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Tom_McCabe2 comments on Worse Than Random - Less Wrong

25 Post author: Eliezer_Yudkowsky 11 November 2008 07:01PM

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Comment author: Tom_McCabe2 12 November 2008 07:02:58PM 2 points [-]

"We are currently living through a crisis that is in large part due to this lack of appreciation for emergent behavior. Not only people in general but trained economists, even Nobel laureates like Paul Krugman, lack the imagination to understand the emergent behavior of free monetary systems."

"Emergence", in this instance, is an empty buzzword, see http://lesswrong.com/lw/iv/the_futility_of_emergence/. "Imagination" also seems likely to be an empty buzzword, in the sense of http://lesswrong.com/lw/jb/applause_lights/.

"precisely because the emergent behavior of the market is more powerful, more intelligent, in solving the problem of resource allocation than any committee."

Markets do *not* allocate resources anywhere near optimally, and sometimes they do even worse than committees of bureaucrats; the bureaucrats, for instance, may increase utility by allocating more resources to poor people on grounds of higher marginal utility per dollar per person.

"Once you understand it then it's not so amazing but it is very difficult to understand. Ben Bernanke doesn't understand and Alan Greenspan didn't understand before him."

If you think you know more than Bernanke, then why haven't you become rich by making better-than-expected bets?

"It can be improved on by randomisation: randomly betting on heads with p=0.5 and tails with p=0.5 is a stochastic strategy which offers improved returns - and there is no deterministic strategy which produces superior results to it."

Eliezer has already noted that it is possible for a random strategy to be superior to a *stupid* deterministic strategy:

"But it is possible in theory, since you can have things that are anti-optimized. Say, the average state has utility -10, but the current state has an unusually low utility of -100. So in this case, a random jump has an expected benefit. If you happen to be standing in the middle of a lava pit, running around at random is better than staying in the same place. (Not best, but better.) A given AI algorithm can do better when randomness is injected, provided that some step of the unrandomized algorithm is doing worse than random."

The point of the post is that a random strategy is never better than the *best possible* deterministic strategy. And assuming that you're betting on real, physical coinflips, a random strategy is actually *worse* than the deterministic strategy of betting that the coin will come up heads if it started as heads and vice versa (see http://www.npr.org/templates/story/story.php?storyId=1697475).