Homophily – not all good

Well this confirms my own prejudices, and it may even be right!

The Cost of Friendship
Date: 2012-06
By: Paul Gompers
Vladimir Mukharlyamov
Yuhai Xuan
This paper explores two broad questions on collaboration between individuals. First, we investigate what personal characteristics affect people’s desire to work together. Second, given the influence of these personal characteristics, we analyze whether this attraction enhances or detracts from performance. Addressing these problems in the venture capital syndication setting, we show that venture capitalists exhibit strong detrimental homophily in their co-investment decisions. We find that individual venture capitalists choose to collaborate with other venture capitalists for both ability-based characteristics (e.g., whether both individuals in a dyad obtained a degree from a top university) and affinity-based characteristics (e.g., whether individuals in a pair share the same ethnic background, attended the same school, or worked for the same employer previously). Moreover, frequent collaborators in syndication are those venture capitalists who display a high level of mutual affinity. We find that while collaborating for ability-based characteristics enhances investment performance, collaborating for affinity-based characteristics dramatically reduces the probability of investment success. A variety of tests show that the cost of affinity is not driven by selection into inferior deals; the effect is most likely attributable to poor decision-making by high-affinity syndicates post investment. Taken together, our results suggest that non-ability-based “birds-of-a-feather-flock-together” effects in collaboration can be costly.

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11 years ago

Certainly explains the lack of good leadership in Tasmanian over the last century. Oligarchies and masonic cliques are affinity based unconscious conspiracies par excellence. The good thing is that Tasmania is undergoing a transformation though whether this leads to a new affinity cronyism or a break with the past only time will tell.

Tasmania will even import similar talent to the fools that were bred here.

Bankruptcy revelation at the TCCI

from: http://www.abc.net.au/news/stories/2009/07/15/2627009.htm

The head of Tasmania’s Chamber of Commerce and Industry, Andrew Scobie, has confirmed he is a former bankrupt.

Mr Scobie was declared bankrupt in New South Wales in 2001 and his company was liquidated three years later.

On Tuesday Mr Scobie was made the managing director of the chamber, in charge of day-to-day operations.

Yesterday he confirmed his business dealings in New South Wales did not end in success.

“Have you ever been declared bankrupt,” he was asked in an interview with Philippa Duncan.

“That is not a matter for discussion at this time,” Mr Scobie responded.

Mr Scobie later confirmed to the ABC he was made bankrupt and his company liquidated after the Federal Government refused to pay $1 million contract.

He also confirmed he did not disclose this to the board when he was made a director of the chamber and still has not told members.

Mr Scobie is no longer a bankrupt and says he is built considerable personal wealth.

Mr Scobie also will not rule out the chamber revealing a trading loss of more than $500,000 at its annual general meeting in September.