3 ms·

To me, SBF embodied the worst stereotypes about the Effective Altruism movement. The not-so-subtle air of I'm-smarter-than-thou, the hubris to think whatever th

To me, SBF embodied the worst stereotypes about the Effective Altruism movement. The not-so-subtle air of I'm-smarter-than-thou, the hubris to think whatever they have thought of haven't been thought and dismissed by others (probably for good reason), and a bull-headed focus on risk and return that can be exactly quantified, to the point of ignoring other, "softer" sides of the issue. SBF isn't alone in this. In school, while interning for a competing hedge fund, I met a drove of Jane Street interns who thought exactly the same way, in terms of "EV" or expected value -- the mean outcome from a random event. For example, whenever we would go out for ice cream, they would try to flip a coin to see who pays, given the "expected cost" was same. This behavior is fine if you're a market maker betting 0.001% of your worth on a toss that you win 51% of the time, and I imagine this is why Jane Street tries to cultivate it. But unfortunately, in this hyperfocus on returns, they forgot that "risk"/"variance" exists, and sometimes flipping a coin will land you in such a deep hole that you can't continue to play the game long enough to dig yourself out of there. You can read some thoughts by the man himself here, which flies in the face of all such work (Kelly bets, etc.) in variance minimization: https://nitter.net/SBF_FTX/status/1337250686870831107 https://nitter.net/SBF_FTX/status/1337250686870831107

paulcole 4y ago
> The not-so-subtle air of I'm-smarter-than-thou, the hubris to think whatever they have thought of haven't been thought and dismissed by others (probably for good reason), and a bull-headed focus on risk and return that can be exactly quantified, to the point of ignoring other, "softer" sides of the issue. It’s a little long for an HN tagline but it’ll do.
danielmarkbruce 4y ago
I don't think anything he said there flies in the face of kelly. Single event, he is explicit about his utility function and why. He just doesn't seem very good at managing risk in the real world. If you spend any time at an investment bank or similar where you do a lot of trading, there are just hundreds of "gotchas" that those institutions are aware of and manage (or they aren't and don't and go bankrupt eventually). There are lots of fields like this in the real world, just lots of gotchas. He didn't seem to understand that. I'd bet Jane Street understands this at the org level, but the younger folks likely just see a little bit of the whole picture, and have a lot of theory.
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a-dub 4y ago
expected value makes some sense when you're sampling a lot, but basically none for one offs. personally i think if you're making big bets/one-offs, you probably should be computing something like minimax trees for all the possible outcomes before making a choice and maybe adjust the bet size such that the worst case is something you can swallow.
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diab0lic 4y ago
Kelly maximizes the long run returns as the number of bets approaches infinity. If the variance is extremely high on f(x) and you get a single bet it can be rational to go very heavy. (Here x is the Bernoulli with p=0.75 and f(x) the payoff of 10000:1 on x = 1) This problem is usually considered from the other angle: if variance is high but the odds are unfavorable you should favor fewer bigger bets over many smaller bets. Why? Because the more bets you make the more likely you are to converge onto the expectation. A single big bet leaves you either running way over expectation or slightly under it. All of this assumes that you have to bet though, the safest thing to do with negative expectation is to just not bet. His example is unusual in that it has positive expectation (so you want to bet) and high variance (because you’re limited to a single bet). f(x) = 0b or 10000b so the single sample has a mean of 5000 and a variance of 50,000,000 but the E[f(x)] is 7500. A bigger than Kelly bet is rational here but if you had unlimited (or a large number of) bets you should revert to Kelly. Food for thought.
blitzar 4y ago
If you are making money trading - you are "making money" - if you are buing lottery tickets with a 1:1,000,000 payout and are on losing ticket #500,000 you are making "High EV trades"

paulcole 4y ago

> The not-so-subtle air of I'm-smarter-than-thou, the hubris to think whatever they have thought of haven't been thought and dismissed by others (probably for good reason), and a bull-headed focus on risk and return that can be exactly quantified, to the point of ignoring other, "softer" sides of the issue. It’s a little long for an HN tagline but it’ll do.

danielmarkbruce 4y ago

I don't think anything he said there flies in the face of kelly. Single event, he is explicit about his utility function and why. He just doesn't seem very good at managing risk in the real world. If you spend any time at an investment bank or similar where you do a lot of trading, there are just hundreds of "gotchas" that those institutions are aware of and manage (or they aren't and don't and go bankrupt eventually). There are lots of fields like this in the real world, just lots of gotchas. He didn't seem to understand that. I'd bet Jane Street understands this at the org level, but the younger folks likely just see a little bit of the whole picture, and have a lot of theory.

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a-dub 4y ago

expected value makes some sense when you're sampling a lot, but basically none for one offs. personally i think if you're making big bets/one-offs, you probably should be computing something like minimax trees for all the possible outcomes before making a choice and maybe adjust the bet size such that the worst case is something you can swallow.

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diab0lic 4y ago

Kelly maximizes the long run returns as the number of bets approaches infinity. If the variance is extremely high on f(x) and you get a single bet it can be rational to go very heavy. (Here x is the Bernoulli with p=0.75 and f(x) the payoff of 10000:1 on x = 1) This problem is usually considered from the other angle: if variance is high but the odds are unfavorable you should favor fewer bigger bets over many smaller bets. Why? Because the more bets you make the more likely you are to converge onto the expectation. A single big bet leaves you either running way over expectation or slightly under it. All of this assumes that you have to bet though, the safest thing to do with negative expectation is to just not bet. His example is unusual in that it has positive expectation (so you want to bet) and high variance (because you’re limited to a single bet). f(x) = 0b or 10000b so the single sample has a mean of 5000 and a variance of 50,000,000 but the E[f(x)] is 7500. A bigger than Kelly bet is rational here but if you had unlimited (or a large number of) bets you should revert to Kelly. Food for thought.

blitzar 4y ago

If you are making money trading - you are "making money" - if you are buing lottery tickets with a 1:1,000,000 payout and are on losing ticket #500,000 you are making "High EV trades"