
Inadequacy and Modesty - JoshTriplett
https://www.lesserwrong.com/posts/zsG9yKcriht2doRhM/inadequacy-and-modesty
======
dsacco
Wow. The section beginning from _”If I had to name the single epistemic
feat...”_ and ending at _”...on modern-day Earth.”_ might be the most riveting
description of finance I’ve read in recent memory. If that series of bullet
points doesn’t grab someone’s interest and make them want to engage in the
robust hyper-competition of modern capitalism, I’m not sure anything will.

Really, that entire example of price discovery as a demonstrable core
competency and _focus_ of humanity is very interesting to think about. This is
a great (and cynical) observation, though it’s much more powerfully delivered
in the context of the article:

”Our civilization _cares_ about whether Microsoft stock will be priced at
$37.70 or $37.75 tomorrow afternoon.”

~~~
s_kilk
> ”Our civilization cares about whether Microsoft stock will be priced at
> $37.70 or $37.75 tomorrow afternoon.”

This is not a good thing. Vastly more effort is being poured into this than is
being dedicated to averting climate catastrophe.

In the future, this era will be looked back on as the pinnacle of the
grotesque irrationality and chaos of Capitalism, if there's anyone even left
to have such thoughts.

~~~
eru
Somewhat ironically, if you want less societal resources to be spend on price
discovery, you have to make price discovery easier. Ie unleash the full powers
of the market via unlimited short selling, exotic derivatives, elimination of
the sub penny rule
([https://www.chrisstucchio.com/blog/2012/hft_whats_broken.htm...](https://www.chrisstucchio.com/blog/2012/hft_whats_broken.html))
etc. If less effort can discover prices quicker, there will be less money to
be made total, and thus in equilibrium those bright PhDs will rather go and
help eg Google sell more ads.

~~~
manodocedoceu
Im not a believer in the efficient market hypothesis. Remember, it's a
hypothesis.

Also, The grand central station analogy is just that, an analogy.

Both of these dangerously oversimplify the phenomenon they try to describe.
Modern Markets are unfathomably complex systems.

The Efficient market hypothesis is useful as a tool in reaching approximate,
generalized, comprehension (ie: for lays and as a peripheral complement for
practictioners), but not at all useful in application (some wonderful
historical examples out there, study up!).

The fact is that price and markets are not mechanistic. Price has some
seemingly objective measures, but those are actually based on projections of
future value.

Price is based on collectively determined projections/belief of future value,
sure, but this talk of markets becoming more efficient is moot, as we are
seeing that, while reacting faster and in more iterations due to transaction
efficiency, those don't help us find a 'better' indexable measure of the
future value. Furthermore, transactuon costs have lowered, but it's arguable
that the diversity of perspectives governing price have been reduced quite
drastically.

1) unquestioning belief in efficient market hypothesis is a classic 'confuse
the word-concept rose with the actual rose' fallacy. It doesn't work in making
actual decisions.

2) price is a subjective gauge of expected future value. As we arent in the
future it's impossible to have a more efficient price, since there is no
objectivity with which to match.

3) price finding efficiency ≠ transaction efficiency

4) transaction efficiency has improved concurrently with the
hyperstandardization of perspective, method and hypercentralization of
participation, which has made price-finding of 'financial markets' much less
effective as a universal gauge with any bearing on physical markets composed
of commercial transactions with merit to anyone other than speculators in
abstract 'markets.'

5\. Considering all of the above, your argument that improved transaction
efficiency is the same as improved price efficiency, and that faster and
cheaper transactions will reduce brain-drain seems about as silly as the 'we
don't need to worry about babyloniancivilization-induced mass-extinction
because singularity.'

~~~
eru
The term 'efficient market hypothesis' is a bit of a misnomer in the singular.
It's actually a bunch of hypothesis that eg differ in strength. The strongest
form, that markets knows everything, is probably wrong. The weakest form, that
it's hard work to beat those traders at hedge funds and Goldman Sachs with
information you got out of the evening news, is almost certainly true. Exactly
which strength in the middle applies in the real world is an empirical
question and depends eg on the markets under observation.

