AI and the strategic value of hype
The game theory guide to Sam Altman
In medieval warfare, survival was determined by how well you could keep enemies out. Castles were surrounded by moats, designed to slow down invaders.
The moat was the barrier that gave you time and leverage. You won by making conquest harder than it was worth.
Warren Buffett made the metaphor famous in investing circles. The best businesses, he said, have economic moats, which come in many forms - network effects, learning effects, regulatory capture, resource control, and so on. But they all serve the same purpose as the old moats: to protect against competition. If you have a moat, you can defend your market position and compound returns over time.
Today, every ambitious company chases a moat. It’s strategy 101.
Build something others can’t copy, make yourself indispensable, lock others out.
But what if we’re heading into a world without moats. We’ve been on this path for some time, arguably, and many non-tech businesses figured their traditional moats no longer mattered. Media companies lost their distribution advantages with the internet, banks lost some of their customer capture with the rise of open banking. Yet, the tech companies seemed to have it figured with network effects.
But what if moats aren’t as effective anymore?
Could a medieval city have ever survived without moats?
Florence - the strategic outlier in a world of moats
Renaissance-era Florence had none of the usual levers of self-defense.
At the crossroads of Europe’s commercial routes, yet dwarfed by the territorial empires that surrounded it, Florence was wealthy but militarily vulnerable and politically isolated. Florence had neither the weapons to fight nor the moats to defend.
Yet, Florence was never attacked.
It never needed a moat in a world where others were busy digging moats
Florence invested in art, philosophy, and diplomacy to position itself as a civilizational asset too valuable to destroy.
When foreign ambassadors arrived, expecting a decadent merchant town, they were met with ancient Roman bronzes, Greek scholars teaching children Plato, courtyards filled with art.
Florence was engaging in, what can best be called, strategic narrative construction.
It was casting itself as the heir to Rome, the custodian of reborn antiquity. To sack Florence, as armies routinely did to Pisa or Milan, would be sacrilege, not just warfare. Everyone wanted a piece of it, yet no single actor wanted to bear the reputational cost of invasion. And so, while others bought a hours and days of defence using moats, Florence bought generational defence through reframing.
Florence didn’t dig moats, it reframed the rules of competition. In a fragmented system with no central authority and high costs of miscalculation, the city made itself a focal point around which otherwise uncoordinated actors could align.
Hype, not moats
Florence realized the power of hype, manufacturing the illusion that conquering Florence was not just dangerous but uncivilized.
It elevated itself from a city into a symbol. A conquest of Florence would go down as an act of barbarism. On Florence’s part, this was a conscious, well-financed strategy.
The Medici knew that Florence was rich and vulnerable. They weaponised art sponsorship and commissioning as a tool to shape perception and generate buzz, and to pre-empt conflict by controlling the narrative.
Ambassadors would go on Altman-style speaking tours telling others how they could never catch up and instead should be part of the Florence sphere of influence. Kings across Europe sent their children to be educated there. Diplomats wrote praise about its sculpture and its aura of impossible civility.
Hype is a mechanism for strategic misdirection. Hype helped create the sense that Florence was at the center of a cultural future already in motion. The trick worked because the story was not entirely invented, but was anchored in real outputs - art, ideas, architecture - or in today’s world, large language models that speak and think better than most humans would. The outputs of Florence were carefully curated to tell a bigger story.
Moats could keep invaders at bay for a few days - they could buy you some time. But hype could completely change the payoff associated with invasion, eliminating invaders entirely.
The stag hunt
What Florence realized, long before the word hype entered business speak, is that in fragile systems, perception can be stronger than position.
Hype, when used skilfully, becomes a coordination device. It aligns incentives across actors.
Coordination helps you aim for - and achieve - larger goals that are individually not achievable. This is best illustrated through the classic Stag Hunt game.
Let’s say you’re out hunting in a clearing with a friend, both eyeing the same stag in the distance. If you go after it together, you eat for a week. But if your friend flakes and goes for rabbits, you’re left with nothing. You’ll be stuck hunting a rabbit as well.
