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shokwave comments on Buy Insurance -- Bet Against Yourself - Less Wrong
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Find an outcome that would make you financially miserable, and bet on it such that if it comes to pass you won't be financially miserable. In a sufficiently non-rational market (ie people betting on things because they want them to happen) the size of the bet will not make you financially miserable if the outcome doesn't happen and you lose the bet.
I think this is the core idea of the post, and the stuff under the headings is some of the positive results of this course of action, not necessarily a justification for it.
This is reminding me of The Quants, and not in a good way.
It's a book about some very smart people who thought they could beat the stock market by making large bets on what they thought would go up and smaller bets on what they thought would happen if the first bet was wrong.
They didn't have enough experience to realize that both their bets could go wrong.
I think the second bets were apt to involve margins.
So it is extremely important that you critically evaluate whether the market is sufficiently non-rational, and that you attempt to find out the possibility of a third outcome that doesn't satisfy the bet but still makes you financially miserable (eg User:Kevin bets on not-Obama, Obama wins, Obama cracks down)
Yeah.
I strongly recommend The Quants. It's very interesting about how the guys who invented the systems (notably Edward Thorp) understood the theory underlying the math better, and had clear ideas about how much it was safe to bet. The later mathematicians and (iirc) physicists just looked for the big win.
Financially wasn't the missing nuance. In fact this works in principle even for causes of non-financial misery. But the feature that is needed is risk aversion. Or a non-linear utility to money relationship. Anything that makes you care more about a winning bet than a losing bet of the same amount. Caring (potential misery) is actually not directly relevant.
Don't forget about liquidity constraints.
For most people in the West, $10,000 is a negligible fraction of their lifetime wealth, so it is not rational to be anything other than risk-neutral about it. But User:Kevin needs his $5,800 as soon as the election ends, not over his lifetime. He may or may not be risk-averse, but he is definitely liquidity-constrained.
To the downvoter: If you don't believe that risk-neutrality is rational for relatively small sums of money, I've got some extended warranties to sell you. And if it was legal, I'd throw in some tickets for the local numbers bank as an alternative.
I'll admit I can't make much sense of what you're saying, but
this is already in the post - you care about a winning bet because it saved you from hard times, you don't care about a losing bet because you profit in other ways from this outcome.
I didn't disagree with the post, nor suggest the post was lacking. I pointed out that the concluding exhortation misses the mark.
It absolutely does. I sacrificed some precision for clarity so that I could end with a ringing exhortation. When I have a moment I'll probably footnote this.
Honestly, part of me is still a little confused about what I'm supposed to do at the ends of essays other than stop talking when I've said all the stuff I have to say.
ETA: On further reflection, the exhortation is almost right. The target you want to optimize for is "outcome in which money is worth more" but "outcome I'd really hate" is a cheaper target to compute -- it's emotionally salient, and can be quickly processed, probably in parallel -- while still being a decent pointer to the true target -- you can use a deliberative, serial process afterwards to pick the outcomes you actually should bet on.
Exactly!