timtyler comments on AIXI and Existential Despair - Less Wrong
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The point is that a physical simulation of the universe includes a description of A. If A simulates the universe, it sees that its outputs appear on W2 without postulating anything beyond physical law. (This is all most straightforward in the case where A does perfect induction and the shortest explanation for A's observations takes the form of pointing to A in the universe, which is the one I started with; if A is capable of executing human-equivalent reasoning, though, the same thing happens in less easily formally analyzed universes.) I will try to edit the post to be more clear.
Usually you can't simulate the whole universe up to the current time from inside that universe - even if you know the laws and initial conditions - because you run out of storage space. With a growing universe, there may be some possibility of completely simulating its early stages...
Again, neither can I, but I still have beliefs about what the shortest description of the universe is. In particular, I don't believe that my actions figure into the shortest model of the world in a special way, although there is some uncertainty about whether I am only able to hold this belief because I am more introspective than AIXI.