It’s a style guide. It’s supposed to be ruthlessly dictatorial. I wrote it for myself and co-workers. Some local Less Wrongers enjoyed it and encouraged me to post, so I did. I thought it would be appreciated. Oh well.
b1shop
Karma: 349
Statistical point: the variance of forecast error for correctly specified simple regression problems is equal to:
Sigma^2(1 + 1/N + (x_o—x_mean)^2 / (Sigma ( x_i—x_mean) ^2))
So forecast error increases as x_o moves away from x_mean, especially when the variance of x is low by comparison.
Edit: Sub notation was apparently indenting things. I’m going to take a picture from my stats book tonight. Should be more readable.
Edit: Here’s a more readable link. http://i.imgur.com/pu8lg0Wh.jpg
“Instead, every time you arrive at a decision point, evaluate what action to take by checking the utility of your constituents from each action. I propose that we call this “delta utilitarianism”, because it isn’t looking at the total or the average, just at the delta in utility from each action.”
Perhaps we could call it “marginal utility.”
All, Isaac_Davis, dvasya and myself had a pleasant chat at Ikea. Looking forward to the next meetup. Hopefully we’ll have enough people next time to play paranoid debating.
Unless I’m missing something, it hasn’t occurred yet.
I’ll likely be there. Looking forward to it.
I’m not sure that’s true. From the original LW post on ask vs. guess:
Apparently East Asia is more “guess-based” than the US.
I’ve also heard that Russia is more ask-based, and the U.S. is somewhere in the middle with stereotypical differences between urban and rural environments.
A lot of the comments are ignoring the fact that this game has multiple equilibria. Saying “humans evolved into X, so therefore there must be a logic to X” makes as much sense as saying “Americans drive on the right side of the road, so therefore there must be a logic to using the right side of the road.”
Also, when traveling outside the monastery, our first priority should be to figure out how the other people drive.
If you’re occasionally dishonest and tell people you want things you don’t actually care about—like their comfort or convenience—they’ll learn not to trust you, and the inherent freedom of the system will be lost.
Maybe I’m only thinking of trivial examples, but I haven’t noticed this. If I have guests over at my house, of course I care about their convenience, as I want the social capital that comes with throwing a good party. I want my co-workers slaving at the same project as me to be comfortable as it will make them more productive. There are tons of truly selfish reasons to be superficially selfless, and I don’t think most have an aversion to superficial selflessness.
Perhaps a major exception should be made for early-stage romantic interactions.
Thanks for picking cooperate.
A comment on the prize for those who’ve already taken it:
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Sorry, haven’t logged in in a while.
I’m only an econ undergrad, so I’m not a drop-dead expert in economics. However, I work as a business valuator by day, so I like to think I know a thing or two about evaluating the profitability of projects.
There’s a lot of Rothbardian baggage about money I associate with the theory. That may or may not be a separate conversation. Don’t even bother trying to argue against my points here if you believe fractional reserve banking is bad, because we don’t agree on enough to have a productive conversation about this issue. We should instead focus on money and FRB first.
The ABCT story is about excessively low interest rates causing firms to be too farsighted in their planning. If rates increase, then projects that were profitable are no longer profitable, and the economy contracts.
Here’s a few reasons why I don’t like this story:
It requires a massive level of incompetence from entrepreneurs. Arguably the most popular business valuation resource for estimating costs of capital, Duff and Phelps, has a report on adjusting risk free rates for the expected future path. If businesses are unstable because they are not robust to 5% swings in interest rates, then they will likely be unstable due to other shocks as well. ABCT requires them to fall for the same trap over and over again.
It’s drastically asymmetric. ABCT only focuses on distortions caused by too much money being printed. What about the distortions caused by too little money being printed? Modern cases show this is far more damaging. The transmission mechanism isn’t based on interest rates, but it still matters a lot.
The case for expansionary policy causing bubbles is not as strong as many think. NGDP growth during the worst of the housing bubble was only 5%. That’s below average growth over the past few decades, which were a remarkably stable time. Yes, interest rates were low, but that had more to do with an influx of foreign savers than Fed policy. (Aside: Interest rates are a bad indicator of monetary policy. High interest rates during German hyperinflation is a great example.)
As far as the late 90′s go, yes, lots of bad investments were made. I think this was caused not by bad monetary economics but by irrational investor beliefs. I imagine people would still have invested in Pets.com regardless of Fed action or inaction. Monetary policy might explain excessive valuations everywhere, but it doesn’t explain excessive, localized valuations. Additionally, interest rates are mostly irrelevant to the tech sector where financing is usually based on equity rather than debt.
If the ABCT policy is true, we’d expect to see a bust in long-term schemes during recessions and a boom in short-term schemes. Instead, we see a bust in both.
ABCT seems married to the idea that expansionary monetary policy is “unsustainable” and interest rates must return to “natural” levels. This is nonsense. The Fed has been performing QE for years, and it’s been tremendously helpful by most accounts. Fed “inaction” is still action.
There’s not much empirical support for the theory.
Edit: Broken link.
This was a great post. I’ll use it to introduce people to key concepts in the future.
Many of these focus on the posterior’s first moment. For continuous distributions, the higher moments matter, too. A test that I expected to lower the variance in my posterior would be considered “confirming” as I use the word. I can’t lower the variance before the test is done because it’s still possible the mean will change.
I’m downvoting this quote. Read at a basic level, it supports a particular economic theory rather than a larger point of rationality.
For the record, the Austrian Business Cycle Theory is not generally accepted by mainstream economists. This isn’t the place to discuss why, and it isn’t the place to give ABCT the illusion of a “rational” stamp of approval.
This was an interesting post.
A potential extension of this problem is to worry about what happens when agents can lie about their utility function. In business this isn’t usually a problem, since everyone is trying to maximize profit, but it often is in social interactions.
I’m somewhat puzzled by the notion throughout this thread that you should filter for people with lots of free time. Is this the same community that’s interested in Soylent?
I know nothing about tax law, so this is an important disclaimer. I won’t end up trying this.
To spell out the idea, one could have their Roth IRA and their investment account at separate institutions. The Roth IRA broker would simply see a loss (gain) and the investment account broker would simply see a gain (loss). Each institutions reporting these changes to the IRS is the benefit of the finagling.
Disclaimer: I am not a lawyer, accountant or investment advisor. I have not tried this, and I’m currently trying to think of reasons why it won’t work.
How to Beat the Tax System:
Suppose one had an investment account and a Roth IRA. Suppose further the investment account had a realized gain for the year. From the investment account, one could sell-to-open a way out-of-the-money cash-secured put at a high limit that no one would buy. As long as you’re the only open interest, you could then buy your option in your other account. You’d in essence be swapping short-term gains for tax-free savings.
You’re hosed if another party rushed in to sell you the put at a lower price, but the savings could easily exceed the cost of commissions if the option is thinly traded enough. I suppose you could just take the market price on both sides, though, if you’re willing to repeat the process until the transition goes the “correct” way.
You can withdraw penalty-free from the Roth IRA when you buy your first house. Or, you could simply reverse the process as needed. This could be particularly helpful if one were having a bad year and had lost more than the maximum investment-losses deduction.
Any downsides to this bit of financial munchkin-ism? Does this constitute tax evasion? I imagine it wouldn’t be provable for anyone other than me (you’re welcome). Are there actually options that thinly-traded?
Really, anything that can fit in a twitter is unlikely to be useful.
72 characters.
In my experience, women enjoy the idea of coming first.