Rationality Quotes June 2014

Another month, another rationality quotes thread. The rules are:

  • Please post all quotes separately, so that they can be upvoted or downvoted separately. (If they are strongly related, reply to your own comments. If strongly ordered, then go ahead and post them together.)
  • Do not quote yourself.
  • Do not quote from Less Wrong itself, HPMoR, Eliezer Yudkowsky, or Robin Hanson. If you'd like to revive an old quote from one of those sources, please do so here.
  • No more than 5 quotes per person per monthly thread, please.
  • Provide sufficient information (URL, title, date, page number, etc.) to enable a reader to find the place where you read the quote, or its original source if available. Do not quote with only a name.

 

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"I just don't have enough data to make a decision."

"Yes, you do. What you don't have is enough data for you not to have to make one"

http://old.onefte.com/2011/03/08/you-have-a-decision-to-make/

These two merely disagree on the meaning of the word decision, not the nature of the situation; one should pick a different scenario to make the possible point about how choosing not to choose doesn't quite work.

I think that they both agree that "decision" here means "choice to embark on a course of action other than the null action", where the null action may be simply waiting for more data. Where they disagree is the relative costs of the null action versus a member of a set of poorly known actions; it seems that the second speaker is trying to remind the first that the null action carries a cost, whether in opportunity or otherwise.

You post a link to "Disputing Definitions" as if there is no such thing as a wrong definition. In this case, the first speaker's definition of "decision" is wrong - it does not accurately distinguish between vanadium and palladium - and the second speaker is pointing this out.

"Do what you love" / "Follow your passion" is dangerous and destructive career advice. We tend to hear it from (a) Highly successful people who (b) Have become successful doing what they love. The problem is that we do NOT hear from people who have failed to become successful by doing what they love. Particularly pernicious problem in tournament-style fields with a few big winners & lots of losers: media, athletics, startups. Better career advice may be "Do what contributes" -- focus on the beneficial value created for other people vs just one's own ego. People who contribute the most are often the most satisfied with what they do -- and in fields with high renumeration, make the most $. Perhaps difficult advice since requires focus on others vs oneself -- perhaps bad fit with endemic narcissism in modern culture? Requires delayed gratification -- may toil for many years to get the payoff of contributing value to the world, vs short-term happiness.

Marc Andreessen

It looks like that ANY advice from highly successful people might be dangerous, since they are only a small minority of those, who also tried those same things. Most of them much less successfully.

On the other hand, honest advice from highly successful people at least gives some indication of what you need to do to be successful, even if it doesn't give a good idea of the odds.

In reply to both Nancy and Thomas:

"For Taleb, then, the question why someone was a success in the financial marketplace was vexing. Taleb could do the arithmetic in his head. Suppose that there were ten thousand investment managers out there, which is not an outlandish number, and that every year half of them, entirely by chance, made money and half of them, entirely by chance, lost money. And suppose that every year the losers were tossed out, and the game replayed with those who remained. At the end of five years, there would be three hundred and thirteen people who had made money in every one of those years, and after ten years there would be nine people who had made money every single year in a row, all out of pure luck. Niederhoffer, like Buffett and Soros, was a brilliant man. He had a Ph.D. in economics from the University of Chicago. He had pioneered the idea that through close mathematical analysis of patterns in the market an investor could identify profitable anomalies. But who was to say that he wasn’t one of those lucky nine? And who was to say that in the eleventh year Niederhoffer would be one of the unlucky ones, who suddenly lost it all, who suddenly, as they say on Wall Street, “blew up”?

-Malcom Gladwell

A magician named Derren Brown made a whole program about horse racing to illustrate the point of the above story. It's kinda interesting, but wastes more time than reading the story above.

https://www.youtube.com/watch?v=9R5OWh7luL4

It's rather surprising then, that people who success many times in the row, tend to employ eigenvalues rather than use igon value. Why could that be?

Of course, the role of luck in market is huge. But among the sequential winners, you will tend to find people who win a bit more than 50% of the time. There's many opportunities to do something very stupid (e.g. invest in hydrinos) and lose.

Igon value

I think you're making a joke, but I'm not sure what the joke is.

Presumably that people who know what they're talking about are less likely to make obvious errors in jargon. And that Gladwell was the person who made that particular error in jargon, in the very book that's being quoted, and that this is an example of Gladwell's glibness and lack of deeper knowledge of things he's talking about in this case and in general.

