It means exactly what it says: asset prices reflect all available information. Not sure exactly what you’re asking, but that alone is a revelatory and counterintuitive idea.
Richard Meadows
Karma: 605
But … this is nuts, right? It makes sense that a pandemic would make a videoconferencing company more valuable. It doesn’t make sense for a completely unrelated company that may not have actually existed since 2015 to become more valuable because it happens to have a similar name as a videoconferencing company.
Seconding the call to check out Matt Levine’s column, which has taught me that this kind of weirdness makes perfect sense, and is entirely consistent with EMH. If we have evidence that people often make these kind of blunders, and will continue to do so in future—another common one is KO (Coca-Cola Company) vs COKE (a bottler and distributor)—then even a totally bogus company really is ‘valuable’, in a very stupid but fundamentally accurate sense.
In short: the fact that people don’t read tickers carefully is part of the information that markets are constantly aggregating.
Levine:
To stylize the situation, you can think of ZOOM as sort of a dormant corporate shell that owns one asset, the ZOOM ticker. It owns that asset more or less by accident, and it is not ownership in the traditional sense; stock exchanges assign tickers, and ZOOM can’t just go and sell its ticker. But still every now and then the ZOOM ticker becomes a valuable asset and starts generating revenue. In good-for-ZM times, you can make a couple of million dollars a day selling ZOOM, which I suspect—again, they don’t file financials—is more than ZOOM can make selling mobile-phone components.
Good examples. I’m gonna address this somewhat in the next post—premature optimisation seems like the bigger problem, but there are also relatively stable domains in which it makes sense to switch from exploring to exploiting as early in the piece as possible.
As you point out, the strategy hinges on the stability of the ground, which in turn hinges on the ability to determine said stability. I think there are some OK heuristics for this, although they mostly just look like asking ‘what domain of life does this decision fall under?’
Yeah the comparison would work better with a fruit that hasn’t been selectively bred—maybe jackfruit, or blueberries? Quick googling suggests it’s really hard to find a fruit in which the sweetness signal hasn’t already been distorted.
Thanks for taking the time to say so! It takes a fair amount of effort to bash the writing into shape, so it’s really nice to know it doesn’t go unnoticed.
The Embarrassing Problem of Premature Exploitation
I am curious about this. It’s my impression that assets tend to become more correlated in a downturn. I’m not sure how much this, or the presence of fat tails, affects things, but their back test on at least three different countries’ data mitigates my concern somewhat.
(I don’t know how it applies to this model, but...) price movements are not normally distributed, and any model that assumes they are carries a major risk of blowing up. For example: during the financial crisis Goldman Sachs chief financial officer David Viniar infamously told the Financial Times “we were seeing things that were 25-standard deviation moves, several days in a row.”
What are the chances that a 25-sigma event strikes your investment portfolio?
We should expect a 4σ event to happen twice in our lifetime. A 5σ event occurs about every 5000 years, or once since the beginning of recorded history. A 6σ event might have happened roughly twice in the millions of years since homo sapiens branched off from the other apes. A 7σ event comes along every billion years or so, or four times since our planet coalesced out of a cloud of interstellar dust. We pass the Big Bang somewhere around the 8σ mark. At 20σ, the number of years we’d have to wait is ~10x higher than the number of particles in the universe, etc.
(which is to say, Goldman and friends’ models were disastrously, absurdly, cosmologically wrong.)
AFAIK Benoit Mandelbrot was the first to start warning people about this, and his PhD student Eugene Fama wrote his thesis on it...back in 1965! Which gives you a sense of how crazy it is that people would still try to apply normal distributions to financial markets.
Mandelbrot’s book The Misbehaviour of Markets is worth a read. I’ve also written a summary of his ideas here, in the context of stress-testing the assumptions of the ‘early retirement’ movement.
I’ve been meaning to come back to this post to say thanks.
Before reading your post, it had literally never occurred to me to try decaf. I guess I thought it would be gross or pointless (to the extent I thought of it at all).
