Here’s what I currently suspect, but I don’t have the present of mind to be confident in this assessment. I’m particularly vulnerable to gambling and sexual and aesthetic impulses like compulsively listening to music, or staring at art. For instance, just I recently signed up for an international share trading account because I intended to bet about 1⁄4 of my assets (yes, I still am not convinced by either the kelly criterion nor modern portfolio theory since no free lunches!) on this one stock where I had very little knowledge of. Luckly for me, it takes 5 days to process the int. trading account application and I found it hard to get my mind of the stock so I started looking up more in depth information and realised it’s not the undervalued, cheap, super awesome stock I thought it would be.
When I’m with people, I also tend to be less goal-oriented and give into impulses more readily. Another consideration for me is whether these impulses are the same class as say the surgical impulse, since that sounds more delusional than impulsive. None of these categorisations are clear. You’ve inspired me to sit down properly in the near future and map out different behaviours then try to summarise underling commonalities and potential control measures note to self.
The times when irrational impulse fades, in contrast, is times when I can use strict decision theoretic tools to explain to myself why it’s irrational. That’s why LessWrong is my scaffold out of insanity. If I can analyse a particular scenario and see that one particular choice dominates another, or I can model a particular impulse as my tendency to compensate for a sunk cost when I ought to be thinking at the margin, for instance, I can grit my way out of it.
Perhaps things are hardest when I’m dealing with extremely high subjective value options (e.g. jerking off to porn when I’m really horny), or betting a whole lot of money, I get carried away. Temporally, I discount at several orders of magnitude above hyperbolic, perhaps. But honestly, I don’t really know. I’m just chucking intuitions into this comment box. I’ll probably add to this answer at some point for my own reference.
As an aside, I saw your comment this morning and was thinking about it in the shower. Recalling the ‘miracle question’ approach to problem solving made me feel empowered. Later, I listened to a song I hadn’t heard in a while just before going into the shower and realised that it would motivate me to linger less in there cause I anticipated the joy of continuing to listen to it after I got out. Then I thought about how I could suggest that approach to others who had trouble limiting their shower time, and grateful that there are places that I could share that information. At that point, I realised that my mood and anxiety had lifted a bit which I attributed to that sequence of events, cascading from you. I suspect increased self-trust in my ability to handle problems is at the heart of this (so I’ll add that to my mental health checklist in the other thread sometime). So thank you! I’m going to be investigating how I can replicate this again.I did mess it up a bit by feeling very self-congratulatory then rumminating for a while and ultimately not getting out of the shower as promptly as perhaps possible, but hopefully that wouldn’t occur in the future.
I could enunciate it, but wikipedia has an explanation. I honestly don’t understand the Wikipedia explanation, but I would expect that it explains my intuitions in a more technical way than I do. If you have a specific point of disagreement, I’m happy to map out my logic and explore the evidence with you. I vaguely remember reading an article on the topic, too.
Optimal bet sizing and expected utility
I’d expect a theorem to maximise utility via diversification would entail some prediction that the utility of subsequent/other/more investments will be greater than the utility of the first/reference investment. If that isn’t the case, it will lower the average expected utility of one’s portfolio. I don’t see the rationale behind the Kelly criterion as it related to any of my existing knowledge about maximising utility.
MPT: How can I have a specific point of disagreement with something as nonspecific as “I am not convinced by modern portfolio theory because no free lunches”? The particular but of the Wikipedia article you linked to actually says (correctly, so far as I can see) that minimising unsystematic risk through diversification (as indicated by MPT) is “one of the few free lunches available” because unsystematic risk isn’t associated with higher expected returns.
Kelley: Actually most of the paragraph ostensibly about this seems to be still about MPT. Anyway, I’m afraid your expectation is just wrong. Diversifying can be a win even if what you diversify with is (on its own) lower-utility. Suppose someone offers you a bet that will pay you $1M if some event E occurs and cost you $900k if not, and suppose you reckon E very close to 50% likely. You probably don’t take that bet because losing $900k would hurt you more than gaining $1M would help you. Now someone else offers you another bet, where you stand to gain $950k and lose $900k. Clearly you don’t take that bet either, and clearly it’s whose than the first. But now suppose the first bet party’s you when E happens and the second very party’s you when not-E happens. The two bets together are a guaranteed >=$50k gain; provided you trust your counterparties you should absolutely take them. So aging the second bet helped you even though on its own it was worse than the first.
Kelley, really: again I’m not sure what I can say to something as unspecific as “I don’t see the rationale”. I suppose I can briefly explain the rationale, so here goes. 1: if the utility you get from your money is proportional to log (amount), which may or may not be roughly true for you (I think it is for me) then placing a Kelley-sized bet is higher expected-utility than placing a bet of any other size at the same odds. (Assuming your utility I’d unaffected by the event the bet I’d on other than through its effect on your wealth.) 2: your long-term wealth is maximized (with high probability, not just in expectation) by making all your bets Kelley-sized, so if your utility is strongly affected by your wealth in the long term and indifferent to the short term then (almost regardless of exactly how utility depends on long-term wealth) you should place Kelley-sized bets.
Most people are more risk-averse than utility proportional to log wealth would justify. If you are, then your bets should be smaller than Kelley. Most people care about the short term as well as the long. If you do, then again your bets should generally be smaller than Kelley.
[EDITED some time after writing when I noticed a bunch of mobile-device autocorrect errors. Sorry.]
Voted up for honesty.
Do you know anything about the difference between the times when your irrational impulses fade and the times when you act on them?
Ahh, the miracle question. I had forgotten about those. Thank you for asking.
