Category: Games
Bets, beliefs, and portfolios: some further observations on the theses of Bryan Caplan
Bryan Caplan thinks that portfolios don’t reveal much about actual beliefs,. Here is one of his arguments:
Even prominent Nobel prize-winning economists admit they follow simple rules of thumb when they invest. So unless people’s beliefs are carved in stone, how could portfolios possibly reveal much about their beliefs? Tyler is a case in point: He changes his mind a hundred times a day, but he follows a simple financial strategy that hasn’t varied in years.
I view it differently. I don’t trade in public markets but I vary my allocations by changing how much money I spend and how to allocate my time. Perhaps not coincidentally, this puts me square into the world of classical finance theory as represented by “the mutual fund theorem,” with a static equity portfolio of fixed proportions and some unique covariances on my human capital. I call that rationality not inertia.
Bryan, you will note, is a founder of the theory of rational irrationality, which suggests you become more rational as the private stakes from your decisions go up. These days he is wishing to argue that the truly small stakes reflect what you really think, through the lens of mental accounting and compartmentalization. Of course that would undercut or at least drastically relativize his earlier theory. I say he has made a large and successful career bet — much bigger than any of his piddly ante monetary bets — on the theory of rational irrationality, so he must really agree with me after all.
It also happens that Bryan’s emphasis on simple rules of thumb will work against his interest in person-to-person bets as a metric of authenticity. If you don’t change or examine your overall portfolio very often, that means some reasonably wide range of portfolios is a matter of indifference or near indifference to you, if only because fine-tuned improvements are hard to find. (Do you really give matters a re-ponder when a firm in your portfolio pays dividends?) In that case, however, the small bets won’t be authentic either. One could compartmentalize one’s personal bets quite easily and say to oneself — whether consciously or not — “I can make this small bet: it still keeps my overall portfolio within that broad range of indifference.” Which indeed it does. The bet is then undertaken for expressive reasons, which is fine, nothing against that, but for me it is more fun to cheer for Tony Parker (without betting on him). I think of these small personal bets as akin to sports loyalties most of all and not as a unique window into our real beliefs.
The small person-to-person bets pay off (or not) in terms of pride, including for some people the pride in betting itself. One relevant substitute is to attempt to produce pride using your own internal mental accounting of your own predictions and so we must make the broader portfolio comparison. What the $$ betters are signaling is a lack of vividness for their own internal mental worlds. In my mind, I’m already betting an optimal amount of pride through my own mental accounting. Maybe some of us are already betting too much internal pride on external events; after all, the variance of pride introduces some new exogenous risk into life and perhaps we should be trying to move in the opposite direction toward greater pride indifference to external events. That is what the Stoics thought.
Most of all, I fear that Bryan’s results are coming from an asymmetric approach where he applies positive observation to large portfolios and normative recommendations to small bets. Bryan could go for a “positive vs. positive” comparison, in which case he would point out that people trade and adjust their large portfolios all the time, but don’t make small bets on public policy nearly as much. Alternatively, he could try a “normative vs. normative” comparison, in which case would you sooner recommend that people drop their inertia for their large portfolios or for their small ones? To even raise such a question is to answer it.
Do you want to find out “what a person really thinks”? Look at whom they married, how much money they spend, and how they devote their time. That is the most important portfolio of them all.
Just don’t bet that Bryan and I are going to agree anytime soon.
What’s the most intellectual joke you know?
That query is from AskReddit, the link is here, and here are a few of the nominations:
It’s hard to explain puns to kleptomaniacs because they always take things literally.
And:
Jean-Paul Sartre is sitting at a French cafe, revising his draft of Being and Nothingness. He says to the waitress, “I’d like a cup of coffee, please, with no cream.” The waitress replies, “I’m sorry, Monsieur, but we’re out of cream. How about with no milk?”
And:
Werner Heisenberg, Kurt Gödel, and Noam Chomsky walk into a bar. Heisenberg turns to the other two and says, “Clearly this is a joke, but how can we figure out if it’s funny or not?” Gödel replies, “We can’t know that because we’re inside the joke.” Chomsky says, “Of course it’s funny. You’re just telling it wrong.”
