How to Invest in a Simulation

If the world ends when the audience gets bored, what should a seed investor fund?

That is the fun, slightly unnerving starting point. Not because we know we live in a simulation, but because assigning any non‑zero probability to it changes optimal behavior at the margins. Robin Hanson’s classic thought experiment says that if you might be simulated, you should weight decisions by how simulators behave: they prefer short horizons, pivotal events, rich worlds, and entertaining stories. Translate that from life advice to venture, and you get an investment playbook that tilts toward the dramatic, the legible, and the near‑term catalytic.

The premise, stated plainly

If there is any chance we are in a limited, variable‑fidelity sim, the timelines we care about compress. Observers spend compute on regions with action, reduce detail elsewhere, and keep scenes running when they remain interesting. Hanson argues you should expect shorter horizons, seek pivotal events, and keep important people engaged. An investor who believes this even a little should overweight companies that create high “attention density” per unit time, look plausibly world‑making, and pull famous or powerful nodes into their orbit.

Think of it as Bayesian portfolio tilt, not a religion. If we are not simulated, you still funded ambitious teams that move fast and ship visible proof. If we are, you also played to the camera.

A simple simulator model

Assume a simulator that optimizes five things:

1. Cost of fidelity: detail where it matters, cheap elsewhere.

2. Pivotality: preference for forks, crises, and breakthroughs.

3. Narrative value: coherent arcs, stakes, protagonists.

4. Moral legibility: praiseworthy behavior tends to be preserved.

5. Continuity with recorded history: timelines that still lead to rich, powerful descendants.

Hanson’s piece hints at each: vary detail, expect pivotal events, be entertaining and praiseworthy, and make the world look likely to become wealthy. Map those to venture signals and you get a practical filter.

Core principles for simulation‑aware seed investing

1. Compress time to a spectacle
   Back teams that can stage an undeniable proof fast: a demo that reframes what is possible, a regulatory win that flips a market, a release that forces incumbents to respond. Short time to “scene that must be rendered” beats long quiet execution.

2. Fund pivotality, not just TAM
   TAM tells you how big a pie could be. Pivotality asks whether success re‑writes rules: new distribution primitives, cost curves that unlock new categories, protocols that become default. In a sim, forks get compute.

3. Prefer legible progress over “trust us”
   Simulators reward scenes with visible state changes. Fund companies that show live dashboards, public demos, user‑observable improvements, and credible roadmaps with testable milestones. Opacity looks like low‑detail background.

4. Back protagonists
   Some founders pull famous people, regulators, and industry elders into the story. They communicate crisply, raise stakes responsibly, and stay interesting without becoming hype merchants. In a sim, proximity to famous nodes increases render probability. Keep them engaged.

5. Invest in “world‑looks‑rich” assets
   If simulators sample worlds that plausibly lead to abundant wealth, tilt toward companies that build the infrastructure of that world: cheaper compute, smarter software agents, reliable energy, resilient finance rails, better materials, healthier and longer lives. This raises the prior that the timeline continues.

6. Bias toward conflict with purpose
   Markets with clear antagonists and public scoreboards create plot. Fintech that unbundles fee moats, AI that displaces brittle processes, marketplaces that break local monopolies. Avoid empty drama; aim for constructive tension that pushes systems forward.

7. Design early liquidity paths without needing them
   You cannot bank on secondaries or quick M&A, but you can prefer models that can credibly generate revenue early, accrue strategic value to partners, or create acquirable assets. If the sim cuts to credits, partial realizations beat paper gains.

8. Insist on moral legibility
   Hanson notes simulators might play moral God. Fund work that most reasonable observers would call net positive: safety features, user agency, privacy respect, fair economics. Avoid businesses that only work if customers stay confused.

A sector tilt that fits the frame

• AI picks and shovels: evaluation, observability, safety tooling, data governance, agent orchestration. These concentrate fidelity on high‑leverage edges and create early, visible wins.

