I would really like to see a graphical representation of the logic involved in the original AGI and EMH post as well as how this post responds to that logic. As I pointed out in a comment on the original post, I think a key causal mechanism of the “EMH” outcome is feedback loop(s):
People who are “in the know” can normally profit by being “in the know”, which enables them to use more profits to further correct the market towards efficiency.
People who were not originally “in the know” can see that someone is systematically profiting (or competing beliefs/strategies are systematically failing), and then educate themselves to join in the profit-making, which helps correct the market.
But my point is that when there is little opportunity for such feedback loops, this does not reliably hold. The “big loop” in this case is “AGI happens and then… we’re all dead or super rich”; it’s not actually a loop. The smaller loops are about changes in people’s beliefs about AGI timelines, but it’s unclear what exactly these supposed loops look like, including which actually make sense from a game-theoretic perspective. For example, some narratives I’ve seen/imagined appear to rely on someone at the end of the chain “holding the bag” of [treasury bonds/etc.] right before the economy goes crazy in anticipation of AGI, at which point you have both counterparty risk (i.e., they may not get paid) and value risk (i.e., getting paid does not do you much good).
Ultimately, economics is complex. I think it might help people better understand if the disagreeing parties in this discussion used communication methods that were easier to interpret/dissect. I think one such method would be diagrams (although I’m not fully confident that is optimal).
Thanks Harrison! Indeed, the “holding the bag” problem is what removes the incentive to “short the world”, compared to any other short positions you may wish to take in the market (which also have a timing problem—the market can stay irrational even if you’re right—but where there is at least a market mechanism creating incentives for the market to self-correct. The “holding the bag” problem removes this self-correction incentive, so the only way to beat the market is to consume more, and so a few investors won’t unilaterally change the market price
I would really like to see a graphical representation of the logic involved in the original AGI and EMH post as well as how this post responds to that logic. As I pointed out in a comment on the original post, I think a key causal mechanism of the “EMH” outcome is feedback loop(s):
People who are “in the know” can normally profit by being “in the know”, which enables them to use more profits to further correct the market towards efficiency.
People who were not originally “in the know” can see that someone is systematically profiting (or competing beliefs/strategies are systematically failing), and then educate themselves to join in the profit-making, which helps correct the market.
But my point is that when there is little opportunity for such feedback loops, this does not reliably hold. The “big loop” in this case is “AGI happens and then… we’re all dead or super rich”; it’s not actually a loop. The smaller loops are about changes in people’s beliefs about AGI timelines, but it’s unclear what exactly these supposed loops look like, including which actually make sense from a game-theoretic perspective. For example, some narratives I’ve seen/imagined appear to rely on someone at the end of the chain “holding the bag” of [treasury bonds/etc.] right before the economy goes crazy in anticipation of AGI, at which point you have both counterparty risk (i.e., they may not get paid) and value risk (i.e., getting paid does not do you much good).
Ultimately, economics is complex. I think it might help people better understand if the disagreeing parties in this discussion used communication methods that were easier to interpret/dissect. I think one such method would be diagrams (although I’m not fully confident that is optimal).
Thanks Harrison! Indeed, the “holding the bag” problem is what removes the incentive to “short the world”, compared to any other short positions you may wish to take in the market (which also have a timing problem—the market can stay irrational even if you’re right—but where there is at least a market mechanism creating incentives for the market to self-correct. The “holding the bag” problem removes this self-correction incentive, so the only way to beat the market is to consume more, and so a few investors won’t unilaterally change the market price