The first Seasteading conference went rather well. It got a good turnout of intelligent people, in spite of being on a weekday (they didn’t plan far enough ahead to find a good weekend spot).
I was somewhat disappointed by the time spent on the basic motivations behind seasteading (do people come to this kind of conference without understanding the motivations?), and I wanted to focus more on a serious analysis of how close the business plans are to being a good investment.
One interesting idea that was briefly mentioned is unmanned farms, herded by small robotic boats. If you’re willing to lose farms to an occasional storm, that drastically cuts costs. But when I imagine the cheapest possible farms, it seems the plants would get significant salt spray, which drastically limits the types of crops which will thrive.
The most interesting subject was Ephemerisle. Before the conference I had been wondering whether it would be interesting enough that I would want to attend. The conference convinced me that it will attract the kind of people I like, and that there will be some interesting technical challenges. Since my very rusty knowledge of sailing seems to leave me better informed than most seasteaders about some of those challenges, I will want to provide some help with the planning. It’s still too poorly thought out for me to feel confident that it will be done safely, but it can probably be planned well enough to be safe under most conditions (and hopefully people will be prepared to cancel it if unusual winds make it look unsafe).
The location seems very uncertain, and will have some important impacts on the risks. During the conference, the tentative plan seemed to be a few miles of the southern California coast, but afterward I got some indications that the plan had changed to the San Francisco bay, which would be a good deal easier but which would do less to promote any long-term vision.
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Book review: The Misbehavior of Markets: A Fractal View of Risk, Ruin & Reward by Benoit Mandelbrot.
Mandelbrot describes some problems with financial models that are designed to provide approximations of things that can’t be perfectly modeled. He pretends that pointing out the dangers of relying too much on imperfect approximations shows some brilliant insight. But mostly he’s just translating ideas that are understood by many experts into language that can be understood by laymen who are unlikely to get much value out of studying those ideas.
His list of “ten heresies” is arrogantly misnamed. Sure, there are some prestigious people whose overconfidence in financial models leads them to beliefs that are different from his “heresies”, but those “heresies” are closer to orthodoxies than they are to heresies.
His denial of the equity premium puzzle is fairly heretical, but his argument there is fairly cryptic, and relies on suspicious and poorly specified claims about risk.
He says market timing works, but the strategy he vaguely hints at requires faster reaction times than are likely to be achieved by the kind of investor this book seems aimed at.
His use of fractals doesn’t have any apparent value.
Mandelbrot is primarily a mathematician with limited interest in understanding how markets work. One clear example is his mention of a time when Magellan “was still a small fund, too small for any detractors to argue that its size alone gave it a competitive edge”. Any informed person should know that’s completely backward – larger funds have a clear disadvantage because they are limited to trading the most liquid investments.
Another example of a careless mistake is when he claims the evidence suggests basketball players have hot streaks, seemingly unaware that Tversky and others have largely debunked that idea.
The stock market reacted to today’s defeat of the bank bailout bill with an unusually big decline. Yet the news wasn’t much of a surprise to people watching Intrade, whose contract BAILOUT.APPROVE.SEP08 was trading around 20% all morning. Why did the stock market act as if it was a big surprise?
Did Intrade traders make a lucky guess not based on adequate evidence? Did they have evidence that the stock market ignored? Could the stock market have priced in an 80% chance of the bill being defeated (if so, that would seem to imply that passage would have caused the biggest one-day rise in history)? Could the stock market have been reacting to other news which just happened to coincide with the House vote? (It looks like the market had a short-lived jump coinciding with news that House leaders hoped to twist enough arms to reverse the vote, but I wasn’t able to watch the timing carefully because I was at the dentist).
It seems like one of these must be true, but each once seems improbable.
Arnold Kling, whose comments on the bailout have been better than most, was surprised that the bill failed.
I covered a few of my S&P 500 futures short positions at near the end of trading, but I’m still positioned quite cautiously (I made a small profit today).
Book review: Global Catastrophic Risks by Nick Bostrom, and Milan Cirkovic.