It's sort of an odd example, though, since Gladwell himself consistently succeeds.

ETA: Given the downvote, maybe I should clarify that I don't mean that Gladwell succeeds at being the kind of writer that I would want to read. I mean that he consistently succeeds at writing best-selling books. The "igon-value" thing was cringe-inducing, but it plausibly hasn't done any significant harm to his sales. Apparently, you can be careless in that way and still succeed fantastically, again and again, with his target audience.

So, in that sense, he's not a good example for the claim that "people who success many times in the row, tend to employ eigenvalues rather than use igon value." (Though, of course, his existence doesn't disproves the claim, either.)

The point is that the consecutively successful investment managers tend to have more clue than unsuccessful ones. Of course, the luck plays a huge role, but over ten years, if we assume that super skilled have success rate of 0.6 and low skilled have success rate of 0.4, there's 57-fold difference in 'survival'.

Let me point out that you can make very straightforward Bayesian estimates of performance/skill/alpha by starting with, say, zero-alpha prior and then updating on monthly returns.

Of course, the role of luck in market is huge. But among the sequential winners, you will tend to find people who win a bit more than 50% of the time. There's many opportunities to do something very stupid (e.g. invest in hydrinos) and lose.

Of course, the record is full of people who make money for years, only to explode later on (look at John Meriwether's career up until Long Term Capital Management blew up so spectacularly). Were these people always just lucky? We can never know. I take Taleb's point (filtered through Gladwell) to be that the base of people actively trading is so large that we should expect people who are successful for years (possibly even whole careers) even if all that is operating is luck, so past performance is no guarantee of future gains. I don't entirely agree, but its decent advice to keep in mind. Especially bad for the home investor is constantly chasing the funds that most recently made money (for some definition of recent)- generally the fees went up on the backs of the improved performance, so as performance falls back to the market value the investors will make less (lost to the higher fees).

Also an irony worth pointing out- Randy Mills of Blacklight Power/Hydrino fame has tried to create credibility for his company by pointing to the savvy investors who did get in board.

Of course, the record is full of people who make money for years, only to explode later on (look at John Meriwether's career up until Long Term Capital Management blew up so spectacularly). Were these people always just lucky? We can never know.

If the best win at a rate of 60% and worst at a rate of 40% , plenty of the best will explode later on.

Also an irony worth pointing out- Randy Mills of Blacklight Power/Hydrino fame has tried to create credibility for his company by pointing to the savvy investors who did get in board.

The point is that knowing some physics protects you from the likes of Randy Mills. So you do a bit better than mere luck. Also, if you're a so called savvy investor, and you invest into some crap like hydrinos, you may even get gains (if you sell after others jump onto the bandwagon just because you did).

Not necessarily. Honest advice from successful people gives some indication of what those successful people honestly believe to be the keys to their success. The assumption that people who are good at succeeding in a given sphere are also good at accurately identifying the factors that lead to their success may have some merit, but I'd argue it's far from a given.

It's not just a problem of not knowing how many other people failed with the same algorithm; They may also have various biases which prevent them from identifying and characterizing their own algorithm accurately, even if they have succeeded at implementing it.

“The root of all superstition is that men observe when a thing hits, but not when it misses"

-- Francis Bacon

https://www.goodreads.com/quotes/5741-the-root-of-all-superstition-is-that-men-observe-when

The quote is true to Bacon's thought, and its expression much improved in the repetition. Here is the nearest to it I can find in Bacon's works on Gutenberg:

For this purpose, let us consider the false appearances that are imposed upon us by the general nature of the mind, beholding them in an example or two; as first, in that instance which is the root of all superstition, namely, that to the nature of the mind of all men it is consonant for the affirmative or active to affect more than the negative or privative. So that a few times hitting or presence countervails ofttimes failing or absence, as was well answered by Diagoras to him that showed him in Neptune's temple the great number of pictures of such as had escaped shipwreck, and had paid their vows to Neptune, saying, "Advise now, you that think it folly to invocate Neptune in tempest." "Yea, but," saith Diagoras, "where are they painted that are drowned?"

Francis Bacon, "The Advancement of Learning"

But in some form or another, a lot of people believe that there are only easy truths and impossible truths left. They tend not to believe in hard truths that can be solved with technology.

