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What Does "Signalling" Mean?

eg, birds warning each other that there is a snake in the grass

Wait, this is not the example in the Wikipedia page, which is actually "When an alert bird deliberately gives a warning call to a stalking predator and the predator gives up the hunt, the sound is a signal."

I found this page which gives a good definition of signaling:

Signalling theory (ST) tackles a fundamental problem of communication: how can an agent, the receiver, establish whether another agent, the signaller, is telling or otherwise conveying the truth about a state of affairs or event which the signaller might have an interest to misrepresent? And, conversely, how can the signaller persuade the receiver that he is telling the truth, whether he is telling it or not? This two-pronged question potentially arises every time the interests between signallers and receivers diverge or collide and there is asymmetric information, namely the signaller is in a better position to know the truth than the receiver is. ST, which is only a little more than 30 years old, has now become a branch of game theory. In economics it was introduced by Michael Spence in 1973. In biology it took off not so much when Amotz Zahavi first introduced the idea in 1975, but since, in 1990, Alan Grafen proved formally that ‘honest’ signals can be an evolutionarily stable strategy.

Typical situations that signalling theory covers have two key features:

  • there is some action the receiver can do which benefits a signaller, whether or not he has the quality k, for instance marry him, but
  • this action benefits the receiver if and only if the signaller truly has k, and otherwise hurts her — for instance, marry an unfaithful man.

So in the alarm example, the quality k is whether the bird has really detected the predator, and the "action" is for the predator to give up the hunt. Later in the Wikipedia article, it says "For example, if foraging birds are safer when they give a warning call, cheats could give false alarms at random, just in case a predator is nearby."

Open & Welcome Thread - September 2020

Did it make you or your classmates doubt your own morality a bit? If not, maybe it needs to be taught along with the outside view and/or the teacher needs to explicitly talk about how the lesson from history is that we shouldn't be so certain about our morality...

Open & Welcome Thread - September 2020

I wonder if anyone has ever written a manifesto for moral uncertainty, maybe something along the lines of:

We hold these truths to be self-evident, that we are very confused about morality. That these confusions should be properly reflected as high degrees of uncertainty in our moral epistemic states. That our moral uncertainties should inform our individual and collective actions, plans, and policies. ... That we are also very confused about normativity and meta-ethics and don't really know what we mean by "should", including in this document...

Yeah, I realize this would be a hard sell in today's environment, but what if building Friendly AI requires a civilization sane enough to consider this common sense? I mean, for example, how can it be a good idea to gift a super-powerful "corrigible" or "obedient" AI to a civilization full of people with crazy amounts of moral certainty?

Open & Welcome Thread - September 2020

I don't recall learning in school that most of "the bad guys" from history (e.g., Communists, Nazis) thought of themselves as "the good guys" fighting for important moral reasons. It seems like teaching that fact, and instilling moral uncertainty in general into children, would prevent a lot of serious man-made problems (including problems we're seeing play out today). So why hasn't civilization figured that out already? Or is not teaching moral uncertainty some kind of Chesterton's Fence, and teaching it widely would make the world even worse off on expectation?

"The Holy Grail" of portfolio management

I have changed my mind about shorting stocks and especially call options. The problem is that sometimes a stock I shorted rises sharply on significant or insignificant news (which I didn't notice myself until the price already shot up a lot), and I get very worried that maybe it's the next Tesla and will keep rising and wipe out all or a significant fraction of my net worth, and so I panic buy the stock/options to close out the short position. Then a few days later people realize that the news wasn't that significant and the stock falls again. Other than really exceptional circumstances like the recent Kodak situation, perhaps it's best to leave shorting to professionals who can follow the news constantly and have a large enough equity cushion that they can ride out any short-term spikes in the stock price. I think my short portfolio is still showing an overall profit, but it's just not worth the psychological stress involved and the constant attention that has to be paid.

What should we do once infected with COVID-19?

I haven't been following developments around hydroxychloroquine very closely. My impression from incidental sources is that it's probably worth taking along with zinc, at least early in the course of a COVID-19 infection. I'll probably do a lot more research if and when I actually need to make a decision.

Tips/tricks/notes on optimizing investments

With a little patience and a limit order, you can usually get the midpoint between bid and ask, or close to it.

How do you do this when the market is moving constantly and so you'd have to constantly update your limit price to keep it at the midpoint? I've been doing this manually and unless the market is just not moving for some reason, I often end up chasing the market with my limit price, and then quickly get a fill (probably not that close to the midpoint although it's hard to tell) when the market turns around and moves into my limit order.

Tips/tricks/notes on optimizing investments

Good points.

And in a margin account, a broker can typically sell any of your positions (because they’re collateral) to protect its interests, even part of a spread, which can again expose you to delta risk if they don’t close your whole box at once.

I guess technically it's actually "expose you to gamma risk" because the broker would only close one of your positions if doing so reduced margin requirements / increased buying power, and assuming you're overall long the broad market, that can only happen if doing so decreases overall delta risk. Another way to think about it is that as far as delta risk, it's the same whether they sell one of your options that long the SPX or sell one of your index ETFs. Hopefully they'll be smart enough to sell your index ETFs because that's much more liquid?

The above is purely theoretical though. Has this actually happened to you, or do you know a case of it actually happening?

Tips/tricks/notes on optimizing investments

Another way to get leverage in a retirement account is with leveraged ETFs.

Yeah, and another way I realized after I wrote my comment is that you can also buy stock index futures contracts in IRA accounts, and I forgot exactly but I think you can get around 5x max leverage that way. Compared to leveraged ETFs this should incur less expense cost and allow you to choose your own rebalancing schedule for a better tradeoff between risk and trading costs. (Of course at the cost of having to do your own rebalancing.)

Also after writing my comment, I realized that with leveraged CEFs there may be a risk that they deleverage quickly on the way down (because they're forced by law or regulation to not exceed some maximum leverage) and then releverage slowly on the way up (because they're afraid of being forced to deleverage again) which means they could systematically capture more downside than upside. Should probably research this more before putting a lot of money into leveraged CEFs.

I’m still interested in these CEFs for diversification though, how do you find these?

SeekingAlpha.com has a CEF section if you want to look for other people's recommendations. CEFAnalyzer.com and CEFConnect.com have screeners you can use to find what you want on your own.

Tips/tricks/notes on optimizing investments
  1. Look for sectors that crash more than they should in a market downturn, due to correlated forced deleveraging, and load up on them when that happens. The energy midstream/MLP sector is a good recent example, because a lot of those stocks were held in closed end funds in part for tax reasons, those funds all tend to use leverage, and because they have a maximum leverage ratio that they're not allowed to exceed, they were forced to deleverage during the March crash, which caused more price drops and more deleveraging, and so on.
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