach deschamps who is an absolute legend like the guy won them the prior world cup incredible performance got them to the final of the next world cup and to the to the penalties and obviously penalties are a coin flip i mean um and they blamed him and you know it's you know how hard like the the number of teams that made it past the sort of group stage after having won a World Cup is basically trivial.

3. 43:55

   It's very, you know, usually the team is very hard. It's very hard to kind of go twice in a row. So, and it was an interesting thing which is like he flipped the coin, landed against him and people wanted to oust him immediately, right? And so we lived through that. Did they want to oust you? No, I think, but like people lost confidence. It's like we should pivot and like it's the wrong strategy, wrong strategy, wrong execution, all of that.

4. 44:15

   Like we were not doing a good job, basically. It's on us. And it's fine. You should hold the followers accountable. But the key learning with that, what's interesting, A little bit with poker. The best poker players, they know when they're playing a good hand and they're okay with the variance. They can lose a lot, but they'll stick to their game. And they know that over time, the variance is going to come back and with enough plays, they're going to win over time.

5. 44:36

   And you see with Elon, you see with some of these founders that can take these extreme risks. As long as they know that expected outcome, they can intake the variance over time. And I think there's a lot of alpha in there. And for founders that have gone through that multiple times, I see it with Vlad and Robinhood. I see over time, they gain a certain level of confidence. that is hard to describe, but it's like I've gone through it.

6. 44:56

   I'm okay with the fluctuations. And is this making sense in the rearview mirror? Or is that making sense at the time? No, not at the time. Okay. But now in the rearview mirror. Because, okay, so 22 happens. And we start to answer at the time. A whole, we go ahead and reset. We're going to do something else. We're going to figure out what to do. But again, we're so, we want to build Cal Street. That's what we want to build.

7. 45:14

   And we cannot do it without the election markets. We're going to try again. Okay. So you go back to board. We're going to try again. Everyone's like, I mean, okay, these guys are saying we got delusional. We try till the end, another year, end of 23. Now they say no. They reject us. Okay. so again you know it's like goes from a low to a lower yes and this was you know in the room it's like oh what do we do again roller coaster a whole thing and i was like you know what this time we'll sue them you know so it's like we're not like it was how did it actually work like you got the email of it it's like no and then right away she's like we should sue we want to and that someone was like we're probably gonna get a no again so we should start preparing the lawsuit okay we should sue them and start to talk to the board you know we had a lot of conversation with alfred you know

8. 45:51

   michael's at the board at the time and what did alfred say the first time you pitched him on it he's like it's a crazy idea like you're a tiny startup even if you win you're probably gonna like incur a significant lot you're probably gonna lose and he's right that we were probably going to lose and he's like coming of your size even for bigger companies you never win against the government it doesn't you know he's your own they have all power over you they're your own regulator suing them is gonna call like they're gonna kill you and and when i was super dogmatic i was sort of battling it etc but then there's a few things that sort of came out of that like one one i was a complete no-brainer it was pretty much i mean i would oscillate all the time i would just be like this is crazy i mean okay i'm gonna come after us i'm gonna come after us personally

9. 46:27

   i think ceos are gonna love this because i oscillate all the time on stuff like that i oscillate a lot which i think is okay i hid my oscillation as much as i could but it definitely showed up yeah and i think it's okay honestly like i i because it's hard to have the right i mean it's so complicated right and but um and i would all say it etc and i remember we got to a meeting at some point that like i was still oscillating and like you know it's the night before we're gonna file etc and like you know i was like are you shitting me like you know it was basically she like went so hard and she's like you know fuck this like you know like we should just do it like we're wasting time and you know it was like everyone else in the room there was this sort of feeling the missionary thing you could feel it of like you know we came so far

10. 47:06

    like fuck it let's just go full on war let's bet everything in your poker head where you're like there's probably a 20 chance this will work is a one percent chance it was so hard to prize but i thought through all of it which was basically and like alpha was right in many ways but like they could kill us because they could essentially yang the clearinghouse from under us and kill the company we would die maybe even before we even get the result which is the risk, they would, they could like death by a thousand paper cuts.

11. 47:35

    They can start doing a bunch of things for you. But then I was like, if it does work, the outcome is so big and the expected value seems pretty attractive, actually. Even if a low percentage odds of success, the outcome is so big. Were you, okay, so obviously. It's an asymmetric bet. It's a big one. We bet the farm and we're like, let's see what happens. In the moment you, the timing was extremely good on winning.

12. 47:56

    What was, was it an email? Did someone call you?