In the last two months, I’ve reduced my caffeine consumption by ~50%, while simultaneously increasing my total coffee consumption by about the same. This is basically the dream situation. I also noticed that most of the time, I don’t really care whether it’s a carefully prepared brew of the good stuff—I just want to sip on a cup of familiar-tasting hot liquid.
So, thanks for the suggestion!
Holy crap, I just noticed that most of the latest Fitbit models (including mine) have a built-in pulse oximeter!
This would presumably make it even easier to quickly map outbreaks at the population level, in the way discussed in the Lancet article (leaving aside privacy issues).
At the individual level, unfortunately Fitbit won’t give me disaggregated data or a percentage reading. It only shows a graph of ‘high’ and ‘low’ variations in blood oxygen overnight, which I have no idea how to interpret. I believe this is due to FDA restrictions.
here’s an example (not mine):
EDIT: can’t figure out how to make image non-obnoxiously enormous, here’s a link instead.
Does anyone know:
a) how accurate is a Fitbit pulse oximeter likely to be, compared to a dedicated device?
b) is there a way to access the data directly, and get a percentage reading?
c) is the ‘high’ and ‘low’ variations overnight in any way useful?
I love MMM but he dun goofed on this one. From his post:
Some people are just prone to this type of thinking, and I even have a few in my own life. They have warned me to gather “at least a few months worth” of nonperishable food in my pantry...
This is some of the juiciest low-hanging fruit anyone could pluck! Assuming you’re going to use the food anyway, it is a zero-cost option that potentially makes a huge difference! And doing this as far in advance as possibly—rather than at the last minute, when people receive the officially-sanctioned ‘licence’ to panic—also helps to flatten the demand curve, and keep shelves fully stocked.
Cool, thanks. Still seems v. inconclusive… if anyone has more info, please chime in on that thread!
I am suspicious of the general advice against non-frontline health workers using masks (i.e. that anything short of a properly-fitted N95 mask is not only useless, but possibly does more harm than good). This air filter company claims that not only are masks a lot better than nothing; even home-made masks bodged out of cotton t-shirts or pillowcases catch 50-60% of virus-sized particles. Or as Naval suggested on Twitter, “billions of Asians aren’t wrong.”
I don’t know whether this is correct, but am leaning towards wearing a mask in public (I have a cloth cycling mask with insertable filters, so I’m not keeping them from medical professionals). Has anyone looked into this?
Slightly meta: I’d love to see more LW posts along these lines! It wasn’t until reading Sarah’s post that I even realised that aesthetics matter; I’ve been thinking about it ever since, and I’d nominate it for the review if I could.
A common criticism of rationality/LW is that it is an aesthetic-based identity movement. I think this is true, but not necessarily a bad thing. Paul Graham’s advice makes sense for politics, but he overstated the case: in my experience, ‘trying on’ new identities is a much better strategy for nudging the elephant in a desirable direction than attempting to convince it through reasoned argument.
I’ve noticed that some of the most useful identities to adopt are based around beauty/aesthetics (or screening out ‘ugliness’). A simple example: I used to feel a tiny bit embarrassed for being so drawn to minimalism, as a lifestyle and as a design philosophy. The severe white apartments and Swedish furniture etc seem so masturbatory, but… I kind of like that sort of thing!
Now I notice that reducing visual clutter has a surprisingly large effect on my mood and productivity[1], and also reflects values that are important to me (frugality, conscious consumerism). Aesthetics are never entirely divorced from underlying value systems, so it makes sense that values shape your sense of style. The weird part is that it goes both ways: you can also create or adopt aesthetics that nudge your underlying value system!
I don’t know if this strays into Dark Arts territory or whatever, but my wild hare-brained speculation is that playing with embodiment, identity, aesthetics, and other bottom-up cues that speak directly to the elephant might generate some interesting new breakthroughs in rationality (or post-rationality, or whatever you want to call it).