Pretty much all fundamentalists think this way. Take religious fundamentalism, for example. There are lots of easy truths that even kids know. And then there are the mysteries of God, which can’t be explained. In between—the zone of hard truths—is heresy. Environmental fundamentalism works the same way. The easy truth is that we must protect the environment. Beyond that, Mother Nature knows best, and she cannot be questioned. There’s even a market version of this, too. The value of things is set by the market. Even a child can look up stock prices. Prices are easy truths. But those truths must be accepted, not questioned. The market knows far more than you could ever know. Even Einstein couldn’t outguess God, Nature, or Market.

Peter Thiel

As somewhat of a libertarian, I tend to fall into that last group. I have to keep reminding myself that if nobody could outguess the market, then there'd be no money in trying to outguess the market, so only fools would enter it, and it would be easy to outguess.

I have to keep reminding myself that if nobody could outguess the market, then there'd be no money in trying to outguess the market, so only fools would enter it, and it would be easy to outguess.

There is the old joke about a student and a professor of economics walking on campus. The student notices a $20 bill lying on the sidewalk and starts to pick it up when the professor stops him. "Don't bother," the professor says, "it's fake. If it were real someone already would have picked it up".

That joke got less funny the first time I picked up a Christian tract disguised as a $20 bill. It got a lot less funny the second.

But it's an equilibrium, right? Lumifer's joke may be funny, but as an empirical matter, you don't see a lot of $20 bills lying on the ground. There's no easy pickings to be had in that manner. So the only people who can "outguess" the market (and I think that framing is seriously misleading, but let's put that aside for now) are individuals and organizations with hard-to-reproduce advantages in doing so - in the same way that Microsoft is profitable, but it doesn't follow that just anyone can make a profit through an arbitrage of buying developer time and selling software.

Whether it's worth picking up a $20 bill depends on

  1. The chance that you are the first person to notice it and pick it up, if it's an actual $20 bill
  2. The ratio of real $20 bills to fake ones
  3. The gain in finding a real $20 bill, compared to the loss in picking up a fake one.

The odds for #2 and #3 are pretty high compared to the odds of similar activities when playing the market. The odds of #1 vary depending on how well travelled the place is but are generally a lot higher than for whether you're the first person to notice an opportunity in the market.

Of course, #1 is also affected by how many people use this entire chain of reasoning and conclude it;'s not worth picking up the bill, but the other factors are so important that this hardly matters.

The way I see it, in practical terms, it's always worth picking up. I've picked up a number of fake bills. I keep them. It's better than leaving them to torment each successive person who picks it up until someone else does it instead.

But it's an equilibrium, right?

No, why would it be?

Equilibrium is a convenient mapping tool that lets you assume away a lot of difficult issues. Reality is not in equilibrium.

Because when it's easy to outguess the market, the people who are good at it get richer and invest more money in it until it gets hard again.

It's not in perfect equilibrium constantly. I've heard of someone working out some new method that made it easy which took off over the course of a few years until enough people used it that outguessing the market was hard again.

Because when it's easy to outguess the market, the people who are good at it get richer and invest more money in it until it gets hard again.

This is an extremely impoverished framework for thinking about financial markets.

Let's introduce uncertainty. Can Alice outguess the market? Um, I don't know. And you don't know. And Alice doesn't know. All people involved can have opinions and guesses, but no one knows.

Okay then, so let's move into the realm of random variables and probability distributions. Say, Alice has come up with strategy Z. What's the expected return of implementing strategy Z? Well, it's a probability distribution conditional on great many things. We have to make estimates, likely not very precise estimates.

Alice, of course, can empirically test her strategy Z. But there is a catch -- testing strategies can be costly. It can be costly in terms of real money, opportunity costs, time, etc.

Moreover, the world is not stationary so even if strategy Z made money this year whether it will make money next year is still a random variable, the distribution parameters of which you can estimate only so well.

This is an extremely impoverished framework for thinking about financial markets.

It's good enough.

Knowing about things like risk will tell you about the costs and benefits with higher precision. It will explain somewhat why there's lots of people involved in a market, and not just a couple of people that control the entire thing and work out the prices using other methods.

All that uncertainty makes the market difficult to predict. But all you really need to know is that regardless of how easy or hard it is to guess how a business will do, the market will ensure that you're competing with other people who are really good at that sort of thing, and outguessing them is hard.

It's good enough.