Big, hairy, ambitious outcomes are achieved only when we believe others will show up too. That’s where narrative comes in. It turns broken coordination into a belief that everyone can rally around. In venture investing, in AI, in climate action, there’s no point ending up with a rabbit each. You have to go after the stag!
More on Reshuffle
This post is based on ideas from my upcoming book Reshuffle.
Reshuffle is now available for pre-orders. All pre-orders leading up to the launch date are at 70% off.
Pre-orders are Kindle only.
Hardcover, paperback, and audiobook versions will be available at launch.
Progress is a coordination game
When you’re dealing with emerging technologies, whether AI or climate tech, the primary constraint is not invention. It is coordination.
These systems rely on the alignment of multiple, interdependent actors across research, capital, regulation, infrastructure, and public trust. Without synchronized participation, the most promising technologies fail to reach scale.
Historically, large-scale coordination problems were solved through institutional mechanisms. Governments offered standards and funding, and created regulatory certainty. This model worked under relatively stable conditions, with clear strategic goals.
Today’s systems operate in structural uncertainty. Governments are often under-resourced relative to private firms. Timelines and payoffs are unclear. Yet, the need for coordinated action has only grown.
Take the example of the case of electric vehicles in the United States. Since the late 2000s, federal and state actors attempted to build the foundation for EV adoption through the Combined Charging System (CCS) standard. Billions of dollars were allocated to fund charging infrastructure aligned with CCS. Automakers committed to building compatible vehicles. Yet the infrastructure failed.
During the same period, Tesla vertically integrated its own charging infrastructure, creating a dense, reliable, and user-friendly Supercharger network. Alongside that, Tesla created hype by framing itself not just as a car company, but as the vanguard of a global energy revolution. And, of course, the cars would look good too. Tesla’s narrative made electrification feel like a cultural movement.
By 2023, nearly every major automaker, including Ford, GM, and others, announced plans to abandon CCS and adopt Tesla’s North American Charging Standard (NACS). The institutional coordination mechanisms had failed to achieve the alignment needed to scale the market. The narrative and infrastructure created by Tesla succeeded in doing so.
The economics of hype
How exactly does hype work - we’ve got evidence, particularly from the past decade.
1. Hype as a coordination mechanism
In early-stage or high-uncertainty industries, value emerges when complementary actors move together.
Hype helps overcome cold-start problems and unlocks value that wouldn’t otherwise emerge.
In the absence of effective institutional mechanisms, narrative hype acts as a functional substitute for formal coordination mechanisms.
It organizes attention. It aligns expectations. And it enables distributed actors to move simultaneously, even when the institutional structure remains incomplete. Just as Tesla’s charging story created a de facto standard that public systems failed to impose, narratives in other domains, including Sam Altman’s delusional predictions, serve as coordination devices in ecosystems otherwise defined by fragmentation.
2. Hype creates temporal arbitrage
Because hype generates attention faster than fundamentals improve, it creates a window of temporal arbitrage.
Narrative-led coordination is often financially intermediated. Belief is capitalized through valuations, tokens, or startup equity. These financial instruments double as vehicles for system alignment, but they also introduce volatility. When expectations shift, or narratives lose traction, losses get socialized, often through retail markets or through disillusionment among complementary actors who moved based on incomplete signals.
3. Hype redistributes risks and costs
Hype doesn’t just amplify upside. It socializes risk and privatizes reward.
In this environment, the cost of progress, especially R&D waste and early-stage infrastructure buildout, is increasingly externalized. Governments once absorbed this as a function of industrial policy. But today, it is increasingly distributed across markets in the form of inflated expectations and FOMO.
Early movers use hype to attract complementary investments without bearing full responsibility if things don’t pan out. Later entrants often shoulder the costs of failure, through sunk investments or reputational fallout.
4. Hype serves as productive fiction with economic consequences
Hype paints a plausible vision of the future, even if it won’t fully materialize. This fiction helps solve coordination problems. But if the fiction breaks before the system locks in, it can collapse the whole effort.
In that sense, hype creates self-fulfilling and self-defeating loops, depending on whether the underlying system can catch up fast enough.
