from Hacker News

Terence Tao: "It can become more rational to think and act more boldly"

by bertman on 11/14/24, 8:32 AM with 63 comments

• by tacitusarc on 11/15/24, 5:11 PM

  I think this is a highly inaccurate model, and not useful. By adding risk and reward to determine outcome value, Tao is claiming that outcome value is increased by riskiness. Similarly, high risk situations with low rewards have relatively no downsides (assuming there are no external shocks).

  This is nonsensical.

  When people talk about high risk situations, they tend to conflate two things: the magnitude of potential downsides and the likelihood of success. To make his model meaningful, Tao would need to incorporate that from the start.

  I strongly recommend Fooled By Randomness as primer for thinking about this.

  There exists some (often non-Gaussian) curve for describing risk vs reward. I don’t know how you simplify that… Maybe take for number, one for the average negative value outcome and one for the average positive value outcome, and their associated probabilities. And then just add those together? I’m not sure.

• by mont_tag on 11/14/24, 6:04 PM

  Python code to match the article:

      from statistics import NormalDist
  
      def var(nd):
          'Value at risk'
          return nd.stdev - nd.mean
  
      safe = NormalDist(5, 3)
      bold = NormalDist(9, 10)
      shock = NormalDist(-5, 10)
  
      print('Safe: %s\tBold: %s\tBaseline' % (var(safe), var(bold)))
      print('Safe: %s\tBold: %s\tConstant shock' % (var(safe - 5), var(bold - 5)))
      print('Safe: %s\tBold: %s\tUncorrelated shock' % (var(safe + shock), var(bold + shock)))
      print('Safe: %s\tBold: %s\tCorrelated shock' % (var(safe * 2), var(bold *2)))

• by biomcgary on 11/14/24, 6:21 PM

  Am I correct to assume people are upvoting this as a possible explanation for the outcome of the US Presidential election?

  I.e., if people think that they are in economic doldrums or decline, taking a risk seems better than the status quo?

  Voting out the incumbent party seems popular during economic downturns (real or perceived) unless the party clearly inherited the economic crisis AND seems to be addressing the problem energetically (e.g., post-1929 FDR).

• by RA_Fisher on 11/15/24, 12:22 PM

  Well obviously Terence isn’t an economist. People don’t minimize risk, we maximize utility.

• by darepublic on 11/15/24, 7:13 PM

  I am constrained in my decision making by my subconscious. I have often in life made poor decisions out of strange compulsions driven by mood. Mathematical skills be damned

• by gmays on 11/14/24, 7:46 PM

  "In times of great uncertainty, the relative value of "playing it safe" is reduced, since - for better or for worse - no option can now reduce risk to truly safe levels. And so, paradoxically, in times of risk and uncertainty, it can actually become more rational to think and act more boldly - or more precisely, to bring one's personal risk tolerance to match the amount of external risk present in the system."