Is there any empirical reason to think that knowledge about ‘rationality’ is particularly helpful for investing?
Yes. Rationalists are likely to know about, and adjust for, overconfidence bias, and to avoid the base-rate fallacy. Presumably Bayesian Investor already knows that most people who thought they could beat the market were wrong, and thus took this into account when forming their belief that the strategy can beat the market.
And it’s not necessarily the case that Bayesian Investor’s strategy is worth doing for everyone and that people just don’t do it because they’re stupid. The strategy carries more risk than average strategies, and this alone is possibly a good enough reason for most people to avoid it. Effective altruists, however, should probably be less risk averse and thus the strategy is more likely to be useful for them.
Also, we’ve been saying most people who think they can beat the market are wrong, but on reflection I’m not sure that’s true. My understanding is that using leverage can, in expectation, result in you beat the market, and I suspect this is well know among those knowledgeable about investing. People just avoid doing it because it’s very risky.
I agree that Bayesian Investor’s strategy has a high chance of not beating the market, has somewhat higher risk, and would probably result in you occasionally rebalancing your portfolio, but it still seems like it’s very much worth using or at least worth having someone look into.
The funds Bayesian Investor suggests you invest in are ETFs, which I think decreases the need for doing much rebalancing. And rebalancing takes little time. All you need to do is buy and sell from a handful of ETFs; I doubt this would take much more than an hour or so. There’s also the transaction cost of buying and selling stocks, but these costs are low, too, and probably under $100 per year.
I understand many people knowledgable about about investing have thought they could beat the market and were wrong, but how many people were both knowledgeable about investing and about rationality but were still wrong? Given how few rationalists there are, I doubt there have been many.
If we assign a 1⁄3 chance of the strategy beating the market by 3% and otherwise matches the market, then with $100,000 in investments the strategy would in expectation increase our earnings by $1,000 per year. I extremely roughly estimate the annual cost of rebalancing to be $100 per year, including lost earnings due to opportunity cost, which results in the strategy giving you a net profit of $900 per year. This sounds like a good deal to me. And with $1,000,000 invested it would net $9,900 per year.
There’s also the potentially increased risk, but for the amounts of money we’re dealing with, I think we should be pretty much risk neutral. This is because individuals who aren’t extremely wealthy generally can only the amount of funding a non-tiny organization gets by a small amount, and when changing the amount of funding by only a small amount diminishing marginal returns to funding would have little effect.
Am I missing something?