• Developer productivity and automation: tools that collapse weeks of toil into minutes of proof. They generate frequent “scenes” and compound quickly.

• Fintech primitives: identity, risk, compliance automation, instant settlement. They raise system throughput and unlock new games on top.

• Marketplaces with unlocks: liquidity creation that breaks deadlock in regulated or fragmented spaces. Plot arrives when a stalemate ends.

• Energy, compute, and infra: more cycles for everyone increases the chance our world looks like the kind that spawns simulators.

The Simulation Scorecard for diligence

Rate each startup from 1 to 5 on the following. You want at least four scores at 4 or 5.

• Time‑to‑Spectacle: months to an undeniable public proof.

• Pivotal Vector: if it works, what rule changes, and for whom.

• Attention Density: how many “render‑worthy” updates per quarter.

• Famous‑Node Magnetism: ability to attract validators, partners, regulators, or critics who matter.

• Observability: live demos, metrics, transparent devlogs, credible test harnesses.

• Moral Legibility: would a broad audience call this valuable and fair.

• Continuity with Wealthy Futures: does success make the timeline look more like one that yields abundant, powerful descendants.

• Detail‑Gradient Leverage: does the product push the sim to allocate more fidelity to their niche by increasing stakes or complexity.

• Forkability: how many adjacent “what‑if” experiments this unlocks for customers or the ecosystem.

Portfolio construction in practice

• Own many shots at catalytic moments: treat early checks like call options on big scenes. Keep reserves for teams that reliably generate them.

• Stage gates by proof, not time: graduate follow‑ons when founders produce public, legible updates that change state, not when the calendar turns.

• Diversify across plot types: some companies win by breakthrough, some by regulatory judo, some by network lock‑in. Mix them.

• Instrument your portfolio: require founder updates that center on renders: shipped demos, external dependencies removed, named partnerships with clear stakes.

Red flags that look bad in a sim and in real life

• Narrative debt: repeated promises of “big reveal next quarter” with no footage.

• Flat timelines: slow, hard‑to‑observe progress where success depends on being left alone for years.

• Invisible goodness: products that only create value behind the curtain and never surface a moment anyone can tell was a win.

• Protagonist drift: teams that avoid public commitments, shy from hard conversations, or cannot rally important nodes.

• Zero‑sum spectacle: drama for drama’s sake that destroys trust. Short‑term attention can poison long‑term value.

Objections and sanity checks

• “Isn’t this just hype chasing?”
  No. The discipline is legible progress with stakes and substance. Empty spectacle fails the moral and pivotality tests.

• “Base rates still matter.”
  Yes. Most startups fail. The sim tilt changes edge allocation at the margin. It does not excuse sloppy underwriting.

• “What if the best companies compound quietly?”
  Some do. The scorecard does not ban quiet compounding; it asks whether the company can produce decisive proofs on the way. Many great compounders did.

• “What if we are not in a simulation?”
  Then you still backed teams that move markets, communicate clearly, and build valuable rails. The tilt remains useful.

Concrete rules to operationalize next Monday

• Ask every founder: what is the next public proof that makes a reasonable outsider update their priors, and when will it land.

• In memos, replace generic TAM slides with a “Pivotal Vector” paragraph: if this works, what stops being true about the world.

• Favor demo‑able products in diligence. If you cannot see it, measure it, or simulate it, downgrade.

• Track “attention density” across the portfolio: count shipped proofs per quarter, not just ARR.

• Keep a short list of famous nodes per sector. If a company cannot attract any of them within 12 months, reassess.

Closing thought

If you might be living in a simulation, invest like the camera is on. Fund teams that compress time, raise stakes, and build the rails of a richer world. Hanson’s advice for simulated living maps cleanly to a venture edge: care a bit less about far horizons, seek pivotal events, stay interesting and praiseworthy, and keep important people engaged. It reads like philosophy. It operates like a checklist. simulation

Footnote: The sim frame is a lens, not a law. Use it to sharpen decisions, never to excuse them.