My answer is currently no.
Here’s what I currently suspect, but I don’t have the present of mind to be confident in this assessment. I’m particularly vulnerable to gambling and sexual and aesthetic impulses like compulsively listening to music, or staring at art. For instance, just I recently signed up for an international share trading account because I intended to bet about 1⁄4 of my assets (yes, I still am not convinced by either the kelly criterion nor modern portfolio theory since no free lunches!) on this one stock where I had very little knowledge of. Luckly for me, it takes 5 days to process the int. trading account application and I found it hard to get my mind of the stock so I started looking up more in depth information and realised it’s not the undervalued, cheap, super awesome stock I thought it would be.
When I’m with people, I also tend to be less goal-oriented and give into impulses more readily. Another consideration for me is whether these impulses are the same class as say the surgical impulse, since that sounds more delusional than impulsive. None of these categorisations are clear. You’ve inspired me to sit down properly in the near future and map out different behaviours then try to summarise underling commonalities and potential control measures note to self.
The times when irrational impulse fades, in contrast, is times when I can use strict decision theoretic tools to explain to myself why it’s irrational. That’s why LessWrong is my scaffold out of insanity. If I can analyse a particular scenario and see that one particular choice dominates another, or I can model a particular impulse as my tendency to compensate for a sunk cost when I ought to be thinking at the margin, for instance, I can grit my way out of it.
Perhaps things are hardest when I’m dealing with extremely high subjective value options (e.g. jerking off to porn when I’m really horny), or betting a whole lot of money, I get carried away. Temporally, I discount at several orders of magnitude above hyperbolic, perhaps. But honestly, I don’t really know. I’m just chucking intuitions into this comment box. I’ll probably add to this answer at some point for my own reference.
As an aside, I saw your comment this morning and was thinking about it in the shower. Recalling the ‘miracle question’ approach to problem solving made me feel empowered. Later, I listened to a song I hadn’t heard in a while just before going into the shower and realised that it would motivate me to linger less in there cause I anticipated the joy of continuing to listen to it after I got out. Then I thought about how I could suggest that approach to others who had trouble limiting their shower time, and grateful that there are places that I could share that information. At that point, I realised that my mood and anxiety had lifted a bit which I attributed to that sequence of events, cascading from you. I suspect increased self-trust in my ability to handle problems is at the heart of this (so I’ll add that to my mental health checklist in the other thread sometime). So thank you! I’m going to be investigating how I can replicate this again.I did mess it up a bit by feeling very self-congratulatory then rumminating for a while and ultimately not getting out of the shower as promptly as perhaps possible, but hopefully that wouldn’t occur in the future.
How do you get from “no free lunches” to disagreement with either Kelley or portfolio theory?
No free lunches & MPT
I could enunciate it, but wikipedia has an explanation. I honestly don’t understand the Wikipedia explanation, but I would expect that it explains my intuitions in a more technical way than I do. If you have a specific point of disagreement, I’m happy to map out my logic and explore the evidence with you. I vaguely remember reading an article on the topic, too.
Optimal bet sizing and expected utility
I’d expect a theorem to maximise utility via diversification would entail some prediction that the utility of subsequent/other/more investments will be greater than the utility of the first/reference investment. If that isn’t the case, it will lower the average expected utility of one’s portfolio. I don’t see the rationale behind the Kelly criterion as it related to any of my existing knowledge about maximising utility.
MPT: How can I have a specific point of disagreement with something as nonspecific as “I am not convinced by modern portfolio theory because no free lunches”? The particular but of the Wikipedia article you linked to actually says (correctly, so far as I can see) that minimising unsystematic risk through diversification (as indicated by MPT) is “one of the few free lunches available” because unsystematic risk isn’t associated with higher expected returns.
Kelley: Actually most of the paragraph ostensibly about this seems to be still about MPT. Anyway, I’m afraid your expectation is just wrong. Diversifying can be a win even if what you diversify with is (on its own) lower-utility. Suppose someone offers you a bet that will pay you $1M if some event E occurs and cost you $900k if not, and suppose you reckon E very close to 50% likely. You probably don’t take that bet because losing $900k would hurt you more than gaining $1M would help you. Now someone else offers you another bet, where you stand to gain $950k and lose $900k. Clearly you don’t take that bet either, and clearly it’s whose than the first. But now suppose the first bet party’s you when E happens and the second very party’s you when not-E happens. The two bets together are a guaranteed >=$50k gain; provided you trust your counterparties you should absolutely take them. So aging the second bet helped you even though on its own it was worse than the first.
Kelley, really: again I’m not sure what I can say to something as unspecific as “I don’t see the rationale”. I suppose I can briefly explain the rationale, so here goes. 1: if the utility you get from your money is proportional to log (amount), which may or may not be roughly true for you (I think it is for me) then placing a Kelley-sized bet is higher expected-utility than placing a bet of any other size at the same odds. (Assuming your utility I’d unaffected by the event the bet I’d on other than through its effect on your wealth.) 2: your long-term wealth is maximized (with high probability, not just in expectation) by making all your bets Kelley-sized, so if your utility is strongly affected by your wealth in the long term and indifferent to the short term then (almost regardless of exactly how utility depends on long-term wealth) you should place Kelley-sized bets.
Most people are more risk-averse than utility proportional to log wealth would justify. If you are, then your bets should be smaller than Kelley. Most people care about the short term as well as the long. If you do, then again your bets should generally be smaller than Kelley.
[EDITED some time after writing when I noticed a bunch of mobile-device autocorrect errors. Sorry.]