In any case,
[https://www.chrisstucchio.com/blog/2012/hft_whats_broken.htm...](https://www.chrisstucchio.com/blog/2012/hft_whats_broken.html)
makes for some interesting arguments.

------
Afforess
I really appreciate this essay, if just for categorizing a type of argument
I've run into multiple times myself. I've often shared ideas with others and
found that when ideas cross a certain "weirdness threshold" and are
sufficiently deviant from mainstream thought, the "modest epistemology"
argument crops up. After all - if weird idea X was so great, it should already
exist. I've never had a proper standard response to this sort objection.

Sometimes the key to recognizing something is wrong is the ability to
categorize it.

~~~
jancsika
That's likely to simply flip your current intuitions in favor of investigating
more ideas that pass the weirdness threshold. Without considering the specific
context of ideas under discussion, I'm not sure that gets you anywhere.

~~~
neltnerb
One convenient metric is "how likely is it that someone with the particular
knowledge required to think of this also has the problem I do?"

~~~
bsder
Maybe. But there are two modalities to this:

1) Implementation often takes _one clever person_ with the requisite knowledge
and then everybody copies it if it's a good idea. BitTorrent is a good
example. Lots of people could have developed BitTorrent or developed something
_almost_ like BitTorrent, but Bram Cohen pulled it all together into one neat,
usable package. This modality is probably harder to spot as the "Am I actually
clever?" question is difficult to answer with good Bayesian priors.

2) Implementation requires someone with an intersection of skills that limits
how many people can exist. My last experience getting an EEG is a good
example: the individual pieces of EEG equipment are absolutely primitive to
any decent electrical engineer and the user interface to the software is
horrifically bad (one step up on reading a paper chart strip). Yet, to improve
it, you need an intersection of low-noise analog design, UI programing, signal
feature detection and extraction, machine learning applicable to signals, and
knowledge of how EEG's work and are used for diagnosis. There simply aren't
that many people with all of those characteristics that could move the front
forward. However, this modality is _VERY_ easy to spot: "Do I have the
intersection of skills necessary to be this person?" is a very straightforward
question.

------
seibelj
I have been operating at the intersection of engineering and entrepreneurship
for my whole career. Two key traits I notice in entrepreneurs is overwhelming
optimism and the ability to take huge risks without batting an eyelash.

Conversely, on the engineering side, my fellow nerds are almost paralyzed by
over-thinking things and wondering about what the "experts" say, if a decision
is "safe", agonizing over career moves, etc. The result is a safe, careful
life with above-average to upper-class income, but avoiding the risks that
would lead to super-charged results.

This essay reads to me like the ultimate nerd analysis of why you should never
take any risks. Why start a company when every good idea is taken, and
MicroApple AmaGooFace can destroy you the moment you get traction? Why buy any
stock when the smartest people on the planet already priced it accurately
(surely you don't know more than them)? Why do anything outside of mainstream
thought at all?

I assume future chapters of his book will address why the rational market
hypothesis is incorrect, or why it can be rational to buy AMZN when the market
(obviously) knows more than you, but I wanted to comment on this specific
post.

The truth is that infinite opportunities exist to make money, make an impact,
start something worthwhile. However there is a limited supply of people with
the balls (or ovaries) to seize these opportunities and take the necessary
risks. So many people settle for the cushy life, handcuffed to the big
company.

The risk takers earn the rewards, and even if they fail, the journey to
failure almost always leads to meeting tons of people, tons of opportunities,
and a future path that leads back to the cushy high-paying job they tried to
avoid.

So buy the stock, start the company, assume you know more than the experts,
take the risks. You can always go back to the safe life.

