Here are the relevant quotes:
- Gather proposals for a hundred RCTs …
- Randomly pick 5% of the proposed projects, fund them as written, and pay off the investors who correctly predicted what would happen.
- Take the other 95% of the proposed projects, give the investors their money back, and use the SWEET PREDICTIVE KNOWLEDGE [to take useful actions]
Other than the difference in the portion of the markets you run (1/20 vs 1/1000), this is equivalent.
(It does not discuss liquidity costs, just the the randomization as a way to avoid having to take many random actions.)
The figure you are referring to does not need to add up to 100%, since it is showing P[data | aliens] and P[data | no aliens].
P[data | aliens] and P[not data | aliens] need to add to 100%, but that is not on the graph.
As an extreme case where P[A | B] + P[A | C] != 1, consider A = coin did not land on its edge, B = the coin is ordinary, C = the coin is weighted to land heads twice as often as tails.
Then P[A | B] = 0.9999 and P[A | C] = 0.9999 would be reasonable values.