This, then, increases the risk of the anti-hype brigade discrediting the entire story, even parts of it that do work, and heightens the risk of systemic backlash if expectations collapse. This is the problem with Altman-style hype today. It creates the gravity as well as the indignation that spurs creative action but it also incubates an army of critics who end up discrediting momentum, even the parts that deliver results.
The architecture of progress
Progress is now often contingent on the ability to create believable futures, and with that, create coordination among actors in the absence of institutional support.
This gives hype a role previously reserved for regulation and subsidy. It is not merely a communication strategy; it is a coordination mechanism, especially in systems characterized by interdependence and incomplete information.
In the industrial model, hype was a marketing mechanism - to sell more through misdirection.
Today, hype is a coordination mechanism - to build the momentum required across a system of complements for the system to take off.
Understanding this shift is important.
In systems where outcomes depend on early-stage alignment across diverse actors, we are not only funding technologies, we are also funding the architecture that makes coordinated progress possible. Increasingly, that architecture is based not on institutional infrastructure but on narrative hype.
The mechanics of hype
The first thing hype does is create a focal point. Florence made itself the place to see what art was becoming. In a fragmented Italy, where armies changed sides weekly, that kind of clarity was magnetic.
But a focal point only matters if people feel urgency. Hype serves as an urgency engine. Florence made sure visiting dignitaries didn’t just see its treasures, they felt the consequences of attacking it. If you sack Florence, you destroy the custodians of the ancient greatness of the Roman Empire.
Hype offers a moral reframing. Florence’s commissioning of provocative, nude statuary weren’t positioned as the indulgences of a decadent city. They were tributes to humanism. Critics could be dismissed as backward or blind to beauty. Altman and his ilk do something similar, frequently speaking about curing cancer and other versions of ‘making the world a better place’ while stoking the US-China narrative as a moral issue.
Fourth, hype attracts the ecosystem. The Medici became magnets for displaced scholars and philosophers. The city became a platform with strong network effects.
As the story spreads, it reshapes the payoff landscape. Florence became safe because attacking it started to look foolish. The reputational cost was too high and the political risk involved discouraged such attacks. Hype, once widely accepted, becomes a strategic trap for late movers.
Finally, hype creates new standards. Once Florence had become the cultural north star of the Renaissance, other cities rebuilt their palaces to mimic Florentine aesthetics. Kings hired Florentine tutors for their heirs. Florence was the benchmark for royalty. Over time, the narrative became a standard.
Good Hype, Bad Hype - and Hype as a strategy
None of this is to make a case for hype. Hype creates imbalance and often socialises losses to those who can’t afford to hold it.
Yet, in fragmented, rapidly-evolving systems, hype is functional. It performs roles that more traditional and institutional tools - regulations, standards, government programs etc - can’t fill fast enough. It coordinates the uncoordinated.
It is important, then, that we don’t simply dismiss all hype, but look at how it’s used.
1. Hype as strategic coordination
As with Florence, hype can create the conditions for long-term value creation through solving coordination problems. It’s a tool to reduce uncertainty in high-ambiguity environments - a mechanism that accelerates ecosystem formation. The hype may run ahead of reality, but it still runs in the right direction.
2. Hype as temporal arbitrage
This is the opportunist’s play. Here, hype is used to drive up attention, extract value, and exit before the narrative collapses.
The problem is that many startups start out with the former and end up doing the latter. The temptation to hack attention - once you’ve figured how to do it - and exit while on top, is too high.
This form of hype makes future coordination harder by damaging trust.
It’s the reason hype has such a toxic reputation.
But hype is increasingly going to be the price we pay for progress. So distinguishing between the two is absolutely essential.
Moats are good, they create some defence. But Florence created the best defence - one that lasted centuries despite political turbulence in neighboring states - by reframing the entire game using narrative hype.
Hope may not be a strategy, but given the right conditions, hype certainly is one!
Pre-order the book
This post is based on ideas from my upcoming book Reshuffle.
Reshuffle is now available for pre-orders. All pre-orders leading up to the launch date are at 70% off.
Excellent work. Would you be interested in guest posting this?
👏👏