~~~
tempestn
The author is not saying that you shouldn't take any risks or disagree with
the masses - nearly the opposite. Essentially the article states that while
there are some circumstances where it is true that you almost certainly can't
'beat the market' (the stock market being one), one _shouldn 't_ believe that
if something was a good idea it would have already been done. Apparently in
the next chapter he will lay out a framework for identifying the specific
areas that are most likely to present these opportunities.

~~~
MrLeap
What's beating the market mean to you?

The meme that the s&p's performance +/\- is as good as you should expect to do
is so bizarre to me. I know where it comes from -- I've read the same stuff
about warren buffet's bet and everything else.

After having traded a while myself it's just so hard to believe. I don't think
it's axiomatic for people who don't have enough capital to overcome liquidity.
I wonder if someone has ever paid a PR firm to perpetuate that idea.

If the PR firm were successful, it would drive more people away from active
investing towards index funds, lowering volatility. That would help explain
why shorting the VIX has c-c-c-c-clobbered the S&P's performance for a few
years. If I start to see news stories about rags to riches stories I'll
probably start going long volatility. Haha.

My most successful trades this year have been betting against the consensus.
The consensus is hilarious and terrible about a lot of things. I bought shares
of a good property/casualty insurance company the friday ahead of irma. It was
down like 35% in a month as the news convinced traders florida was going to
sink. My theory was that if the storm was as bad as advertised, the stock
would move about sideways. If it was anything less than there was money to be
made. I was up 20% on the trade by Monday.

In August when North Korea news hype was peaked and missiles were being
tested, I shorted the vix hard. I didn't think the panic was sustainable.
Because of how much I put on it that was probably my riskiest trade. Made the
S&P's YTD twice over in 2 weeks.

In June I saw silver flash crash to 14$ an ounce and that just felt stupidly
cheap for such a useful precious metal. Sold it for the S&Ps YTD about a week
after. There was no research in this, I was just into hobby jewelry making and
thought "hmph that isn't right."

I watch the news pretty regularly and I'm mostly happy to stay uninvested
unless I see an opportunity to bet against hype. Then I put about 10-20% of my
savings on the hypothesis and I beat the market pretty handily doing that,
with less of my cash on the line and everything.

I guess one of these days I'll have so much money my block trades will get me
sniped or I'll lose 5x in a row and start investing in the S&P again or
something. Haha.

~~~
tome
From where comes your confidence that you are not "picking up pennies in front
of a steamroller"?

~~~
MrLeap
I have very little confidence. That's why I stay mostly in cash and largely
avoid single company equities. I capture my gains when it feels "early" and I
leave a lot of money on the table doing this. All these behaviors come from
trying to limit my exposure to the steamroller. The trades I get excited about
though are ones that feel like the steamroller has already gone through and
may have arrived prematurely.

The S&P gives me even less confidence.

The sector rotation often feels so artificial and controlled. Couple weeks ago
when Apple had their keynote and the market reacted badly to it, I noticed
bank stocks rising the next day about exactly as much as Apple lost market
cap. Just feels like there's a smoothing function running on the S&P right
now. If that function has operators then there's an enormous and still growing
short opportunity for them to someday turn it off.

------
paulpauper
_When we critique a government, we don’t usually get to see what would
actually happen if the government took our advice. But in this one case, less
than a month after my exchange with John, the Bank of Japan—under the new
leadership of Haruhiko Kuroda, and under unprecedented pressure from recently
elected Prime Minister Shinzo Abe, who included monetary policy in his
campaign platform—embarked on an attempt to print huge amounts of money, with
a stated goal of doubling the Japanese money supply.5

Immediately after, Japan experienced real GDP growth of 2.3%, where the
previous trend was for falling RGDP. Their economy was operating that far
under capacity due to lack of money.6_

Given that Japan has been in a slump for nearly 2 decades and that everything
tried before didn't work (including stimulus spending), it's reasonable that
there would be skepticism.

~~~
mcguire
The fundamental assumption of the article seemed to be that the Bank Japan's
committee are idiots; any further inquiry into why they make the decision they
do stops there.

------
skybrian
I found this article convincing. However, I also found Scott Alexander's
article about epistemic learned helplessness convincing:

[http://squid314.livejournal.com/350090.html](http://squid314.livejournal.com/350090.html)

~~~
dennisgorelik
That Scott Alexander's "Epistemic learned helplessness" blog post (2013) -- is
an excellent generic rebuttal against Eliezer's arguments.

Eliezer's argumentation is bright, inspiring and mostly right. But then
Eliezer makes a critical mistake in his reasoning and the overall conclusion
is just plain wrong (such as "buy cryogenics").

~~~
dxdu
> That Scott Alexander's "Epistemic learned helplessness" blog post (2013) --
> is an excellent generic rebuttal against Eliezer's arguments.

