Complex Systems with Patrick McKenzie (patio11)

In this episode, Patrick McKenzie (patio11) walks through how perpetual futures work, from funding rates to liquidations to the surprise of automatic deleveraging. Perps are the dominant trading mechanism in crypto (6-8X larger than spot volume) and exist primarily to let exchanges and market makers run casinos more capital-efficiently. He explains why this intellectually interesting innovation probably won't escape crypto, despite what crypto enthusiasts might expect. – Full transcript available here: www.complexsystemspodcast.com/understanding-perpetual-futures/ – Sponsor: Framer is a design and publishing platform that collapses the toolchain between wireframes and production-ready websites. Design, iterate, and publish in one workspace. Start free at framer.com/design with code COMPLEXSYSTEMS for a free month of Framer Pro. – Links: Bits about Money, Perpetual futures, explained www.bitsaboutmoney.com/archive/perpetual-futures-explained/ – Timestamps: (00:00) Intro (02:36) Beginning with the problem (06:49) Perps predate crypto but found a home there (08:19) Multiple settlements a day (10:30) Convergence in prices via the basis trade (13:44) Sponsor: Framer (15:11) Leverage and liquidations (18:46) We have altered the terms of your unregulated futures investment contract (21:50) An aside about liquidations (25:14) Will crypto successfully "export" perps

In this episode, Patrick McKenzie (patio11) is joined by Ben Reinhardt, founder of Speculative Technologies, to examine how science gets funded in the United States and why the current system leaves much to be desired. They dissect the outdated taxonomy of basic, applied, and development research, categories encoded into law that fail to capture how actual breakthrough science happens. – Full transcript available here: www.complexsystemspodcast.com/the-economics-of-discovery-with-ben-reinhardt/ – Sponsors: GiveWell & Framer Support proven charities that deliver measurable results and learn how to maximize your charitable impact with GiveWell . First-time donors can go to givewell.org , pick “Podcast” and enter COMPLEXSYSTEMS at checkout to get $100 matched. Framer is a design and publishing platform that collapses the toolchain between wireframes and production-ready websites. Design, iterate, and publish in one workspace. Start free at framer.com/design with code COMPLEXSYSTEMS for a free month of Framer Pro. – Links: Speculative Technologies: https://spec.tech Ben Reinhardt's website: https://benjaminreinhardt.com Bits About Money: https://www.bitsaboutmoney.com/ – Timestamps: (00:00) Intro (00:26) Understanding focused research organizations (FROs) (01:52) The evolution of science funding (03:59) Taxonomy of research: basic, applied, and development (06:14) Challenges in science funding and research (08:12) The role of process knowledge in research (18:52) The bureaucracy of tech transfer offices (20:00) Sponsors: GiveWell & Framer (22:33) Critique of tech transfer offices (25:20) The burden of bureaucracy on researchers (44:34) Emerging solutions and optimism in research (46:58) Wrap

Why do billions of dollars of stock trade hands based on napkin math and vibes? Billy Gallagher, CEO of Prospect and former Rippling employee, joins Patrick McKenzie (patio11) to walk through the information asymmetry that costs less-sophisticated employees massive amounts of money. From understanding when to early exercise options to navigating 83B elections and tender offers, they discuss the critical decisions that have a shot clock ticking the day you sign your offer letter. – Full transcript available here: www.complexsystemspodcast.com/understanding-equity-at-tech-companies/ – Sponsor: Framer is a design and publishing platform that collapses the toolchain between wireframes and production-ready websites. Design, iterate, and publish in one workspace. Start free at framer.com/design with code COMPLEXSYSTEMS for a free month of Framer Pro. – Links: Prospect: www.joinprospect.com/ – Timestamps: (00:00) Intro (00:44) Billy's professional journey (01:07) Equity management challenges (02:29) The importance of equity compensation (04:53) Equity grant structures in startups (06:09) Understanding vesting terms (07:09) The value of equity over time (08:48) The myth of options as lottery tickets (11:23) Career tailwinds from startup experience (14:25) Breaking into the tech industry (15:16) The role of equity in compensation (17:49) Employee equity plans and dilution (19:59) Sponsor: Framer (21:06) Stock options vs. RSUs (21:55) The decision to exercise options (27:11) Tax implications of exercising options (33:03) The role of HR in equity management (36:14) Bootleg spreadsheets and vibes-based investing (38:09) Navigating tax complexities in different scenarios (41:31) The importance of extended exercise windows (44:18) Challenges with tax residency and remote work (49:43) The role of accountants in managing equity (53:41) Understanding the 83(b) election and QSBS (01:01:03) Tender offers and secondary sales (01:08:38) Strategies for exercising and selling options (01:12:28) Navigating financial decisions in startups (01:16:59) Wrap

