Google AI PM; Foundation board member
Dave Orr
Karma: 361
Investors are not profit-maximizing. Investors are (arguably) risk-adjusted profit-maximizing.
Is there enough money in the world for all investments to lever up 100%? There’s certainly not enough that the borrowing costs would be trivial, if debt demand were suddenly so high.
Also, 100% leverage doubles the risk for the same return (by hypothesis) which probably needs some more support before it’s clear that that is socially better compared to status quo. Note that many investment strategies get totally wiped out (due to gambler’s ruin) if risk gets too high for the same return.
A better model is that investment capital seeks the best risk adjusted return. Right now there’s a balance between opportunities in debt, equities, real assets, etc. If you increase taxes and therefore decrease return on equities, enough capital will move out to other asset classes until the risk adjusted returns are roughly equal.
Maybe that new equilibrium is better or maybe it’s worse, but denying that it will change I think makes your analysis hard to accept.
Surely a poll would be better—easier for people to answer, less risky of bias.
It’s pro-social to get vaccinated now, for the following reasons:
Vaccines that are already delivered to your country are not going to get shipped elsewhere. They have a shelf life and (especially the MRNA ones) don’t always travel that well. Vaccine supply to the third world will be shipped from factories, not reclaimed from vaccinations sites now.
Switzerland and other western countries will be more willing to release supply/not buy more when their population is protected. As long as they feel like they have a clear need then they will oppose sending vaccines elsewhere.
Those two factors make it clear that getting a shot now will more likely decrease (marginally) the time to diversion of significant supply to other places that need it more.
“Premature optimization is the root of all evil.”—Tony Hoare by way of Donald Knuth.
See also: https://m.xkcd.com/1691/
If you buy from a retailer, you are paying in time as well as money. This is a good deal for people who have relatively more time than money. If you buy from a scalper, you are substituting money for the time component, which is good for people who value their time more highly.
Therefore scalpers are shifting supply from people who have more time to people who have more money. This is likely moving supply from middle class people to rich(er) people.
If you’re in the set of people with more time than money, which is most people, I can see being upset. It arguably substantially increases time to PS5 because you weren’t previously competing with someone like me who doesn’t have time to spare to track inventory and call around, but has plenty of money. It’s removing consumers from a pool that they weren’t in yet.
I wonder how it would be received if we applied the same reasoning to humans and animals.
Humans might (and in fact do) undergo a lot of suffering. If we could identify people who are likely to suffer high amounts of suffering, then should we put in sentience throttling so that they don’t feel it? Seems very Brave New World.
How about with animals? If we could somehow breed chickens that are identical to current ones except that they don’t feel pain or suffering, would that make factory farming ethical? Here the answer might be yes, though I’m not sure the animal rights crowd would agree.
I think some markets are basically efficient and very difficult to beat. The public stock market is one. I’m not convinced by the AI example basically due to priors—we’ve seen many many people claim to be able to beat the public markets without special information, with evidence that seems much more convincing than this, and they are on average wrong. So I don’t think at least this argument overcomes my priors.
However less liquid markets are for sure beatable. The prediction markets around the election are one. Crypto is another—I personally have done well not just investing in crypto but by co-founding a hedge fund that has actively traded crypto for 3 years, many trades per day, making a trading profit (earning alpha) on 1081/1093 days. (And the losing days were all very small, each well below a day’s average profits.)
I also sit on an investment committee for an endowment and see what returns can look like in private markets where it’s possible to have a high informational advantage and turn that into outsized returns.
So to me, the EMH is mostly true for highly liquid highly accessible markets. But for illiquid, less accessible, lower information markets, there is money to be made for people willing to put in the effort.
Whether it’s worth the opportunity cost is also another question, it’s not like it’s hard to make money lots of ways if you are motivated and smart. Crypto is a fun hobby for me, like poker used to be, and I like to make money from my hobbies. Not everyone wants to spend their free time looking for EV in weird places.
I’m sure there are some hard cases wrt free trade, but we could move a long way towards much more free trade without worrying too much about the corner cases (i.e. allow tariffs on those cases).
Here’s a list of things that I think would not be controversial among economists and relevant experts but nonetheless seem very unlikely to happen any time soon:
Much more free trade—reduce friction, trade barriers, and tariffs. Consider payments to smooth out pain to short term losers
Greatly reduced zoning and housing regulations. Housing stock is artificially expensive (at least in most places in the US, especially the Bay Area) due to excessive local regulations and zoning.
Also no more rent control. Do you want to make sure there’s not enough places for people poor people to live? Because rent control is how you make sure there’s not enough places for poor people to liveCarbon tax. It’s the most efficient way to internalize the global warming costs. It’ll never be adopted because the price sensitivity to gasoline is way higher than it is to e.g. electricity, so one blanket number will piss off consumers too much
Greatly reduce drug approval costs. Accepting approvals from similar agencies overseas is one approach. Greatly expanded “right to try” rules might be another. A more free market approach might be best.