I don’t find that latter one funny at all, as they are telling it wrong.
The pointer is from Jodi Ettenberg of Legal Nomads fame.
What are your picks? You get mine every day.
Probably not good news markets in everything
For US$249 a company in the United States is promising to send curious and competitive players of computer games an unusual headset. The device, the company claims, will convert electronic gamers into electronic-gamers. At the touch of a button, the headset will send a surge of electricity through their prefrontal cortex. It promises to increase brain plasticity and make synapses fire faster, to help gamers repel more space invaders and raid more tombs. And, according to the publicity shots on the website, it comes in a choice of red or black.
The company is accepting orders, but says that it will not ship its first headsets to customers until next month. Some are unwilling to wait. Videos on the Internet already show people who have cobbled together their own version with a 9-volt battery and some electrical wire. If you are not fussy about the colour scheme, other online firms already promise to supply the components and instructions you need to make your own. Or you could rummage around in the garage.
Here is more, with further interesting points, via Michelle Dawson.
21-minute video interview with Thomas Schelling
You will find it here, recently recorded. Hat tip goes to Daniel Klein.
Acceleration chess (also known as Progressive chess)
White moves first, but then Black gets to move twice. Then White gets to move three times in a row, then Black four times in a row, then White five times in a row, and so on, with continuing escalation as the game proceeds. You cannot move your King through a check or play another move while your King is in check. If, in the middle of your sequence, you give check, you lose any remaining moves in your sequence and your opponent moves and enjoys his full sequence.
Here are a few observations:
1. Games will end rather quickly.
2. 1.d4 appears to be a stronger opening move than 1.e4; can you see why? For one thing, White is threatening to start his next threesome with Bg5, for another his King has some breathing space against some possible checks on f2. (If Black plays d5 and Nf6 in turn, consider the counter of e4, e5, and Bb5+. With the next “fivesome” of White he is threatening to advance pawns to e6 and g6 and take on f7. Qd3 and then Qf5 is another possible threat sequence.)
3. It is often good to give check on the last move of your sequence, if only to tie the hands of your opponent for one move.
4. Sometimes a more exposed King gives you a stronger position, because then the approach toward your King creates a check and ends the sequence of your opponent. This also means that pawn promotion should not always be to a Queen.
5. The Knight is often better on h3 rather than f3.
“Acceleration chess” is my phrase. And for the dedicated foursome there is “accelerated Bughouse.”
I thank several individuals at Jane St. Capital for relevant observations on this game plus a bit of play.
Do Lacanians understand the third derivative?
I continue to read from Bruce Fink’s A Clinical Introduction to Lacanian Psychoanalysis Theory and Technique. Here is another bit of interest:
…Lacanian analysis seeks to keep the analysand off guard and off-balance, so that any manifestation of the unconscious can have its full impact.
When fixed-length sessions are the norm, the analysand becomes accustomed to having a set amount of time to talk, and considers how to fill up that time, how best to make use of it. Analysands are very often aware, for example, that the dream they had the night before about their analyst is what is most important to their analysis, yet they try to fit in plenty of other things they want to talk about before they get to the dream (if they get to the dream). They thus attempt to minimize the importance of the dream in their own eyes, minimize the time that can be devoted to associating to it, or maximize the amount of time the analyst gives them. Analysands’ use of the time allotted to them in the session is part and parcel of their larger neurotic strategy (involving avoidance, neutralization of other people, and so on), and setting session length in advance merely encourages their neurosis.
The variable-length session throws analysands off guard, to some extent, and can be used in such a way as to encourage the analysand to get right to the good stuff.
I know some of you are making fun of me, but this is not the least interesting book I have read this week (though I would not want to base very much on it).
Toward a model of the therapist
In working with neurotics, the therapist must always express a desire for patients to continue, even if he or she feels that these patients have completed their work. Such patients will break off when their own desire to move on has become strong enough and determined enough.