It's a fully general counterargument against _anything_.

------
Tomminn
Most bad decisions find their origin in either relying to heavily on ones own
thoughts, or not sufficiently trusting them.

Having a good meta-instinct for knowing when to cede to conventional wisdom
and when to trust your own instincts is like a superpower. It's standing on
the shoulders of giants and then reaching a little further.

Building a strong conceptual foundation around this problem could be really
useful.

------
nautilus12
This is very eloquent but somewhat verbose and rambling in parts. The only
solid take aways i pulled from it are:

1\. The assumption that if its easy than any one would have done it in some
markets is very true but is not a universal maxim.

2\. You have to search out the markets where that is less true.

To expand on the station analogy with the $20 bill they mention in the middle
of the station where the traffic is highest but what about in the alley behind
the station or next to the stand with the new careless employee? Arbitrage
isnt just limited to the most trodden popular paths (s&p 500). The context
always changes the ebb and flow surrounding arbitrage, whereas you cant fight
the raging river and expect to beat it, you may find opportunity in a swirling
eddie

~~~
hateduser2
It’s not really true. There are real cases where people have radical, obvious
insights. Look at history of science and math!

~~~
TeMPOraL
Science and math are a repeating story of _civilization-level of knowledge_
reaching a threshold at which some breakthroughs become easy to figure out,
followed by a bunch of smart people making those breakthroughs simultaneously.

I.e. the famous scientists were not _that_ smart - they were just the smartest
and therefore first to react to the waterline of knowledge in their domain
rising high enough.

------
Bromskloss
LesserWrong? What is its relation to LessWrong? It talks about itself as
"LessWrong 2.0". Is that an official statement or a figure of speech?

Edit: This is embarrassing. I had had written "its" as "it's". I need to find
a way to do penance.

~~~
yunyu
It seems to be a rewrite of the site that will have LessWrong data migrated to
it if things go well:
[http://lesswrong.com/lw/pfl/lw_20_open_beta_live/](http://lesswrong.com/lw/pfl/lw_20_open_beta_live/)

~~~
vaniver
Yunyu's correct. (I'm one of the people on the transition team.)

------
unabridged
The market price is based on people's intuition multiplied by the money they
control. There are plenty of situations where the majority of the money ends
up on the opposite side from the smart bettors. Eventually, in a long enough
time frame where agents don't die, yes the smart bettors will control most of
the money. But the world is imperfect, there are plenty of fools still with
money.

------
mbourgon
Next chapter has been posted: [https://equilibriabook.com/an-equilibrium-of-
no-free-energy/](https://equilibriabook.com/an-equilibrium-of-no-free-energy/)

------
indubitable
For a somewhat contrary view, there is Richard Feynman and _Disregard!_ [1]

I tend to fundamentally disagree with the notion of this paper. For a reason
why let's consider something like quantum mechanics and relativity. Right now
relativity and quantum mechanics are incompatible in domains where they
intersect. There is an absolutely _enormous_ incentive to reconcile this. The
Nobel Prize would be little more than a formality for a discovery of this
magnitude. And the best and brightest in the world have been working on this
for many decades.

So the implication of this paper is that, thus, you probably shouldn't try to
improve the work here. Of course that's nonsensical since it's obviously
provably in need of improvement. And there will be some individual, or group
of individuals, that manage to succeed here and push humanity that much more
forward.

He relies on examples that are not falsifiable. The absence of evidence is not
evidence of absence. In particular in his stock market example, he argues that
it is operating optimally by little more than an appeal to authority and a
lack of contrary evidence. It's like saying that no human will be able to run
faster than Usain Bolt since lots of people (and massive supporting teams) are
spending their lives trying to do just that (with 0 barriers to entry) and all
have failed, so there's no reason to believe any given individual could ever
do better. Of course the one thing the olympics shows is that records are set
only to be broken.

I suppose it depends on your life view, but I think people should pursue that
which interests them - even if an objective analysis would lead them to
believe that their chances of _meaningful_ (and who gets to determine that?)
success are negligible. And I would take this a step further. Not only
_should_ people do this but the entire progression of humanity is _contingent_
on people doing this. The people that make true progress in a field tend to
love that field. And their progress is more a consequence of that love than
any sort of higher level objective analysis of fields where their best chances
of success lay.

