Is there no value in defending the definition of a word? Arbitrage originally meant expected profits with zero risk of loss. Now some people say they also want to use it to mean expected profits with non-zero risk of loss. Okay, then why not just say “expected profits” (or “edge” as traders would call it) since you’ve eliminated the distinction that makes the term meaningful in the first place? I mean, would you say that the AGI I’m building in my basement is “Friendly” just because I expect it to do good things, even though it also might paperclip the universe 2% of the time?
Pure arbitrage pretty much never exists. There is almost always non-zero risk of loss. Arbitrage transactions invariably have some execution risk, though with very liquid markets and electronic trading it may be arbitrarily small. Generally the liquid markets with the fastest trading are those that will offer the least arbitrage opportunities though so in reality greater profits almost always come at the cost of increased execution risk. It doesn’t seem a huge stretch to extend the concept to statistical arbitrage—you’re never really going from zero risk to risk, you’re just increasing from a very small risk to a larger risk and going from very reliable price correlations to less reliable ones.
There is value in clarifying which definition is being used. That is, I hope, what I’ve been doing here, in opposition to the notion that there is only one sense that can be used and so any clarification is nonsense.
And while strong arbitrage is nice in having 0 risk as opposed 0.1 risk or 0.11 risk, we experience no trouble in real life because some words can be made to overlap despite their average & typical uses. Expected profits or edges don’t necessarily cover the same mental ground; if I buy and hold indexes for 50 years, I might expect a profit, but few would call that arbitrage.
“The sense of a sentence—one would like to say—may, of course, leave this or that open, but the sentence must nevertheless have a definite sense. An indefinite sense—that would really not be a sense at all. - This is like: An indefinite boundary is not really a boundary at all. Here one thinks perhaps: if I say ‘I have locked the man up fast in the room—there is only one door left open’ - then I simply haven’t locked him in at all; his being locked in is a sham. One would be inclined to say here: ‘You haven’t done anything at all’. An enclosure with a hole in it is as good as none. - But is that true?”
What you’re doing is purposefully diluting the word. “Arbitrage” as a word exists to talk about riskless profit. You’re trying to introduce risk to it, to what end?
You know, the first definition in the OED doesn’t even have anything to do with finance—it’s simply the decision of an arbitrator. The second is ‘exercise of individual judgement’. Only the third includes the commercial definition, and that (and its quotes from the 1800s on) speaks only of buying and selling in geographically disparate areas. Nothing about risk. Indeed, the 1882 quote goes ‘He cannot tell what the outcome will be… of this unfathomable arbitrage business.’
‘Arbitrage’ did not begin as the strong definition. It did not exist as finance at all. The strong definition is a 19th and 20th century technical addition to a word imported from the French. I am purposefully diluting it? How can I dilute something which was never pure to begin with?
Again, explain whether you are speaking descriptively or prescriptively when you say ‘arbitrage exists to talk about riskless profit’. If the former, you are manifestly wrong and have been wrong for the last 600 years according to the OED. If the latter, then why should we abandon all the other meanings?
You’re right—arbitrage as a word doesn’t exist to talk about riskless profit. Arbitrage as a financial term, however, exists to talk about riskless profit.
You’re right—arbitrage as a word doesn’t exist to talk about riskless profit. Arbitrage as a financial term, however, exists to talk about riskless profit.
It would seem that taw was using the more general meaning and not the financial term.
I mean, would you say that the AGI I’m building in my basement is “Friendly” just because I expect it to do good things, even though it also might paperclip the universe 2% of the time?
If that is a once off 2% chance of failure then I’ll go with it and call it Friendly Enough For Me. Come to think of it I may be tempted by 2% per 1,000 years.
Come to think of it I may be tempted by 2% per 1,000 years.
I’m virtually certain that you realize the implications; for instance, you’re saying you’re tempted by a 50% chance of paperclipping per 34,000 years. I’m less clear on how you could justify being tempted.
I’m virtually certain that you realize the implications; for instance, you’re saying you’re tempted by a 50% chance of paperclipping per 34,000 years. I’m less clear on how you could justify being tempted.