This is a relatively comprehensive collection of thoughtful essays about the risks of a major catastrophe (mainly those that would kill a billion or more people).
Probably the most important chapter is the one on risks associated with AI, since few people attempting to create an AI seem to understand the possibilities it describes. It makes some implausible claims about the speed with which an AI could take over the world, but the argument they are used to support only requires that a first-mover advantage be important, and that is only weakly dependent on assumptions about that speed with which AI will improve.
The risks of a large fraction of humanity being killed by a super-volcano is apparently higher than the risk from asteroids, but volcanoes have more of a limit on their maximum size, so they appear to pose less risk of human extinction.
The risks of asteroids and comets can’t be handled as well as I thought by early detection, because some dark comets can’t be detected with current technology until it’s way too late. It seems we ought to start thinking about better detection systems, which would probably require large improvements in the cost-effectiveness of space-based telescopes or other sensors.
Many of the volcano and asteroid deaths would be due to crop failures from cold weather. Since mid-ocean temperatures are more stable that land temperatures, ocean based aquaculture would help mitigate this risk.
The climate change chapter seems much more objective and credible than what I’ve previously read on the subject, but is technical enough that it won’t be widely read, and it won’t satisfy anyone who is looking for arguments to justify their favorite policy. The best part is a list of possible instabilities which appear unlikely but which aren’t understood well enough to evaluate with any confidence.
The chapter on plagues mentions one surprising risk – better sanitation made polio more dangerous by altering the age at which it infected people. If I’d written the chapter, I’d have mentioned Ewald’s analysis of how human behavior influences the evolution of strains which are more or less virulent.
There’s good news about nuclear proliferation which has been under-reported – a fair number of countries have abandoned nuclear weapons programs, and a few have given up nuclear weapons. So if there’s any trend, it’s toward fewer countries trying to build them, and a stable number of countries possessing them. The bad news is we don’t know whether nanotechnology will change that by drastically reducing the effort needed to build them.
The chapter on totalitarianism discusses some uncomfortable tradeoffs between the benefits of some sort of world government and the harm that such government might cause. One interesting claim:
totalitarian regimes are less likely to foresee disasters, but are in some ways better-equipped to deal with disasters that they take seriously.
Charlie Munger in the August 31, 2008 issue of Outstanding Investor Digest:
Let’s say you’re insuring against the outcome that people will lose money on a $100 million bond issue, and the credit default swaps, instead of amounting to $100 million, amount to $3 billion. Now you’ve got people with $3 billion worth of contracts that really have a big incentive in having somebody fail. And they may manipulate in some fraudulent or extreme way to cause a default in order to make the big collection.
There doesn’t seem to be enough transparency in financial systems to figure out whether this concern is relevant to this week’s panic.
Most experts were surprised at the news that human DNA seems to contain less than 25000 genes.
Since then signs have emerged that the rest of the DNA (often called junk DNA is quite active, with about 80% of the DNA being transcribed into RNA even though only 1-2% constitutes protein-coding genes.
There’s a lot of mystery about what, if anything, most of that RNA does, but it’s not all junk. One such RNA molecule, HOTAIR, appears to control expression of some genes. RNA has an ability to fold into shapes that may rival proteins in their diversity, so there’s no good reason to think that creating proteins comes close to describing the set of functions that RNA performs.
To deter any suspicion that the comparisons I plan to make between Intrade’s predictions and polls are comparisons I selected to make Intrade look good, I’m announcing now that I intend to use FiveThirtyEight.com as the primary poll aggregator. I intend to pay attention to predictions that are more long-term than I focused in 2004, so the comparison I’ll attach the most importance to will be based on the first snapshot I took of FiveThirtyEight.com’s state by state projections, which was on July 24.
Also, as of last week, one of the Presidential Decision Markets that I’m subsidizing, DEM.PRES-OIL.FUTURES, has attracted enough trading (I suspect from one large trader) to make me reasonably confident that it’s showing the effects of trader opinion rather than the effects of my automated market maker (saying that oil futures will drop if the Democratic candidate wins, and rise if he loses).