Patrick McKenzie (patio11) reads his essay on title insurance, a service designed to never be performed with a "laughably low" 5% loss ratio compared to 50-80% for almost all types of insurance. The typical American moves every seven to eight years, paying a $500 annual tax for basically no good or service. This is due to a quirk about how America records real estate ownership: it mostly doesn’t. Confused? Welcome to the joyous anarchy that is American real estate. – Full transcript available here: www.complexsystemspodcast.com/the-4-000-insurance-policy-designed-to-never-pay-out/ – Sponsor: Framer is a design and publishing platform that collapses the toolchain between wireframes and production-ready websites. Design, iterate, and publish in one workspace. Start free at framer.com/design with code COMPLEXSYSTEMS for a free month of Framer Pro. – Links: Bits about Money, Working title (insurance) https://www.bitsaboutmoney.com/archive/working-title-insurance/ – Timestamps: (00:00) Intro (01:59) What is "title," anyway? (02:48) Distributed versus centralized database design in property rights (04:50) A quick digression for privacy-minded buyers (08:21) High confidence and complete confidence are different (11:28) Title insurance and title searches (14:33) One very quirky risk transfer and a statistical artifact (19:14) How title insurance is sold (20:03) Sponsor: Framer (21:34) How title insurance is sold (cont’d) (23:36) Is there anything to be done here? (25:47) Potential innovations in title insurance

Patrick McKenzie (patio11) reads his Bits about Money essay on deposit insurance, explaining this critical financial infrastructure, with some thoughts on its performance during 2023. He covers what deposit insurance actually covers (and critically, what it doesn't), how fintech users often misunderstand their exposure to counterparty risk, and the anatomy of bank failures. This is infrastructure you rely on as much as electricity: ubiquitous, critical, hopefully invisible, and worth understanding before it matters again. – Full transcript available here: www.complexsystemspodcast.com/how-deposit-insurance-actually-works/ – Sponsor: Framer is a design and publishing platform that collapses the toolchain between wireframes and production-ready websites. Design, iterate, and publish in one workspace. Start free at framer.com/design with code COMPLEXSYSTEMS for a free month of Framer Pro. – Links: Bits about Money, https://www.bitsaboutmoney.com/archive/deposit-insurance/ – Timestamps: (00:00) Intro (03:10) The covered peril (07:07) Anatomy of a bank failure (12:55) Keeping your bank hydrated (19:58) Sponsor: Framer (23:20) Orderly bank failures (28:25) The cost of insurance (30:15) The ultimate backstop (31:48) Deposit insurance as ubiquitous infrastructure

In this episode, Patrick McKenzie reads his essay about the financial infrastructure that makes buying windows painless. When a window installer can originate, underwrite, and fund a $25,000 loan in 15 minutes before leaving your house, it's because four parties—window companies, facilitating platforms, specialized banks, and capital providers—have built a system that actually works. Patrick explains how modern consumer lending learned from 2008 to create better underwriting, clearer compliance, and properly distributed risk, all in service of enabling commerce in the real economy. – Full transcript available here: www.complexsystemspodcast.com/home-improvement-lending/ – Sponsor: Framer is a design and publishing platform that collapses the toolchain between wireframes and production-ready websites. Design, iterate, and publish in one workspace. Start free at framer.com/design with code COMPLEXSYSTEMS for a free month of Framer Pro. – Links: Bits about Money: https://www.bitsaboutmoney.com/archive/window-modern-loan-origination/ – Timestamps: (00:00) Intro (02:46) Why not just have banks loan money for home improvement? (06:43) Modern installment loan origination as a service (09:58) Sponsor: Framer (11:09) Modern installment loan origination as a service (part 2) (15:17) What's the actual product offered? (19:03) How does this pie get divvied up? (24:12) Is this unsecured lending? (26:12) Should we be happy this Rube Goldberg machine exists?

Patrick McKenzie (@patio11) shares his remarks to the Bank of England on critical vulnerabilities in financial infrastructure. Drawing from the July 2024 CrowdStrike outage which brought down teller systems at major US banks, Patrick discusses how regulatory guidance inadvertently created dangerous software monocultures. He also examines the stablecoin market, its impressive growth, and the elephant tethered to the room. He also delivers a message from Silicon Valley to other centers of power on the urgent necessity of waking up regarding AI, which almost the entire world currently far underrates. – Full transcript available here: www.complexsystemspodcast.com/talking-to-the-bank-of-england/ – Sponsor: Framer is a design and publishing platform that collapses the toolchain between wireframes and production-ready websites. Design, iterate, and publish in one workspace. Start free at framer.com/design with code COMPLEXSYSTEMS for a free month of Framer Pro. – Links: The Bank of England: https://www.bankofengland.co.uk/ Bits about Money, Why the CrowdStrike bug hit banks hard: https://www.bitsaboutmoney.com/archive/crowdstrike-bug-hit-banks-hard/ Scaling Laws for Neural Language Models" by Kaplan et al: https://arxiv.org/pdf/2001.08361 Stripe Annual Letter 2024: https://stripe.com/annual-updates/2024 – Timestamps: (00:00) Intro (01:48) The importance of implementation-level understanding (03:00) Single points of failure (04:25) Can a 22-year-old engineer close all the banks? (05:18) The CrowdStrike incident: A case study (08:34) The culture of "shut up and shuffle" (09:54) Blameless postmortems (12:25) What actually happened during CrowdStrike (18:01) Five whys: Root cause analysis (19:03) How software monocultures are created (22:54) Understanding endpoint monitoring software (25:25) Distributed systems and the nature of CrowdStrike (31:22) The economics of software monocultures (33:29) Why wasn't there defense in depth? (37:05) Why was recovery so difficult? (40:32) The domino effect across financial institutions (43:36) What went right: Electronic systems remained up (45:10) This was a near miss (49:29) Potential policy responses (54:03) Switching gears: Stablecoins (01:01:37) The elephant in the room: Tether (01:15:32) Who loses if Tether implodes? (01:16:59) AI and the future of trading (01:26:47) AI risks in the trading space (01:30:41) Closing