Start with assigning a very low probability on something better occurring. Then discount somewhat the extremely good options where you live billions of years, not valuing years on a linear scale. Then consider what you can do in 10,000 years with a super-intelligence backing you up. For example, it could build you a relativistic rocket and send you off fast enough that you are outside a future paper clipper’s future light cone. Possibly sending multiple copies of the human race out in various directions and with various planned durations of flight (given that you don’t know when Mostly Friendly is going to go nuts).
I haven’t done any maths on what the figures would need to be for me to actually choose that scenario. That’s why I say ‘may’. It is certainly worth considering seriously.
Is there no value in defending the definition of a word? Arbitrage originally meant expected profits with zero risk of loss. Now some people say they also want to use it to mean expected profits with non-zero risk of loss. Okay, then why not just say “expected profits” (or “edge” as traders would call it) since you’ve eliminated the distinction that makes the term meaningful in the first place? I mean, would you say that the AGI I’m building in my basement is “Friendly” just because I expect it to do good things, even though it also might paperclip the universe 2% of the time?
Pure arbitrage pretty much never exists. There is almost always non-zero risk of loss. Arbitrage transactions invariably have some execution risk, though with very liquid markets and electronic trading it may be arbitrarily small. Generally the liquid markets with the fastest trading are those that will offer the least arbitrage opportunities though so in reality greater profits almost always come at the cost of increased execution risk. It doesn’t seem a huge stretch to extend the concept to statistical arbitrage—you’re never really going from zero risk to risk, you’re just increasing from a very small risk to a larger risk and going from very reliable price correlations to less reliable ones.
There is value in clarifying which definition is being used. That is, I hope, what I’ve been doing here, in opposition to the notion that there is only one sense that can be used and so any clarification is nonsense.
And while strong arbitrage is nice in having 0 risk as opposed 0.1 risk or 0.11 risk, we experience no trouble in real life because some words can be made to overlap despite their average & typical uses. Expected profits or edges don’t necessarily cover the same mental ground; if I buy and hold indexes for 50 years, I might expect a profit, but few would call that arbitrage.
--Wittgenstein, Philosophical Investigations, 99
What you’re doing is purposefully diluting the word. “Arbitrage” as a word exists to talk about riskless profit. You’re trying to introduce risk to it, to what end?
You know, the first definition in the OED doesn’t even have anything to do with finance—it’s simply the decision of an arbitrator. The second is ‘exercise of individual judgement’. Only the third includes the commercial definition, and that (and its quotes from the 1800s on) speaks only of buying and selling in geographically disparate areas. Nothing about risk. Indeed, the 1882 quote goes ‘He cannot tell what the outcome will be… of this unfathomable arbitrage business.’
‘Arbitrage’ did not begin as the strong definition. It did not exist as finance at all. The strong definition is a 19th and 20th century technical addition to a word imported from the French. I am purposefully diluting it? How can I dilute something which was never pure to begin with?
Again, explain whether you are speaking descriptively or prescriptively when you say ‘arbitrage exists to talk about riskless profit’. If the former, you are manifestly wrong and have been wrong for the last 600 years according to the OED. If the latter, then why should we abandon all the other meanings?
You’re right—arbitrage as a word doesn’t exist to talk about riskless profit. Arbitrage as a financial term, however, exists to talk about riskless profit.
It would seem that taw was using the more general meaning and not the financial term.
If that is a once off 2% chance of failure then I’ll go with it and call it Friendly Enough For Me. Come to think of it I may be tempted by 2% per 1,000 years.
I’m virtually certain that you realize the implications; for instance, you’re saying you’re tempted by a 50% chance of paperclipping per 34,000 years. I’m less clear on how you could justify being tempted.
Start with assigning a very low probability on something better occurring. Then discount somewhat the extremely good options where you live billions of years, not valuing years on a linear scale. Then consider what you can do in 10,000 years with a super-intelligence backing you up. For example, it could build you a relativistic rocket and send you off fast enough that you are outside a future paper clipper’s future light cone. Possibly sending multiple copies of the human race out in various directions and with various planned durations of flight (given that you don’t know when Mostly Friendly is going to go nuts).
I haven’t done any maths on what the figures would need to be for me to actually choose that scenario. That’s why I say ‘may’. It is certainly worth considering seriously.
Good answer.