Maybe it's best to conclude with a simple counter example. He mentions,
repeatedly, you should question yourself if you see a $20 bill laying on the
floor in a populated area for hours. And this is supposed to be meaningful.
However, instead of relying on a likely very rare outside force (somebody
dropping a $20 bill) let's consider something that's an entirely typical and
common social phenomena - elevators. How many people have come to a crowded
area just outside an elevator, only to find that the problem is that nobody
has pushed the button? There's certainly a major incentive to push that
button, and there's no barrier to entry other than the arrogance of thinking
everybody else might be a bit silly - yet time and again we find _nobody
pushed the button._

[1] - [https://stepsandleaps.wordpress.com/2017/10/17/feynmans-
brea...](https://stepsandleaps.wordpress.com/2017/10/17/feynmans-breakthrough-
disregard-others/)

~~~
EnFinlay
I don't think the article is arguing that no one should pursue hard problems
that have economic incentives to be solved, it is saying that when you are a
non-expert, you should defer to popular opinion. There's nothing stopping
people from pursing the hard (yet profitable pursuits), the article mentions
people who make their livelihoods in these arenas and does not say they are
wasting their time.

> He relies on examples that are not falsifiable. The absence of evidence is
> not evidence of absence. In particular in his stock market example,

The article includes an counter-example, and we all know that they exist.
People have bet against the market prices and come out ahead. The article is
saying that such an event should not attributed to skill.

------
natural219
Eliezer, as always, vastly overstates the value of his own intelligence and
intelligence in general. I believe this essay is one of the worst he has ever
written.

The reasoning on this is correct. The problem is, he is arguing from
hilariously inaccurate axioms. For instance, he seems axiomatically convinced
that "creating trillions of dollars of value" is an objective good. That is
totally fine for people ideologically "all in" to ideologically cooky notions
of macroeconomics, which is one of the most intellectually shaky disciplines
still in circulation.

Since he seems familiar with the "two economists walking down the street"
parable, I will offer him this one:

===

Two economists were walking down the street one day when they passed two large
piles of dog turds.

The first economist said to the other, "I'll pay you $20,000 to eat one of
those piles of turds." The second one agrees and chooses one of the piles and
eats it. The first economist pays him his $20,000.

Then the second economist says, "I'll pay you $20,000 to eat the other pile of
turds." The first one says okay, and eats the turds. The second economist pays
him the $20,000.

They resume walking down the street.

After a while, the second economist says, "You know, I don't feel very good.
We both have the same amount of money as when we started. The only difference
is we've both eaten turds."

The first economist says: "Ah, but you're ignoring the fact that we've engaged
in $40,000 worth of trade!"

~~~
Tomminn
Disagree with your view of the essay, but your anecdote is interesting. I
learned something from analyzing the anecdote with inappropriate sincerity.

Why- of their own free will- would each economist offer $20,000 to eat the
turd? There can essentially only be one answer. They value the schadenfreude
or sense of power derived from watching their fellow economist eat the turn at
greater than $20,000.

Why would each economist eat the turd? They value an extra $20,000 more than
they value avoiding the disgust associated with eating the turd.

Long story short, that $40,000 of seemingly destructive trade appears to have
improved both their lives according to their own value functions.

~~~
NoGravitas
This story is a remarkable reductio-ad-absurdum of the Subjective Theory of
Value.

~~~
SilasX
No, it isn't. It introduces a non-standard situation where the actors'
motivations are hard to model, and results in a non-standard outcome. That
doesn't help build the firmer X-free worldmodel that I would count as a
refutation of X.

It requires us to posit someone who's money-hungry enough to do something
disgusting for a large amount of money and yet who still would spend _all_ of
that gain to get some (for-most-people) trivial kick out of seeing someone
else do the same.

Well, yes, if two people both had that bizarre preference set, and you fully
intuited the implications of that situation, it _wouldn 't_ be strange to view
it as creation of that much value, because both of them satisfied each other's
values.