Patrick McKenzie (patio11) is joined again by Ricki Heicklen to discuss Metagame 2025, a conference where 250 attendees were divided into Purple and Orange teams competing for territories across campus. Patrick built a complete roguelike RPG in 25 days using LLMs, discovering that providing minimal world-building context transformed generic fantasy outputs into emotionally resonant storytelling. They discuss the power and responsibility of game designers, how games create pedagogical experiences that traditional teaching cannot, and what happens when the line between player identity and character identity starts to blur. – Full transcript available here: www.complexsystemspodcast.com/narrative-mastery-character-bleed-in-games-with-ricki-heicklen/ – Sponsor: Framer is a design and publishing platform that collapses the toolchain between wireframes and production-ready websites. Design, iterate, and publish in one workspace. Start free at framer.com/design with code COMPLEXSYSTEMS for a free month of Framer Pro. – Links: Metagame: https://www.metagame.games/ – Timestamps: (00:00) Intro (00:25) Using games to teach trading (00:57) Game design conference insights (01:12) Ricki’s personal journey into game design (02:41) Exploring different game types (03:35) Challenges in game design (04:44) Metagame conference overview (08:23) Escape room design experience (11:25) Building a rogue-like game (15:35) Metagame mechanics and challenges (18:25) Sponsor: Framer (19:37) Metagame mechanics and challenges (part 2) (31:10) Event management and lessons learned (44:00) Game mechanics and player roles (45:09) Complex encounters and Plague Town (48:44) Moral choices and player decisions (50:59) Game design and narrative impact (55:36) Character bleed and real-world influence (01:02:00) Game design challenges and player agency (01:24:16) Community and player interaction (01:30:04) Wrap

Patrick McKenzie (patio11) is joined by Oliver Habryka, who runs Lightcone Infrastructure—the organization behind both the LessWrong forum and the Lighthaven conference venue in Berkeley. They explore how LessWrong became one of the most intellectually consequential forums on the internet, the surprising challenges of running a hotel with fractal geometry, and why Berkeley's building regulations include an explicit permission to plug in a lamp. The conversation ranges from fire codes that inadvertently shape traffic deaths, to nonprofit fundraising strategies borrowed from church capital campaigns, to why coordination is scarcer than money in philanthropy. – Full transcript available here: www.complexsystemspodcast.com/bits-and-bricks-oliver-habryka/ – Sponsor: Framer is a design and publishing platform that collapses the toolchain between wireframes and production-ready websites. Design, iterate, and publish in one workspace. Start free at framer.com/design with code COMPLEXSYSTEMS for a free month of Framer Pro. – Links: Lightcone Infrastructure: https://www.lightconeinfrastructure.com/ Lighthaven: https://www.lighthaven.space/ LessWrong: https://www.lesswrong.com/ – Timestamps: (00:00) Intro (01:08) The origins and evolution of LessWrong (03:54) Challenges of running an online forum (05:57) Reviving LessWrong (14:51) The unique structure of Lighthaven (17:35) The complexities of conference venues (19:14) Sponsor: Framer (20:14) The realities of conference planning (25:32) Challenges of maintaining Lighthaven (29:54) Navigating permits and regulations (37:02) Impact of fire code regulations on traffic fatalities (39:06) Economic analysis of safety regulations (41:39) Housing policy and construction in Berkeley (43:30) Fundraising challenges in the nonprofit sector (46:44) Effective altruism and fundraising dynamics (54:20) Lessons from religious fundraising practices (01:05:36) Reflections on fundraising (01:13:26) Wrap

Patrick McKenzie is joined by Clara Collier, editor and publisher of Asterisk Magazine, to discuss how we create institutions that bend towards truth. Clara explains why she launched a quarterly print magazine in the Internet age. She traces how 19th century German universities invented the modern infrastructure for rewarding knowledge production and training researchers at scale, and where our public science communication falls short of that heritage. The conversation examines why institutional trust has declined, particularly around science communication and public health, and whether we can rebuild trust in knowledge-producing institutions. – Full transcript available here: www.complexsystemspodcast.com/building-institutions-that-bend-towards-truth-with-clara-collier-of-asterisk-magazine/ – Sponsor: Framer is a design and publishing platform that collapses the toolchain between wireframes and production-ready websites. Design, iterate, and publish in one workspace. Start free at framer.com/design with code COMPLEXSYSTEMS for a free month of Framer Pro. – Links: Asterisk Magazine: https://asteriskmag.com – Timestamps: (00:00) Intro (00:44) The birth of Asterisk Magazine (02:58) Challenges of print media (04:41) The media landscape and Twitter's influence (06:03) The art of long-form writing (13:08) Editing and copy editing in magazines (19:33) Sponsor: Framer (20:45) Editing and copy editing in magazines (part 2) (25:24) AI in writing and editing (30:33) The origins of research universities (34:19) The flawed promotion system in academia (34:40) The rise of research institutions (35:32) The birth of modern research culture in Germany (36:27) The global influence of German universities (40:13) The American university system vs. German system (41:50) The role of public and private partnerships in science (42:47) Challenges in science communication (56:22) The impact of COVID-19 on public trust in science (01:06:42) Historical perspectives on medical trust (01:11:15) Wrap