No, I don't think so.

But all you really need to know is that regardless of how easy or hard it is to guess how a business will do, the market will ensure that you're competing with other people who are really good

This can be applied to anything from looking for a job to dating.

So, no, that's not all you really need to know.

You wouldn't expect to be able to do job X better than a professional if you don't have any training, would you?

Also, economists say the same about the job market. If you don't have any particular advantage for any given job, you can't easily beat the market and make more money by picking a high-paying job. If a job made more money without some kind of cost attached, people would keep going into it until it stops working.

I guess there is more to the market. It's something that scales well, so doing it on a small scale is especially bad. It takes exactly as much work to by $100 in stocks as $10,000. If you're dealing with tiny companies where someone trying to make trades on that scale would mess around with the price of the stock, that won't apply, but in general trying to make money on small investments would be like playing poker against someone who normally plays high stakes. They're the ones good enough to make huge amounts of money. The market won't support many of them, so they must be good.

I have a weird feeling that a bunch of people on LW have decided that there's nothing to be done in financial markets (except invest in index funds), fully committed to this belief, and actively resist any attempts to think about it... :-/

Isn't this optimal? The case for index funds by ordinary investors is extremely strong, and if there exists good evidence to the contrary it will be of the form that is almost certainly beyond the ability of most LW people to properly evaluate.

Isn't this optimal?

Is it? Which specific index funds are you talking about and how do you define optimality here?

good evidence to the contrary it will be of the form that is almost certainly beyond the ability of most LW people to properly evaluate.

So, it's completely fine for most LW people to evaluate the chances of a Singularity, details of AI design, or the MWI of quantum mechanics, but real-life financial markets, noooo, they are way too complicated? X-D

Low cost, broad based index funds.

So, it's completely fine for most LW people to evaluate the chances of a Singularity, details of AI design, or the MWI of quantum mechanics, but real-life financial markets, noooo, they are way too complicated? X-D

Good reply, but there are different types of complexity and looking at financial market data isn't a type of complexity LW tends to deal with.

Low cost, broad based index funds.

That's still very VERY non-specific.

Let's take our friends Alice and Bob. They come to you and ask you where should they invest their pennies. You tell them "low cost broad based index funds". They blink at you and say "Could you please give us the names of the funds?"

And I still have no idea what do you mean by "optimal".

there are different types of complexity and looking at financial market data isn't a type of complexity LW tends to deal with.

That is true as a matter of empirical observation. But the real question is about capability: can LW types deal with the financial-markets type of complexity? Why or why not?

Most Americans invest in mutual funds via their firm's pension plan and have limited choices. I have index funds with Vanguard and Fidelity on the S&P 500.

can LW types deal with the financial-markets type of complexity? Why or why not?

Even for those who could, it wouldn't be worth the time cost for those of us who don't work in finance since you would likely conclude after lengthy study that yes, one should just buy index funds.

I have index funds with Vanguard and Fidelity on the S&P 500.

So, in which sense having a long-only portfolio of large-cap US equities is optimal?

since you would likely conclude after lengthy study that yes, one should just buy index funds.

How do you know? Isn't that rather blatantly begging the question..?

How do you know? Isn't that rather blatantly begging the question..?

I have a PhD in economics from the University of Chicago.

So, in which sense having a long-only portfolio of large-cap US equities is optimal?

The S&P 500 is effectively international since big U.S. companies do lots of business in foreign countries. For diversification reasons you might also want to own bonds and invest some in smaller cap stocks.

I have a PhD in economics from the University of Chicago.

First, appeal to authority is a classic fallacy.

Second, if you're doing the Ghostbusters bit, live up to your billing. Instead of vaguely regurgitating HuffPo-level platitudes, formulate a claim, provide the necessary tight definitions, outline the reasoning why your claim is true, provide links to empirical data supporting your position.

I suspect we have differences in two areas: the credibility of the EMH, and the approach to the problem of asset allocation.

Let's keep the EMH debate out of this thread -- it's a beast of its own -- but even under EMH the asset allocation issue is far from trivial. In fact, it's quite complicated. However this complexity is NOT a good reason to just give up and point to a suboptimal solution which does have the twin advantages of being (a) simple; and (b) not the worst; but is NOT "best for everyone" which is what it's sold as.

First, appeal to authority is a classic fallacy.

