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Would you prefer that one person be horribly tortured for eternity without hope or rest, or that 3^^^3 people die?
In response to
Open Thread for February 11 - 17
I would solicit bids from the two groups. I imagine that the 3^^^3 people would be able to pay more to save their lives than the 1 person would be able to pay to avoid infinite torture. Plus, once I make the decision, if I sentence the 1 person to infinite torture I only have to worry about their friends/family and I have 3^^^3 allies who will help defend me against retribution. Otherwise, the situation is reversed and I think its likely I'll be murdered or imprisoned if I kill that many people. Of course, if the scenario is different, like the 3^^^3 people are in a different galaxy (not that that many people could fit in a galaxy) and the 1 person is my wife, I'll definitely wipe out all those assholes to save my wife. I'd even let them all suffer infinite torture just to keep my wife from experiencing a dust speck in her eye. It is valentine's day after all!
In response to
Open Thread for February 11 - 17
I participated in an economics experiment a few days ago, and one of the tasks was as follows. Choose one of the following gambles where each outcome has 50% probability Option 1: $4 definitely Option 2: $6 or $3 Option 3: $8 or $2 Option 4: $10 or $1 Option 5: $12 or $0
I choose option 5 as it has the highest expected value. Asymptotically this is the best option but for a single trial, is it still the best option?
In general, picking the highest EV option makes sense, but in the context of what sounds like a stupid/lazy economics experiment, you have a moral duty to do the wrong thing. Perhaps you could have flipped a coin twice to choose among the first 4 options? That way you are providing crappy/useless data and they have to pay you for it!
The type of prop firms you are describing are really just back office pools or trading arcades. Say I am a broker-dealer and I have a business that attracts chumps to deposit money with me, and I will allow them to trade through me, and all the traders can share expenses like office space and other services. The burn out rate is really high. Notice that this supposed "prop firm" is making most of its money on commissions from their own traders! and not actually realizing gains from their trading employees. Contrast this to a division in an investment bank that hires actual employees as programmers and quants, and their profits are determined by trading. I'm not saying all prop firms are just back office pools, but I know for a fact that a lot of them are. So maybe we just have different meanings for what is a prop trader and prop firm.
http://traderfeed.blogspot.com/2008/07/proprietary-trading-firms-arcades-and.html
Since this is an AMA, let's just ask jobe. Do you trade your own capital or 100% firm capital? Jobe can very well be working at a prop shop like I described and I'm not putting him down if he is. It's just a known fact that most prop shop in Chicago or New York are of the scam-ish type.
Contrast Bright trading, the most well known and probably the biggest "prop firm" in Chicago to Jane Street. The former is nothing more than a glorified back office under the banner of proprietary trading where traders put up their own money, the latter is my definition of REAL prop firm.
http://www.elitetrader.com/vb/showthread.php?t=276210
Again no offense to jobe if he works for the former type of prop firm.
Do you trade your own capital or 100% firm capital?
I trade 100% firm capital, not my own. I've heard of bright and places like that but there are lots of real prop trading firms, that actually make their money from trading. Here are some I can think of off the top of my head:
- Getco
- Virtu
- DRW
- Allston
- Ronin
- HTG
- Chopper
- Sun
- Optiver
- Tower Research
- Teza
- Wolverine
- Marquette Partners
- Jump
- Eagle 7
- Peak 6
etc.
Thanks for the response. This is exactly why I tell everyone who thinks they should dabble in trading to stop it. The regular person who thinks they can beat the stock market for alpha has huge odds stacked against them.
Real professionals that work at true proprietary trading firms:
Are not paying stupid amounts of money on retail commission.
Have direct access to exchanges via having a seat at the exchange, no middle broker.
Are using true HFT (not just automated trading ) with collocated servers at these exchanges.
Market making for tiny tiny spreads - it's how most trading outfits make their money, not on positional trades, (real data is hard to come by but anecdotal evidence is abundant on this)
Since you are the expert, is my assessment mostly accurate?
I think you are correct about what prop trading firms do, but I am not so pessimistic about the prognosis for retail investors. I don't think retail investors can compete with professional prop traders at what they do, but I think that they can do better than just sticking their money in index funds, at least on a risk adjusted basis.
In response to
Finance as a career option
This article needs a section on personal risks of choosing this career: failure modes, with probability and consequences.
It's simply the case that the vast majority of even very smart people aren't making "middle 6 figures" in their late 20s. Having some explanation of why not would add a lot of credibility.
I have a few thoughts on this:
The way to get into finance is to go to a top college and major in either business, economics a hard science or engineering discipline. There are people who take other paths, but that's the main way to go. Financial firms are typically not overly concerned about specific college majors. I personally did Physics + Econ, but Comp Sci + Econ would have worked just as well. The point is that you can pick a major that is valuable outside of finance and still pursue a job in finance. That way, if finance doesn't work out you will still be fine.