Patrick McKenzie is joined by Chris Best, CEO of Substack, to discuss how the platform created new economic infrastructure for independent media. They explore Substack's evolution from a simple newsletter tool to a full media network, the revenue guarantee program that attracted prominent writers, and the company's principled stance on press freedom during the "cancel culture" years. Chris explains how subscription-based business models create better incentive alignment than attention-based advertising, and discusses new features like AI-powered video production and Substack Defender, their legal protection program for writers facing lawsuits. – Full transcript available here: www.complexsystemspodcast.com/how-blogging-went-legit-with-substack-ceo-chris-best/ – Sponsor: Framer is a design and publishing platform that collapses the toolchain between wireframes and production-ready websites. Design, iterate, and publish in one workspace. Start free at framer.com/design with code COMPLEXSYSTEMS for a free month of Framer Pro. – Links: Chris Best’s Substack: https://cb.substack.com/ – Timestamps: (00:00) Intro (00:53) The evolution of online publishing (01:20) Substack's business model (02:05) Challenges and opportunities in media (03:47) The role of engagement in media (06:03) The birth of Substack (08:58) Making paid newsletters accessible (10:54) Revenue guarantees and early success (13:05) Substack's impact on journalism (17:59) Freedom of the press and Substack's stance (19:24) Sponsor: Framer (20:40) Twitter's influence on journalism (24:09) Substack's role in modern media (26:04) The impact of cancel culture on journalism (26:53) The evolution of blogging and discourse (30:53) Substack's expansion into podcasts and video (32:42) AI and the future of media production (38:20) Substack defender (42:22) The growing network and future of Substack (46:03) Wrap

Patrick McKenzie is joined again by Kelsey Piper, who has co-founded "The Argument" to revive principled liberal discourse after witnessing how coordinated social media campaigns replaced substantive disagreement in newsrooms. Their conversation traces this institutional breakdown from media to government, examining how DOGE's spreadsheet-driven governance nearly destroyed PEPFAR, America's most successful foreign aid program that had driven infant coffin manufacturers out of business across Africa. The discussion ultimately argues that rebuilding both effective journalism and competent governance requires returning to the hard work of engaging with ground-level reality rather than managing online narratives. – Full transcript available here: www.complexsystemspodcast.com/prestige-media-new-media-with-kelsey-piper/ – Sponsor: Framer is a design and publishing platform that collapses the toolchain between wireframes and production-ready websites. Design, iterate, and publish in one workspace. Start free at framer.com/design with code COMPLEXSYSTEMS for a free month of Framer Pro. – Links: The Argument https://www.theargumentmag.com/ – Timestamps: (00:00) Intro (00:31) The Argument (03:19) Challenges in modern journalism (06:42) The impact of social media on discourse (13:37) The role of Substack and independent media (20:13) Sponsor: Framer (21:30) The role of Substack and independent media (part 2) (30:59) The PEPFAR program and its importance (44:01) Impact of US aid cuts on global mortality (45:25) Substitution efforts and their limitations (47:54) PEPFAR's partial continuation and challenges (51:21) Consequences of administrative decisions (54:28) Elon Musk's influence and government actions (01:00:14) Challenges in government accountability (01:15:47) Reforming administrative processes (01:24:45) The role of community input in development (01:28:28) The power of constituent voices (01:30:15) Wrap

Patrick McKenzie (patio11) is joined by Emmett Shear, co-founder of Twitch, former interim CEO of OpenAI, who now runs Softmax AI alignment. Emmett argues that current AI safety approaches focused on "systems of control" are fundamentally flawed and proposes "organic alignment" instead—where AI systems develop genuine care for their local communities rather than following rigid rules. – Full transcript available here: www.complexsystemspodcast.com/ai-alignment-with-emmett-shear/ – Sponsor: Framer is a design and publishing platform that collapses the toolchain between wireframes and production-ready websites. Design, iterate, and publish in one workspace. Start free at framer.com/design with code COMPLEXSYSTEMS for a free month of Framer Pro. – Links: Softmax - https://www.softmax.com/ – Timestamps: (01:26) Understanding AI alignment (04:42) The concept of universal constructors (13:45) AI's rapid progress and practical applications (19:08) Sponsor: Framer (20:19) AI's impact on work (34:59) AI's sensory and action space (42:10) User intent vs. user request (44:35) The illusion of a perfect AI (49:57) Causal emergence and system dynamics (55:19) Reflective and intentional alignment (01:01:08) Engineering challenges in AI alignment (01:04:15) The future of AI (01:26:40) Wrap