…This obviously implies that the analyst is an actor or actress who plays a part which does not necessarily convey his or her “true feelings.”…The analyst may find a patient unpleasant and annoying, but of what use is it to let the patient know this? The patient may very well react to an expression of the analyst’s antipathy by leaving analysis altogether, or by trying to make him- or herself pleasant and interesting to the analyst, censoring certain thoughts and feelings which he or she thinks might annoy the analyst, instead of getting down to true analytic work. Counterproductive reactions to say the least! The analyst must maintain a position of desire — desire for the patient to talk, dream, fantasize, associate, and interpret — regardless of any dislike he or she may have for the patient.
That is from Bruce Fink’s often quite interesting A Clinical Introduction to Lacanian Psychoanalysis Theory and Technique, which I suppose also doubles as management advice.
By the way, here is today’s (closely related) David Brooks column. Alex passes along this link.
How do you build immunity from choking? (a meditation on Carlsen and Kramnik)
Yesterday Magnus Carlsen and Vladimir Kramnik each played decisive chess games in the Candidates’ tournament, for the right to challenge Vishy Anand for the world championship title. Carlsen held the tiebreaker, so he had only to match Kramnik’s result — draw or win — to proceed to the match with Anand.
Both lost. Uncharacteristically, both fell into time trouble. Both made bad mistakes even after time trouble was over. The chess world was shocked.
Arguably both choked.
Yet Kramnik has won several world championship matches, including against Kasparov, and Carlsen rose to world #1 at a very young age of course.
How does one become immune to choking?
If you have mastered stages 1 through n, presumably you still can choke at stage n + 1. Carlsen had never played in a world championship or candidates’ match before. In 1997 Kasparov choked when he had to play an improved Deep Blue, a machine.
Is there mean-reversion in choking and immunity to choking? If you play at a supremely confident level at the very top, nine times in a row, do you forget how to handle pressure and eventually revert to choking? Immunity against choking can wear off, or holding a title and having to defend it can raise the fear of choking through a kind of endowment effect (Bobby Fischer).
Does a string of confident winning raise the stakes more rapidly than you can master a rising choke, thus bringing you to n + 27 too quickly? (The Miami Heat just lost a 27-game winning streak.) Joe DiMaggio’s 56-game hitting streak has proven so hard to break, as there is always a new and tougher choking margin.
Or can one ascend to n + 3 with sufficiently strong margins of error that perhaps the fear of choking is never overcome and remains in the background for when tougher situations come along? Or one can ascend to n + 3 if everyone chokes along the way; someone must be choking least but still you are always a choker.
Under one theory, you become immune to choking at stage n + 2 only by at least once choking at stage n + 2 and then, on another occasion, overcoming your choke. I call this the LeBron James theory. Can it be that such loss/win experiences are required periodically and not just once up front?
The lessons are that it can be difficult to overcome choking, and that a complex mix of losing and winning may help you more with choking than simply lots of winning.
Why a coach should be ambiguous
Remember how Mr. Miyagi taught The Karate Kid how to fight? Wax on/Wax off. Paint the fence. Don’t forget to breathe. A coach is the coach because he knows what the student needs to do to advance. A big problem for coaches is that the most precocious students also (naturally) think they know what they need to learn.
If Mr. Miyagi told Daniel that he needed endless repetition of certain specific hand movements to learn karate, Daniel would have rebelled and demanded to learn more and advance more quickly. Mr. Miyagi used ambiguity to evade conflict.
An artist with natural gift for expression needs to learn convention. But she may disagree with the teacher about how much time should be spent learning convention. If the teacher simply gives her exercises to do without explanation her decision to comply will be on the basis of an overall judgment of whether this teacher, on average, knows best. To instead say “You must learn conventions, here are some exercises for that” runs the risk that the student moderates the exercises in line with her own judgment about the importance of convention.
The “austerity” of 2011-2012 in the United States
It turns out that much more of it was phony than many people had realized. From David Farenthold, this is from today’s Washington Post:
To sketch the bill’s biggest impacts, The Washington Post focused on the 16 largest individual cuts. Each, in theory, sliced at least $500 million from the federal budget. Together, they accounted for $26.1 billion, two-thirds of the total.
