Gram_Stone comments on Help with Bayesian priors - Less Wrong
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I'm pretty sure that you're actually asking some deep questions right now.
I'm not all that well-versed in epistemology or probability theory, but when you write:
I think this is a reference to the problem of priors.
I think 'a problem with Bayes priors that has not been settled' kind of understates the significance.
And:
I believe this is referred to as the reference class problem. It seems that in a Bayesian framework, the reference class problem is something of a subproblem of the problem of priors. It seems that you're only trying to define a suitable reference class in the first place because you're trying to produce a reasonable prior.
It's my understanding that one approach to the problem of priors has been to come up with a 'universal' prior, a prior which is reasonable to adopt before making any observations of the world. One example is Solomonoff's algorithmic probability. It seems however than even this may not be a satisfactory solution, because this prior defies our intuition in some ways. For example, humans might find it intuitive to assign nonzero prior probability to uncomputable hypotheses (e.g. our physics involves hypercomputation), but algorithmic probability only assigns nonzero probability to computable hypotheses, an agent with this prior will never be able to have credence in uncomputable hypotheses. Another problem is that, with this prior, hypotheses are penalized for their complexity, but utility can grow far more quickly than complexity. Increasing the number of happy people in a program from 1000 people to 1,000,000 people seems to increase its utility a lot without increasing its complexity by much. Taking this up to larger and larger numbers that become difficult to intuitively comprehend, it may be that such a prior would result in agents whose decision-making is dominated by very improbable outcomes with very high utilities. We can also ask if this apparently absurd result is a point against Solomonoff induction or if it's a point against how humans think, but if we humans are thinking the right way, we still don't know what it is that's going right inside of our heads and how it compares to Solomonoff induction.
For any other readers, sorry if I'm mistaken on any of this, it is quite technical and I haven't really studied it. Do correct me if I've made a mistake.
Back to my point, I think that you accidentally hit upon a problem that doesn't seem to take too many prerequisites to initially run into, and that, after a bit of squinting, turns out to be way harder than it seems it should be at first glance, given the small number of prerequisites necessary to realize that the problem exists. Personally, I would consider the task of providing a complete answer to your questions an open research problem.
Stanford Encyclopedia of Philosophy's entry on Bayesian epistemology might be some good reading for this.
Thanks for taking the time to write all that for me. This is exactly the nudge in the right direction i was looking for. I will need at least the next few months to cover all this and all the further Google searches it sends me down. Perfect, thanks again!