Patrick McKenzie (patio11) is joined by Will Wilson, CEO of Antithesis, to discuss the evolution of software testing from traditional approaches to cutting-edge deterministic simulation. Will explains how his team built technology that creates "time machines" for distributed systems, enabling developers to find and debug complex failures that would be nearly impossible to reproduce in traditional testing environments. They explore how this approach scales from finding novel bugs in Super Mario Brothers to ensuring the reliability of critical financial and infrastructure systems, and discuss the implications for a future where AI writes increasingly more code. – Full transcript available here: www.complexsystemspodcast.com/software-testing-with-will-wilson/ – Sponsor: Framer is a design and publishing platform that collapses the toolchain between wireframes and production-ready websites. Design, iterate, and publish in one workspace. Start free at framer.com/design with code COMPLEXSYSTEMS for a free month of Framer Pro. – Recommended in this episode: Antithesis: https://antithesis.com/ –– Timestamps: (00:00) Intro (01:23) Database scaling and the CAP theorem (08:13) Abstraction layers and hardware reality (15:28) The problem with traditional testing (19:43) Sponsor: Framer (23:16) The fuzzing revolution (30:35) Deterministic simulation testing (42:36) Real-world testing strategies (47:22) Introducing Antithesis (59:23) The CrowdStrike example (01:01:15) Finding bugs in Mario (01:07:37) Property-based vs conventional testing (01:09:51) The future of AI-assisted development (01:14:51) Wrap

Patrick McKenzie (patio11) is joined by Bean, a pseudonymous defense industry expert, to explore the intellectual crossovers between military and civilian domains. The conversation reveals how the defense industry's fundamental constraint of having only one customer (a monopsony) creates entirely different incentives than tech, leading to conservatism and 30-50 year product lifecycles. Bean argues that drones are largely modern iterations of cruise missiles we've had since the 1950s, and explains why current anti-drone defenses make swarm attacks less threatening than headlines suggest. – Full transcript available here: www.complexsystemspodcast.com/defense-with-bean-of-naval-gazing/ – Sponsor: This episode is brought to you by Mercury , the fintech trusted by 200K+ companies — from first milestones to running complex systems. Mercury offers banking that truly understands startups and scales with them. Start today at Mercury.com Mercury is a financial technology company, not a bank. Banking services provided by Choice Financial Group, Column N.A., and Evolve Bank & Trust; Members FDIC. – Recommended in this episode: Naval Gazing: https://www.navalgazing.net/ –– Timestamps: (00:00) Intro (00:29) The overlap between tech and defense (01:35) Operations research in World War II (02:55) Mathematical insights and military strategies (05:28) The role of operations research in modern warfare (16:59) Tech and defense (Part 1) (19:48) Sponsor: Mercury (21:00) Tech and defense (Part 2) (26:07) Economics behind the defense industry (32:07) SpaceX's early challenges and achievements (33:00) The Super Hornet development story (34:39) Military procurement lessons (37:42) Aerospace industry retention rates (38:42) Lockheed Martin's dominance and supply chain (40:55) Drone technology and military applications (46:53) Anti-drone defenses and future warfare (48:01) Naval warfare and historical perspectives (01:01:03) Wrap

This week on Complex Systems, Patrick McKenzie (patio11) is joined by Joel Becker from METR. They discuss groundbreaking research on AI coding assistants. Joel et al’s randomized controlled trial of 16 expert developers working on major open source projects revealed a counterintuitive finding: despite predictions of 24-40% speed improvements, developers actually took 19% longer to complete tasks when using AI tools, even though they retrospectively believed they were 20% faster. The conversation explores why even sophisticated professionals struggle to accurately assess their own productivity with AI tools, the industrial organization of software development, and the implications for AI's recursive self-improvement in research and development. It also touches on other perspectives from software developers using these tools professionally, and where we can expect them to improve rapidly. – Full transcript available here: www.complexsystemspodcast.com/the-great-developer-speed-up-with-joel-becker/ – Sponsor: This episode is brought to you by Mercury , the fintech trusted by 200K+ companies — from first milestones to running complex systems. Mercury offers banking that truly understands startups and scales with them. Start today at Mercury.com Mercury is a financial technology company, not a bank. Banking services provided by Choice Financial Group, Column N.A., and Evolve Bank & Trust; Members FDIC. – Recommended in this episode: METR: https://metr.org/ Joel Becker’s site: https://joel-becker.com/ – Timestamps: (00:00) Intro (00:34) Understanding AI evaluation methods (02:04) METR's unique approach to AI evaluation (03:10) The evolution of AI capabilities (06:44) AI as coding assistants (09:15) Research on AI's impact on developer productivity (13:55) Sponsor: Mercury (15:07) Challenges in measuring developer productivity (20:38) Insights from the research paper (31:26) The formalities of software development (32:07) Automated tools and human discussions (32:47) AI and style transfer in software (34:35) The role of comments in AI coding (36:51) The future of AI in software engineering (40:25) Economic implications of AI in software (46:53) Challenges and risks of AI in software (59:03) Security concerns with AI-generated code (01:04:59) Wrap