In four of those cases, the real-world impact was difficult to measure. The Department of Homeland Security officially declined to comment about a $557 million reduction. The Department of State, the Department of Agriculture and the Federal Emergency Management Agency — whose cuts totaled $1.9 billion — simply did not answer The Post’s questions despite repeated requests over the past month.
Among the other 12 cases, there were at least seven where the cuts caused only minimal real-world disruptions or none at all.
Often, this was made possible by a little act of Washington magic. Agencies got credit for killing what was, in reality, already dead.
Here is the article, and I did chuckle at the last paragraph.
The economics of Lego (investment markets in everything)
Here is one excerpt from a lengthy and data-intensive post, which likely offers more than you ever would wish to know:
The internet can be blamed for the size and scope of the secondary LEGO market. On the website, BrickLink, you can find almost any set that LEGO has ever produced. In addition, the site keeps records of trends in the market and value of individual pieces. This site is invaluable to a LEGO collector and has given many the ability to grow their collections. Before the advent of this site and sites like eBay, collecting LEGO required going to garage sales. There are now whole sites dedicated to buying LEGO as an investment, but that is a topic for another article.
This creation and expansion of the secondary market in conjunction with LEGO now marketing some of their products to an older audience has made the prices of some old sets increase exponentially. On the extreme range, there is the UCS Millennium Falcon that is selling new for upwards of $2,000 (and close to $1,500 USED!). It sold for $500 new in 2007. Even non-licensed sets can run a premium, such as the Cafe Corner that was one of the original modular buildings. It was $150 new and now it can sell for over $1,000.
For pointers I thank Michael Rosenwald and Kevin Won.
The best at what they do
When you look at a competition where one of the inputs of the production function is an exogenously distributed characteristic, players with a high endowment on that dimension have a head start. This has two effects on the distribution of the (partially) acquired characteristics that enter the production function. First, there is the pure statistical effect I alluded to above. If success requires some minimum height then the pool of competitors excludes a large component of the population.
There is a second effect on endogenous acquisition of skills. Competition is less intense and they have less incentive to acquire skills in order to be competitive. So even current NBA players are less talented than they would be if competition was less exclusive. So what are the sports whose athletes are the best at what they do?
My ranking
1. Table Tennis
2. Soccer
3. Tennis
4. Golf
5. Chess
How would such a ranking look for the social sciences? Among a broader list of activities, where would blogging fall on the scale?
Questions which are rarely asked
All Scrabble players know that Q and Z are the highest scoring tiles. You can get 10 points for each, in the English language version of the game.
But according to one American researcher, Z really only deserves six points.
And it’s not just Z that’s under fire. After 75 years of Scrabble, some argue that the current tile values are out of date as certain letters have become more common than they used to be.
“The dictionary of legal words in Scrabble has changed,” says Joshua Lewis, researcher and creator of a software programme which allocates new, up-to-date values to Scrabble tiles.
“Among the notable additions are all of these short words which make it easier to play Z, Q and X, so even though Q and Z are the highest value letters in Scrabble, they are now much easier to play.”
Here are some details on the reforms:
According to Lewis’s system, X (worth eight points in the current game) is worth only five points and Z (worth 10 points now) is worth six points.
Other letter values change too, but less radically. For example, U (one point currently) is worth two in the new version, G (two points) becomes three and M (three points) becomes two.
Here is more, via @timharford, and here is further information.
Defenses of the platinum coin
You will find Krugman’s here, and here are comments from a former head of the U.S. Mint.
In which countries is crude libertarianism most and least true?
For least true, I nominate South Korea. Other than comparing it to North Korea, how much do you hear libertarians claiming South Korean policies as their own? It seems the government there did a lot and mostly it paid off. The best the libertarian can manage is something like “their economy would have grown rapidly in any case,” and that may not even be true.
For “most true” you might say North Korea, but that is too easy a pick. How about India? Government there has done lots but most of it has worked out quite badly, whereas their deregulations generally have gone well (see our India unit on MRUniversity.com). Further deregulation of the economy would likely be a good idea.
Singapore can be claimed for either category.
In which country is Marxism most true (“least untrue?”)? Least true? How about other ideologies?