Risk Budgets vs. Basic Decision Theory

My main argument in favour of risk profiles is to think in terms of the frequency in which events go wrong. It is true that me not getting Covid yesterday should not impact my decisions today, however making choices that yield a probability of a bad event of p over the next month means I'll have that bad event happen once every 1/p months, on average. Due to loss aversion I might want to cap that frequency, even at the cost of reduced expected utility, hence I'll give myself a risk profile. This goes into the psychological effects of loss, which tend to overweight positive outcomes. Any thoughts?

What is the low hanging fruit of things we could be doing to improve society?

I have a personal belief that a lot of low hanging fruit does not get picked because of we have masses where each benefits a little vs smaller entities with a lot to lose, such as drug companies wanting smaller enforcement. As such the invested minority can outlast the majority in terms of preventing these changes from becoming law.
Do you see other factors having more significance? Further, can we avoid these impasses?

Thoughts on the $GME situation

They can profit without this sort of Ponzi scheme. The best analogy I have seen is as follows:

Suppose you have 5 phones on the market, and by law short sellers have to buy 10 phones. Since the demand will always be higher than supply ( the legal requirement forces short sellers to buy ), then the price will go off to infinity by natural supply/demand mechanics.

The only way to break this is by increasing supply, ie if long stock holders decide to sell they shares as you recommended when you say get out. This would not be maximally beneficial for the long holders. Once supply surpasses demand the overpricing immediately breaks, but that doesn’t need to happen. Since short sellers owe something like 120% of the stock ( I’m not sure of the exact value), long holders could theoretically agree to sell only 1% of their stock each at a million a share, and this would still work and benefit all long holders.

This was only possible because short sellers overbought their side. The interesting issue here is that even though there is a way for ALL long holders to profit immensely, it would fail if enough of them get scared into selling, so it becomes a real life coordination problem. Do you think they can pull it off?

PS: I’ve worked in finance and found this very interesting, both due to the unusual short squeeze it is, and to the behavioural side of the situation. I’d like to hear opposing thoughts and questions if my writing isn’t as clear as it should be. Exciting times!

Design thoughts for building a better kind of social space with many webs of trust

First of all thank you for your post, it’s very thorough :)

While I want to reread it in case I missed any arguments for this, the main issue I usually have with these trust webs is the propensity for the creation of echo chambers: by relying only on those you trust and who they trust, you might filter out others opinions not because they are less valid, but because you disagree on some fundamental axioms. Have you given any thought on how to avoid echo chambers in these webs of trust?

Best, Miguel

Allowing Exploitability in Game Theory

If Tim tells the truth with probability $p$, you simply get that you should guess what he said if $p<\frac{1}{1000000}$, and $p>\frac{1}{1000000}$. For Tim the optimal choice is to have $p=\frac{1}{1000000}$ in order not to give you any information: Anything else is playing on psychology and human biases, which exist in reality but trying to play a "perfect" game by assuming your opponent is not also leaves you vulnerable to exploitability, as you mentioned.

It seems you are trying to get a deeper understanding of human fallibility rather than playing optimal games. Have I misunderstood it?

A method for fair bargaining over odds in 2 player bets!

Lovely idea.

Minor point: it feels to me the average bet isn’t the usual average but instead the harmonic mean of all bets taken. The difference might be small and more importantly there’s no reason why the arithmetic average is fairer than the harmonic average, but it was just a small thing I noticed 😜

Constructing Goodhart

Note: The LaTeX is not rendering properly on this reply. Does anyone know what the reason could be?

I chose because the optimal point in that case is the set of integers , but the argument holds for any positive real constant, and by using either equality, less than or not greater than.

There is one thing we assumed which is that, given the utility function , our proxy utility function is .This is not necessarily obvious, and even more so if we think of more convoluted utility functions: if our utility was given by , what would be our proxy when we only know ?

To answer this question generally my first thought would be to build a function that maps a vector space , a utility function , the manifold S of possible points and a map from those points to a filtration that tells us the information we have available when at point to a new utility function .

However this full generality seems a lot harder to describe.

Best, Miguel

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