In this solo episode, Patrick McKenzie reads his classic essay "Seeing Like a Bank," exploring why financial institutions often appear to have no memory of previous customer interactions despite being excellent at tracking money itself. He breaks down the complex web of legacy systems, tiered support structures, and regulatory constraints that create Kafka-esque experiences for bank customers. Using the lens of institutional legibility borrowed from "Seeing Like a State," Patrick explains how banks' technical architecture and organizational design choices—from core processing systems to customer service tiers—systematically generate the dysfunction that customers experience when things go wrong. – Full transcript available here: www.complexsystemspodcast.com/how-banks-actually-work/ – Recommended in this episode: Patrick’s Bits about Money essay, Seeing like a bank: https://www.bitsaboutmoney.com/archive/seeing-like-a-bank/ – Timestamps: (00:00) Intro (03:52) Recordkeeping systems (10:20) Sponsor: Safebase (11:50) Human accountability and its malcontents (22:57) Two embedded surprises about bank staffing (27:47) Society has goals which conflict with banks being good at banking (30:52) So what can be done about this?

Patrick McKenzie (patio11) is joined by Jim Weisser, a serial entrepreneur and founder of SignTime, for an in-depth exploration of Japan's software market and startup ecosystem. They discuss the unique challenges of building software in a culture that prizes stability over rapid iteration, the dominance of systems integrators, and how Japan's economic stagnation shaped its relationship with technology. The conversation covers everything from Excel-driven development processes to the recent transformation of Japan's VC landscape, offering insights for anyone considering doing business in the world's third-largest economy. – Full transcript: https://www.complexsystemspodcast.com/building-software-in-japan-with-jim-weisser/ – Sponsor: BoxWorks 2025 Discover hands-on AI data extraction techniques, network with industry experts, and hear featured speakers Vinod Khosla, Jared Kaplan, and Aaron Levie at BoxWorks 2025 in San Francisco (Sept 11-12). Use code BW25-ComplexSystems for 50% off at this link: https://bit.ly/452036h – Links: Signtime:: https://www.signtime.com/en/ – Timestamps: (00:00) Intro (00:24) Exploring the Japanese software market (01:25) Challenges in the Japanese startup ecosystem (02:37) Jim Weisser's background and journey (05:14) The evolution of Japan's economy and business practices (10:15) Understanding Japan Inc. and its impact on software (10:28) The role of systems integrators in Japan (19:01) Sponsor: BoxWorks Conference 2025 (*discounted tickets for Complex Systems listeners) (20:29) Cultural differences in software development (26:06) Digital transformation and efficiency in Japan (32:44) Labor market dynamics and employment practices (35:50) Startup ecosystem and equity culture in Japan (42:53) Success stories and market potential in Japan (43:42) Corporate relationships in Japanese companies (44:10) Salesforce's success in Japan (45:44) E-commerce boom in Japan (46:33) Rakuten's evolution and strategy (48:27) Amazon's journey in Japan (49:13) Cloud services and security concerns (51:18) Sansan: Business card management (55:14) Venture capital landscape in Japan (01:05:02) Personal reflections on living in Japan (01:16:21) Wrap

Patrick McKenzie (patio11) is joined by James Riney, partner at Coral Capital, to explore Japan's transformation from a $700 million startup ecosystem to today's $5-10 billion market. They discuss the cultural and structural factors that initially limited venture activity in Japan. The conversation covers unique aspects of building startups in Japan, from the quirks of being a foreign professional to why Japanese engineers love Twitter but ignore LinkedIn, plus insights into Japan's "time machine advantage" and why American-developed dev tools are going viral in Tokyo. – Read full transcript here: www.complexsystemspodcast.com/startup-investing-in-tokyo/ – [Patrick notes: Complex Systems now produces occasional video episodes! You can access them directly on YouTube: www.youtube.com/@patio11podcast . My kids inform me that I’m supposed to tell you to like and subscribe.] – Sponsor: Safebase Leading companies use SafeBase to eliminate up to 98% of inbound security questionnaires, automate workflows, and accelerate pipeline. Go to safebase.io/podcast – Links: Coral Capital: https://coralcap.co/ – Timestamps: (00:00) Intro (01:57) The early days of Japanese startups (04:08) The rise of Coin Check (05:54) Challenges and opportunities in the Japanese startup ecosystem (16:09) Cultural and structural differences in hiring (19:47) Sponsor: Safebase (21:22) The role of content and communication in Japanese startups (31:29) LinkedIn vs. Facebook in Japanese work culture (32:38) LinkedIn's social capital issues in Japan (33:58) Cultural differences in asking for permission (34:31) Navigating Japanese regulatory clarity (36:49) The evolution of VC investment in Japan (39:54) The rise of SaaS in Japan (45:26) System integrators and software development in Japan (50:39) Challenges in Japanese tech companies (54:36) Opportunities for foreign companies in Japan (55:03) The importance of commitment in the Japanese market (57:08) Dev tools and viral adoption in Japan (59:31) Japan's influence on global tech (01:03:23) Wrap