Also make almost all (actually all?) illegal drugs legal. The enforcement costs and social costs are ridiculously high, far higher than the benefits from the war on drugsPayments for organ transplants. Supply is much lower than demand, and there’s no price signal or reason for people to create more supply, so lots of people will die from a lack of a kidney while everyone else has a spare
Charter schools/voucher schools. This might be more controversial among “relevant experts” depending on what group you think that is, but the arguments against are very poor and the arguments for seem much stronger to me
Get rid of ~all tax deductions. The mortgage interest deduction is regressive and distortionary. The employer-provided health care deduction is distortionary and locks people into jobs. I personally benefit a ton from the charitable deduction but it’s also regressive
Get rid of the corporate income tax. We want corporations to make money and invest it. Tax income to people, not to companies
Greatly reduce occupational licensing. Some of those may make some sense, but most are just thinly veiled job protection for the existing guild members
Shorten copyrights (35 years or life of the creator, whichever is longer?), shorten patents, no software or business method patents
I don’t think there’s a single explanation for why none of those policies seems likely to happen, though at least there’s substantial movement on the drug legalization front recently.
I took a class based on Getting More and it was interesting and useful. This was offered by the company so I can’t comment on general classes. There’s evidently an online course based on the material, no idea if it’s more useful than just reading the book.
I like GM more than e.g. the Carnegie book because it’s just usefully framed as “understand what the other person wants and try to get it for them” which is like 90% of being a good negotiator, assuming you know what you want as well.
It’s too cumbersome and only addresses part of the issue. Kelly more or less assumes that you make a bet, it gets resolved, now you can make the next bet. But in poker, with multiple streets, you have to think about a sequence of bets based on some distribution of opponent actions and new information.
Also with Kelly you don’t usually have to think about how the size of your bet influences your likelihood to win, but in poker the amount that you bluff both changes the probability of the bluff being successful (people call less when you bet more) but also the amount you lose if you’re wrong. Or if you value bet (meaning you want to get called) then if you bet more they call less but you win more when they call. Again, vanilla Kelly doesn’t really work.
I imagine it could be extended, but instead people have built more specialized frameworks for thinking about it that combine game theory with various stats/probability tools like Kelly.
The Math of Poker, written by a couple of friends of mine, might be a fun read if you’re interested. It probably won’t help you to become a better poker player, but the math is good fun.
At this point I will admit that my gambling days were focused on poker, and Kelly isn’t very useful for that.
But here’s the formula as I understand it: EV/odds = edge, where odds is expressed as a multiple of one. So for the coinflip case we’re disagreeing about, EV is .02, odds are 1, so you bet .02.
If instead you had a coinflip with a fair coin where you were paid $2 on a win and lose $1 on a loss, your EV is .5/flip, odds are 2, so bet 25%.
The way pro gamblers do this is: figure out how big your edge is, then bet that much of your bankroll. So if you’re betting on a coin flip at even odds where the coin is actually weighted to come up heads 51% of the time, your edge is 2% (51% win probability − 49% loss probability) so you should bet 2% of your bankroll each round.
I guess whether this is easier or harder depends on how hard it is to calculate your edge. Obviously trivial in the “flip a coin” case but perhaps not in other situations.
I agree with that, but I think that utility is not even log linear near zero.
The Kelly Criterion maximizes the growth of your bankroll over time. This is probably not actually the goal that you personally have for wealth, because of the nonlinearity of money. You (if you’re like everyone else) care much more about preserving wealth, once you have some, than you do about growing it.
Some of this might be loss aversion, but mostly this is right—going from $1M to $2M is nice but far from a doubling in your happiness or ability to do things; going from $1M to zero is a disaster. Kelly doesn’t take that into account, except in the purely mathematical way that if you literally go to zero you can’t make any more bets (which never happens).
For this reason, professional gamblers I know tend to bet half-Kelly to balance out bankroll preservation with growth. (Source: used to be a pro poker player.)
On the flipside, if you have another source of income, you can bet more aggressively. For instance, if you have a job that generates positive savings, you can count unearned savings as part of your bankroll for Kelly purposes. This is a huge advantage pure pro gamblers don’t have. You probably don’t want to be too too aggressive there, and how much to count will depend on the stability and/or fungibility of your income. A year or two of savings could be appropriate.
None of this should change your bottom line that you should take +EV longshot bets if you’ve been passing on them, just how much you should bet.
One thing we did when the kids were small was called rose/bud/thorn. Each of us says something good that happened that day (the rose), something bad (the thorn), and something we were looking forward to (the bud). Sort of a starter gratitude journaling exercise.
No idea if it did anything useful, of course. Parenting is like that.
I think picking a weekday is better than a Sunday, because most of the influence will come from media coverage. A media cycle is easier to start during the week than on a weekend.
The reinfection rates for the SA variant are indeed concerning. Do we have any data on whether previous infection prevents deaths or severe infection? The vaccines in general seem to do a great job of stopping the really bad outcomes regardless of how well they do on preventing all infections, so possibly something similar could be going on with the SA variant. Any data either way?
I guess I’m just dense here, but I still don’t see how it can be that the risk adjusted return on capital is unaffected by taxes. Borrowing money (i.e. leverage) adds risk so that can’t be it (or there’s an additional mechanism that comes into play). Later you say that the government is a partner but they aren’t reducing your risk, they’re just taking half your profits.
Probably not worth the back-and-forth more here but to me the “taxes don’t affect returns” position is just obviously wrong and nothing you’ve said shows a mechanism that would change that.