ocr-fork comments on Significance of Compression Rate Method - Less Wrong
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Let's take the stock market as an example. The stock market prices are in principle predictable, only not from the data itself but from additional data taken from the newspapers or other sources. How does the CRM apply if the data does not in itself contain the neccessary information?
Let's say I have a theory that cutting production costs will increase stock prices in relation to the amount of cost cut and the prominence of the company and the level of fear of a crash on the stock market and the level of a "bad news indicator" that is a weighted sum of bad press for the company in the past. How would I test my theory with CRM?
First, infer the existence of people, emotions, stock traders, the press, factories, production costs, and companies. When that's done your theory should follow trivially from the source code of your compression algorithm. Just make sure your computer doesn't decay into dust before it gets that far.