Patrick McKenzie is joined by AI researcher Yoav Tzfati to discuss “vibe coding” - using LLMs to delegate software engineering work to AI models. Yoav runs a bootcamp teaching programming novices to build full-stack web applications using AI, without them ever looking at code. Patrick and Yoav discuss the fundamental shift in software engineering, where humans increasingly act as product managers directing AI "junior engineers," and explore the implications for the future of programming careers and the democratization of software development. – Read full transcript here: www.complexsystemspodcast.com/how-ai-reshapes-software-engineering/ – [Patrick notes: Complex Systems now produces occasional video episodes like this one!You can access them directly on YouTube: https://www.youtube.com/@patio11podcast . My kids inform me that I’m supposed to tell you to like and subscribe.] – Links: Follow Yoav Tzfati: https://x.com/yoavtzfati Yoav's bootcamp: https://www.code-bloom.app/ – Timestamps: (00:00) Intro (00:32) Defining vibe coding (01:35) The evolution of software engineering with LLMs (04:07) Practical applications of vibe coding (09:37) Teaching vibe coding to novices (18:30) Future of AI in software development (21:42) Discussing timelines and model capabilities (22:12) Flappy Bird and the evolution of game development (23:27) The impact of LLMs on software engineering (24:46) Future of coding and human roles (29:47) Monitoring and error handling in software (31:20) The role of LLMs in code review and maintenance (35:12) Wireframing and project management with LLMs (36:40) The future of software engineering careers (43:07) Practical tips for software engineers (44:38) Wrap

Patrick McKenzie (patio11) is joined by Cate Hall, CEO of Astera Institute and author of a forthcoming book on agency, to explore how individuals can systematically develop higher agency in their lives. They discuss the selection effects that draw agentic people to fields like poker and startups, the importance of being comfortable with ignorance and feedback, and practical strategies like asking "Is there a better way to do this?" ten times daily. Cate shares insights from her journey from Supreme Court lawyer to world champion poker player, including how peer groups, emergencies, and what addicts call "the gift of desperation" can trigger step-changes in personal agency. – Full transcript available here: https://www.complexsystemspodcast.com/stacking-the-odds-cate-hall/ – [Patrick notes: Complex Systems now produces occasional video episodes like this one. You can access them directly on YouTube: https://www.youtube.com/@patio11podcast . My kids inform me that I’m supposed to tell you to like and subscribe.] – Links: Cate Hall’s Writing: https://usefulfictions.substack.com/ Pre-order Cate's book on agency: https://mailchi.mp/44578760e686/book-preorder-signup Astera: https://astera.org/ – Timestamps: (00:00) Intro (00:28) Exploring the concept of agency (00:56) Selection effects in different fields (01:31) The tech industry evolution (02:54) Y Combinator's changing demographics (04:23) Parallels between poker and startups (15:48) The role of networking and relationships (19:12) Embracing feedback and continuous improvement (23:49) Exploring growth mindset (24:35) AI and personal improvement (27:04) Learning with AI: strategies and cautions (27:53) The value of human interaction (30:19) Professional gamblers and their unique insights (35:05) Understanding agency and its development (38:45) Triggers for increased agency (45:23) Wrap

Patrick McKenzie (patio11) is joined again by Ricki Heicklen to discuss the evolution of her trading education business, Arbor, one year after their first conversation. They dive deep into the pedagogy of trading, exploring how simulated markets teach concepts like adverse selection, team dynamics, and risk management through hands-on experience. Ricki shares war stories from the bootcamp trenches—infinite loop bugs that mirror Knight Capital's disaster, WiFi outages that create unexpected trading opportunities, and that the most successful trading teams often focus on internal team communication even more than trade execution or technical acumen. See the full transcript: https://www.complexsystemspodcast.com/think-like-a-trader-ricki-heicklen/ – [Patrick notes: Complex Systems now produces occasional video episodes.You can access them directly on YouTube: https://www.youtube.com/@patio11podcast . My kids inform me that I’m supposed to tell you to like and subscribe.] – Links: Trading Camp : https://trading.camp/ Metagame: https://www.metagame.games/#tickets Story of Knight Capital: https://www.sec.gov/files/litigation/admin/2013/34-70694.pdf – Timestamps: (00:00) Intro (00:46) Ricki's journey from trading to teaching (01:25) The birth of Arbor and first bootcamps (03:32) Developing a trader's mindset (05:53) Understanding heuristics in trading (08:21) Adverse selection in everyday life (15:40) Insights from teaching trading bootcamps (21:07) Pedagogical approach: learning by doing (32:00) Handling mistakes and learning opportunities (36:17) Unplanned bugs and real-world lessons (39:47) Learning from Knight Capital's bug (40:24) Understanding exchange-side bugs (43:10) Risk limits and strategy separation (44:41) Importance of UI in trading bots (46:53) The Madagascar button (48:20) The big red button in manufacturing (49:45) Simulated trading and information aggregation (50:29) Sibling trading game explained (53:24) Modeling and hidden information (01:01:15) Trading behavior and market updates (01:04:38) Real-world applications and lessons (01:13:58) Surprises and market opportunities (01:16:24) Pedagogical approaches in trading education (01:17:08) Market dynamics and counterparty behavior (01:17:53) Retail vs. institutional order flow (01:19:23) Simplifying trading concepts for beginners (01:21:27) Introducing market characters and their roles (01:31:31) Team dynamics and communication in trading (01:39:13) The importance of redundancy in trading systems (01:47:52) Future of trading education and online classes (01:53:47) Wrap