I don't see how this parable carries more kick than if you cut off the parable
halfway through and said, "hah! Someone ate feces for money! That's silly,
isn't it?" Yes, bizarre values lead to bizarre outcomes. But then, if that's
all you want to prove, then just "go Rule 34" and link some fetish sites.

To the extent that the parable has a valuable lesson, it's "back-and-forth
exchange of money for services, if officially canceled out, is a kind of gain
in utility that doesn't show up in formal accounting". (E.g. Alice provides
romantic satisfaction to Bob, who simultaneously provides romantic
satisfaction to Alice. They do not transfer money on net. "We're right where
we were before, and didn't create any value." Um, yeah you did.)

Or, if the point is that decisions can be regretted (which you could tweak the
Alice/Bob example to include) , sure, but that doesn't shed a lot of light on
the Subjective Theory of Value.

~~~
natural219
It seems abundantly clear to me that humans routinely take actions that are
far more irrational than eating a turd for $20,000. There are literally TV
shows dedicated to that type of thing.

The whole point is to draw absurdity to the Subjective Theory of Value -- the
claim that, if a trade occurs, the trade must be Good, because both
participants (with full information!) made a rational (!) calculation that
this trade was in their best (!) long-term (!) interests. I find this
proposition -- one that rests at the heart of economics -- to be incredibly
dangerous and outrageously wrong, but since our entire economy / political
system sort of depends on this being true, I don't know what to do about it.

~~~
SilasX
I was replying to the idea that the parable demonstrates those points for
someone who doesn't already agree. (And that's not the SVT you're describing,
but the SVT plus some ancillary claims that I agree are flawed -- see the last
paragraphs of my other reply.)

~~~
natural219
I'm curious to pick your brain about this. What is a better concept to
describe the idea that "if a trade occurs, it is Good?" I agree STV does
contain real insights about the nature of trading, but there's some
ideological extrapolation that transforms obviously correct things like
marginal diminishing utility to "justifying every trade as it occurs as
inexorably good"

See also:
[http://www.paulgraham.com/wealth.html](http://www.paulgraham.com/wealth.html)

~~~
SilasX
You're actually right, I think -- I don't know of a specific (standard) term
to describe that fallacy, and every time I've criticized its appearance, I've
had to make up a neologism or spell it out expliclity [1]. ("Vulgar
Keynesianism" is one term for it, but it's not the only school that does it so
it's a fair term for the precice concept.)

In any case, I was just trying to make the point that

a) The turd-trade example does not help the debate about the underlying
concepts -- regardless of label -- because it's uses an intuition breaking
situation to build intuitions, which is no more insightful than pointing and
laughing at people with bizarre preferences.

b) STV is not the same as the thing the parable is criticizing.

[1] Example comment I remember:
[https://news.ycombinator.com/item?id=12242525#12243088](https://news.ycombinator.com/item?id=12242525#12243088)

~~~
natural219
Man. Thank you so much. "Vulgar Keynesianism" is indeed a very good summary of
my central complaint. although it arrives at it from a totally opposite
direction. Sidenote: I miss when Paul Krugman was actually good :(.

[http://web.mit.edu/krugman/www/vulgar.html](http://web.mit.edu/krugman/www/vulgar.html)

------
purplezooey
I got a snortchuckle out of "Comments sorted by magical algorithm".

------
donatj
A truly fascinating read. Actually inspired me to preorder the mentioned book.
I’ve never read a book this strongly Econ, but it interests me to no end so
this should be an interesting journey.

------
Nimitz14
That was a good read, thanks for posting.

------
oenat2nteoa0
Wow, that constantly updating page title is irritating. Couldn't even read
because of the constant animation at the top of the page.

~~~
adamzerner
It's a new site and is on the todo list to fix.

------
abhi3
Does this blog have a RSS feed?

~~~
knight17
Yes:
[https://www.lesserwrong.com/feed.xml](https://www.lesserwrong.com/feed.xml).
Firefox auto-detected it.

------
dennisgorelik
All that Eliezer's argumentation is thought provoking and fun.

Just keep in mind that Eliezer is good at suggesting mental frameworks for
making decisions, but fails when trying to make the best practical decisions
himself.