No, it depends on the authority. Being rational means giving appropriate weight to the opinions of other people and these peoples' education has some impact on the optimal weights. Also, you did ask the personal question "How do you know?" and I interpreted this as your wondering how I, James Miller, acquired my knowledge of financial markets.

you did ask the personal question "How do you know?" and I interpreted this as your wondering how I, James Miller, acquired my knowledge of financial markets.

A bit of miscommunication, then, my question referred to the quote directly preceding it which is

since you would likely conclude after lengthy study that yes, one should just buy index funds

I meant "How do you know that I would likely conclude after lengthy study that yes, one should just buy index funds?"

If you read LW you are likely the kind of person who, after massive study, would agree with economists on microeconomic issues on which most economists agree because microeconomics is really math and logical reasoning applied to human behavior and economists are, relative even to the LW population, good at these things.

If you read LW you are likely the kind of person who, after massive study, would agree with economists on microeconomic issues

Let me provide a data point for you: I have studied this issue sufficiently well. I have NOT come to the conclusions which you expect.

microeconomics is really math and logical reasoning applied to human behavior

Yes, but badly applied :-D Economics is only starting to realize that actual live humans are not Homo economicus and that equilibrium models of systems with omniscient fully rational agents driven solely by the desire to have more money are not much like the real world.

Once economists leave the rarefied atmosphere of DSGE models and such and have to deal with the reality-provided empirical data, they can hardly agree on anything. A recent case in point -- the Piketty book.

First, appeal to authority is a classic fallacy.

Logical fallacies are still (possibly weak) evidence.

It's rude to ask someone how they came to believe something, and then dismiss their experience out of hand.

formulate a claim, provide the necessary tight definitions, outline the reasoning why your claim is true, provide links to empirical data supporting your position.

Step up your own game.

It's rude to ask someone how they came to believe something, and then dismiss their experience out of hand.

I am not asking about personal experience -- "how did you find your path to Jesus" kind of thing. I am asking to provide supporting evidence and arguments for a claim about empirical reality. "I have a PhD" is neither supporting evidence nor an argument.

Step up your own game.

My claim is negative: there is NO investment optimal for everyone; optimality is hard to define and even harder to estimate; equity index funds are just an asset class, one among many; etc.

I see the advice "you should just invest in index funds" as similar to advice "you should just eat whole grains". Yes, it's progress if your baseline is coke and twinkies. Yes, it's not the worst thing you can do. No, it's not nearly an adequate answer to the question of what should you eat.

"I have a PhD" is neither supporting evidence nor an argument.

You're simply wrong. It is evidence.

My claim is negative: there is NO investment optimal for everyone; optimality is hard to define and even harder to estimate; equity index funds are just an asset class, one among many; etc.

This comes nowhere near the standard you've tried to impose on your interlocutor.

You're simply wrong.

Obviously, I disagree.

This comes nowhere near the standard you've tried to impose on your interlocutor.

That's because I don't go around telling people that the problem of investment allocation is solved and all you need to do is invest in index funds.

You are either willfully or autistically not parsing English as an English speaker would normally intend it. "Is not evidence" normally means "is not good evidence". The speaker does not have to insert the word "good" for it to have that meaning.

I'm sorry, but are you projecting? I've outlined how much evidence I ascribe to this situation, and Lumifer has been clear that he ascribes much less. This isn't a debate over omitted modifiers.

Either you think that "I have a PhD" is evidence but not good evidence, in which case you are indeed complaining about the omitted modifier, or else you think that "I have a PhD" is good evidence, which is a claim I find astonishing.

Furthermore, you just got finished saying that logical fallacies are (possibly weak) evidence, as if being weak evidence would be relevant, and you linked to a post which says that evidence that is not good is still evidence. These support the interpretation that you were talking about PhDs being evidence at all, not about PhDs being good evidence.

The fallacy is appeal to inappropriate authority....

Could I suggest that you actually read the article? Authorities aren't necessarily correct, and so it would be fallacy to appeal to an authority as necessarily correct... (but what , for a Bayesian, would be necessarily correct...?) ...even so, "authorities can be correct in their field of reasoning" (and are more likely to be than non authorities....to state, in theory, what everyone does in practice)

I think I just misunderstood the referent of "the fallacy" in the great-grandparent, i.e., the fallacy in general / the alleged fallacy above...

Anyway, cheerfully withdrawn.