[1] Related: the entire field of environmental psychology, the extended mind thesis, JBP’s ‘clean your room’ schtick.
Thanks for taking the time to delve into this!
You note that expected utility with a risk-averse utility function is sufficient to make appropriate choices [in those particular scenarios].
This is a slight tangent, but I’m curious to what extent you think people actually follow something that approximates this utility function in real life? It seems like some gamblers instinctively use a strategy of this nature (e.g. playing with house money) or explicitly run the numbers (e.g. the Kelly criterion). And I doubt that anyone is dumb enough to keep betting their entire bankroll on a positive EV bet until they inevitably go bust.
But in other cases (like retirement planning, as you mentioned) a lot of people really do seem to make the mistake of relying on ensemble-average probabilities. Some of them will get burned, with much more serious consequences than merely making a silly bet at the casino.
I guess what I’m asking is: even if Peters et al are wrong about expected utility, do you think they’re right about the dangers of failing to understand ergodicity?
neat! thanks.
Question/feature request: does cross-posting automatically add a canonical URL element pointing to the original content? If not, would it be possible to do so? (Google doesn’t necessarily penalise duplicate content, but it does effect search rankings etc.)
Not the OP, but as someone who uses both: in my mind, they’re categorically different. Anki is for memorisation of discrete chunks of knowledge, for rote responses (i.e. deliberately Cached Thoughts), and for periodic reminders of things.
Zettelkasten helps with information retention too, but that’s mostly a happy side-effect of the desired goal, which (for me) is synthesis. Every time I input a new chunk of knowledge, I have to decide where I should ‘hang’ it in my existing graph, what it rhymes with, whether it creates dissonance, and how it might be useful to current or future projects.
Once it’s hanging in the lattice somewhere, I can reference and remix it as often as I want, and effectively have a bunch of building blocks ready and waiting to stack together for writing projects or problem-solving. It’s fine if I can’t remember most of this stuff in detail; it’s much more of an ‘exo-brain’ than Anki, IMO.
Excellent write-up!
Anecdatum: I got into Zettelkasten before I knew what it was called after reading a post by Ryan Holiday circa 2013 (he recommends physical cards and slip boxes, too). It’s profoundly improved my writing, my ability to retain information, and synthesis of new ideas, even though I was doing it ‘wrong’ or sub-optimally most of that time.
In terms of systems: I always thought using paper index cards was bonkers, given we have these newfangled things called ‘computers’, but your post makes a much more compelling case than anything else I’ve read (including the Smart Notes book, which is very good). So I’m pretty curious to give it a try.
My only major reservation is around portability and security. At this point, my (digital) slip-box is literally the single most valuable thing I own. I know Ryan Holiday uses fireproof safes etc, but it seems like it would get pretty cumbersome, especially once you have tens of thousands of notes.
I’ve been helping Conor and Josh out with Roam because I’m excited about the power-user features, but I’m pretty confident that any practice of this nature would be beneficial to students, researchers, and writers. Prior to Roam, I was using a mixture of Google Docs, Evernote, etc, which wasn’t optimal, but still worked OK.
An important point you touched on which is worth stressing: the benefits of Zettelkasten accrue in a non-linear fashion over time, as the graph becomes more connected. So even if you ‘get it’ as soon as you start playing around with the cards, you could reasonably expect to reap much greater gains over a timespan of months or years (at least, that’s my experience!).
For simple nouns and verbs, you could use pictures as the prompt? I find this really helpful for building memorable associations, and helps me ‘taboo’ English on the flashcards.
Another suggestion is to add some kind of personal connection or mnemonic device. I haven’t used this myself, but it’s recommended in a book called Fluent Forever, which is all about learning languages through spaced repetition.
The onus is on the person making an extraordinary claim to provide the evidence, not the other way around.
If you think you’ve found an exploit in the market you should absolutely start from the position that you’re wrong, because… you almost certainly are. This is how anyone ought to behave purely out of naked self-interest—it has nothing to do with confirmation bias.