Patrick McKenzie is joined by Adam Jarvis, author of the Public Service substack and a New Zealand civil engineer and public sector veteran. They discuss how political capital constraints, funding misalignment across government levels, and accumulated regulatory "scar tissue" make infrastructure projects extraordinarily difficult. The conversation reveals why replacing a water pipe now costs more in planning than the entire project did a decade ago, and how talent sorting has drained capacity from public institutions. Despite these challenges, Patrick and Adam find reasons for optimism about reforming government capacity. Complex Systems now has video episodes as well. Watch this episode and subscribe at: https://www.youtube.com/@patio11podcast – Full transcript: www.complexsystemspodcast.com/achieving-results-in-the-physical-world-with-adam-jarvis-of-public-service/ – Links: Public Service Substack: https://alethios.substack.com/ – Timestamps: (00:00) Introduction to Complex Systems (01:13) Understanding local government functions (03:41) Challenges in public sector project delivery (06:31) Funding complexities in public projects (09:14) The burden of regulatory and legislative constraints (17:04) Appreciating the infrastructure we take for granted (23:02) Historical and modern infrastructure challenges (30:04) Talent mobility and its impact on public sector (33:35) Public sector hiring practices (34:11) Agglomeration effects and brain drain (36:04) Aging population and resource allocation (36:59) Structural factors in public sector layoffs (37:49) Hiring and firing in the public sector (40:39) Labor mobility and job security (46:34) AI and automation in public sector jobs (52:56) Risk aversion and process overload (01:01:30) Optimism for public sector reform

In this episode, Patrick McKenzie (@patio11) is joined by Jennifer Li, a general partner at a16z investing in enterprise, infrastructure and AI. Jennifer breaks down how AI workloads are creating new demands on everything from inference pipelines to observability systems, explaining why we're seeing a bifurcation between language models and diffusion models at the infrastructure level. They explore emerging categories like reinforcement learning environments that help train agents, the evolution of web scraping for agentic workflows, and why Jennifer believes the API economy is about to experience another boom as agents become the primary consumers of software interfaces. – Full transcript: www.complexsystemspodcast.com/the-ai-infrastructure-stack-with-jennifer-li-a16z/ – Sponsor: Vanta Vanta automates security compliance and builds trust, helping companies streamline ISO, SOC 2, and AI framework certifications. Learn more at https://vanta.com/complex – Links: Jennifer Li’s writing at a16z https://a16z.com/author/jennifer-li/ – Timestamps: (00:00) Intro (00:55) The AI shift and infrastructure (02:24) Diving into middleware and AI models (04:23) Challenges in AI infrastructure (07:07) Real-world applications and optimizations (15:15) Sponsor: Vanta (16:38) Real-world applications and optimizations (cont’d) (19:05) Reinforcement learning and synthetic environments (23:05) The future of SaaS and AI integration (26:02) Observability and self-healing systems (32:49) Web scraping and automation (37:29) API economy and agent interactions (44:47) Wrap

In this episode, Patrick McKenzie (patio11) recorded with Zvi Mowshowitz (TheZvi) live at the LessOnline conference. They explore practical strategies for getting better results from large language models. Zvi explains how to customize AI behavior through thoughtful system prompts, while Patrick shares techniques for using LLMs as writing partners and research assistants. They discuss the evolving relationship between content creators and AI training data, touching on the emerging field of "generative engine optimization" (GEO). The conversation also covers multimodal capabilities, recursive AI use, and strategies for avoiding common failure modes like hallucination and sycophancy. – Full transcript: www.complexsystemspodcast.com/getting-better-at-llms-with-zvi-mowshowitz/ – Sponsor: Vanta Vanta automates security compliance and builds trust, helping companies streamline ISO, SOC 2, and AI framework certifications. Learn more at https://vanta.com/complex – Links: Don’t Worry About the Vase https://thezvi.wordpress.com/ – Timestamps: (01:08) Understanding system prompts (02:04) Customizing LLM behavior (05:58) Memory features in LLMs (10:21) Generative Engine Optimization (GEO) (15:59) Sponsor: Vanta (17:17) Art and AI: Enhancing creativity (20:36) Recursive use of AIs (25:22) Addressing LLM frustrations (27:05) Checking for hallucinations in AI outputs (28:11) Experimenting with AI models (29:44) Optimizing AI prompts and outputs (31:19) Using AI for writing and editing (32:32) AI as a research and writing partner (33:26) Prompting AI and humans effectively (39:39) Balancing AI assistance with personal voice (51:03) Wrap