Book review: Monkeyluv: And Other Essays on Our Lives as Animals by Robert M. Sapolsky.
This collection of essays starts out by rehashing nature/nurture arguments that ought to be widely understood by now, but then becomes mostly entertaining and occasionally quite informative.
He mentions one interesting study which questions sexual selection arguments put forward by Geoffrey Miller and others about animals selecting mates with better genes. The study shows that female Mallards produce stronger offspring after mating with more attractive males because they invest more resources in those eggs, rather than because of anything that seems connected to the genes provided by the males.
He helps explain the attraction of gambling by describing experiments which show larger dopamine releases due to rewards that are most uncertain (the subject thinks they have a 50% chance of happening) than is released when there’s more certainty (e.g. either a 25% chance or a 75% chance) of the same reward.
One place where I was disappointed was when he described “repressive personalities”, which he made seem quite similar to Aspergers, and made me wonder whether I fit his description. “dislike novelty”? My reaction to novelty is sufficiently context-dependent that any answer is plausible. “prefer structure and predictability”? Yes and usually. “poor at expressing emotions or at reading the nuances of emotions in other people”? That’s me. “can tell you what they’re having for dinner two weeks from Thursday”? I could probably predict 5 days in advance with 50% accuracy, so I’m probably closer than most people. So I Googled and found another description (mentioning the same researcher that Sapolsky mentioned) in the Sciences and find descriptions of “repressive personality” that seem wildly different from me (“a strong personal need for social conformity” and “agreement with statements framed as absolutes, statements loaded with the words never and always”). Who wrote this competing description? Wait, it’s the same Sapolsky! It looks like his current description reuses a small piece of an older article with inadequate thought to whether it’s complete enough.
News reports plus the pattern of crude oil fluctuations indicate that the large price increases around May and June were due mainly to Chinese desperation to guarantee a larger than normal margin of safety during the Olympics, not manipulation (although the results bear a good deal of resemblance to the results of manipulation).
Book Review: Let Their People Come: Breaking the Gridlock on Global Labor Mobility by Lant Pritchett.
This book is primarily written for economists and academics in related fields, but most of it can be understood by an average person.
I was a little hesitant to read this book because I suspected it would do little more than reinforce my existing beliefs. There were certainly parts of the book that I would have been better off skipping for that reason.
But one important effect of the book was to convince me that the effects on the poor of migration to wealthier countries is so large compared to things like “foreign aid” and free trade that anyone trying to help the poor by influencing government policies shouldn’t spend any time thinking about how to improve “foreign aid” or trade barriers.
I’ve long been wondering how to respond to remarks such as Jimmy Carter’s ‘We are the stingiest nation of all’ based the U.S.’s low “foreign aid” to GDP ratio. Pointing out that “foreign aid” is mostly wasted or even harmful requires too much analysis of lots of not-too-strong evidence. Pritchett shows that the wealth affects of allowing the poor to work in rich countries should dominate any measure of how those rich countries treat the poor. By that measure, adjusting for country size, the U.S. ranks better than countries in the EU, but is embarrassingly callous compared to the United Arab Emirates, Kuwait, and Jordan.
The book addresses both moral and selfish arguments for restricting immigration. It treats the selfish arguments (even those based on myths) as problems that can’t be overcome, but which can be reduced via compromises. These pragmatic parts of the book are too ordinary to be worth much.
The sections about moral arguments are more powerful. He clearly demonstrates a large blind spot in the moral vision of those who think they’re opposed to all discrimination but who aren’t offended by discrimination on the basis of the nationality a person was assigned at birth. But he exaggerates when he claims that nationality is the only exception to a widely agreed on outrage at discrimination based on “condition of birth”. Discrimination based on date of birth still gets wide support (e.g. the drinking age). And if you’re born as a conjoined twin, don’t expect much protection from surgery that looks about as moral as brain surgery designed to cure a child’s homosexuality should.
Perhaps this book is one small step toward creating a movement with a slogan such as “Tear down that kinder, gentler Berlin wall!”.