You don't generally go to business school straight out of college. Typically, you work for a few years first. So, the "sunk cost" of a finance career is only the cost of college. That compares favorably with being a doctor or lawyer, and is similar to becoming a software developer or something like that.
If you can get an elite finance job (like analyst at Goldman) straight out of college, it will look good on your resume no matter what you do afterwords. If you can't get an elite finance job, but can get some sort of finance job, things change a bit because different areas of finance have different levels of transferability of skills. If you go into a particular niche and then wash out of it or just want to do something else, you might find that your experience is not that valuable.
My particular niche in finance (trading) has fairly crappy transferability of skills. What I do does not teach a lot of general "business" or management skills. There are 2 ways to deal with this issue. One is to only go into trading if you are very confident that it is your true calling. That way, being able to do something else is a moot point. The other is to start out as a quant or programmer. Learning how to program and how to do data analysis are very valuable skills in lots of fields. Finance is one of the best paying fields for programmers and working as a programmer will allow you see how trading works. A lot of traders worked as programmers first. Here is an article about it that features a friend of mine.
I am not a huge fan of "earning to give" and I'm not sure that finance is the best place to engage in that activity anyway.If you want to save lives you could become a doctor and save lives all day and still make enough money to donate to saving more lives. Most people who succeed in finance are intensely interested in money. We have to spend all day thinking about minute details related to making money. Most of the spouses of my colleagues (including my own) have almost no understanding of what we do. They just find it too boring to think about. Having a career that you find boring is a good way to be a miserable person and mediocre at what you do.
How much of your firms profits are from providing a market (giving liquidity) vs actually taking an outright position in the market?
Are there new strategies being developed constantly or is there just tweaks to an overall proprietary algorithm?
More than 100% of my profit's are from market making. Overall, I lose money on my positions. For the firm as a whole, position trading might be slightly profitable.
I have a basic strategy that works, and I run a couple variants on that strategy on a decent number of products. I am always trying to tweak the strategy to make it better, and add more products to trade. I also put some effort into developing new ideas. Most of the time, new ideas are a waste of time. There just aren't that many fundamentally different strategies that work, and that provide the kind of risk/return profile that works in my industry. I know it is a cliche that you learn more from failure than from success, but in developing trading strategies I think the opposite is true. You can spend forever trying things that don't work. Its much more valuable to understand and refine an idea that basically works.
In response to
Finance as a career option
High frequency trading is a candidate for a sector of finance that makes money through buying and selling stocks a little bit faster than others, without contributing much social value.
I think that this is a bit of a misunderstanding of what HFT does. A lot of HFT firms spend significant resources trying to be fast, but they do that because a lot of other HFT firms are also spending significant resources to be fast, and are pursuing very similar strategies. Speed is all about competing with the other trading firms, not about being quicker than end users. The strategies that HFTs are pursuing are socially valuable (typically, market-making and/or arbitrage), and they are competing along multiple dimensions, not just speed. Speed typically doesn't become important for a given strategy until competition has forced profitability per trade down to a minimal level. Once the bid-ask spread cannot get any tighter, then speed becomes an important factor but not until then and getting those spreads down is clearly valuable to end users. The pursuit of speed is "wasteful" in that it is costly and the end users don't really care about it, but the costs have to be born by the trading firms themselves. They can't pass those costs onto end users by increasing spreads because price priority beats time priority. The firm that tries to be super fast but at noncompetitive prices just won't trade.
In response to
Finance as a career option
I've worked as a trader/quant/developer for coming up on 12 years. Joe Mela's post at 80,000 hours basically matches my experience. I'll also point out that a large portion of trading firms are in Chicago, where the cost of living is really not too bad.
Almost no one changes their mind in elections; Almost everything that goes on in elections is
(1) motivating people who have already made up their mind to go vote or
(2) theater to convince the least-attentive least-well-informed voters.
Raising the level of discourse of the theater is probably not going to have a significant effect; the theater is targeted at the people least interested in how much sense things make.
Source: I worked for the DNC during the 2012 cycle.
Seems reasonable for general elections but what about primaries? A lot of people changed their mind about Rick Perry after his debate performances in the 2012 republican primaries. If better debates during the primaries produced better candidates from both parties, that seems like it would be a win.
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I think that most people are able to at least implicitly bite the bullet of continuous personal change. And that is why they apply some reasonable temporal discounting. Here is an SMBC that explains the basic concept. One of the very weird things about LWers is their aversion to discounting. Eliezer even wrote an emotional post about it once. Normal people can discount the preferences of their futures selves, current others and future others in a way that saves them a lot of ethical/philosophical headaches.