There’s a chance I’m doing this a great disservice, but this whole site and subject seems to scream pseudoscience.
It seems largely pushed by one guy - Ole Peters. It seems he created the Wikipedia page on this subject. His research is done under the umbrella of the authoritative sounding “London Mathematical Laboratory”, which he founded.
It makes giant claims, like the headline here which seems intended to be read as “mathematics proves collectivism is best” - and yet offers little empirical evidence beyond saying that an abstract mathematical model can tell us something about the real world. Spherical horses and all that.
It even pulls the classic pseudoscience manoeuvre of positioning itself against “mainstream economics”.
So … just normal economics. If that school of “science” was more than retconning and trying to see ideologically aligned patterns in the irrational noise and result of complex interwoven incentive systems that would make the complexity of the three body problem look tame, we probably wouldnt have a financial crisis every few years :/
So, first, you're right to be skeptical. The basic claim is this:
"Expected value (a mathematical object belonging to the very rigorous field of probability theory) is often used by economists in a non-rigorous way."
The covert implication is something along the lines of, economists do this deliberately to gain the benefit of rigor that the empirical performance of economic theory hasn't earned. You should definitely interpret that first as a political argument, motivated by a metaphysical argument, motivated by a mathematical argument.
And you're right to hear some alarm bells, because that's certainly a controversial claim.
But it's not an outlandish claim. The field of psycho-economics is basically the study of the many ways that people observably, empirically don't make economic decisions on the basis of EV maximization, so what more need be said?
And there are plenty of other metaphysical arguments that you probably accept in principle. Pascal's Wager, and the converse Pascal's Mugging, clearly show that EV maximization at least has to "break down at high energy levels", to borrow a metaphor.
So, this thought experiment is one of those, but it's actually a pretty elegant one:
In a series of two coin flips you have four outcomes, so your expected value is a quarter of (0.6 x 0.6) + (0.6 x 1.5) + (1.5 x 0.6) + (1.5 x 1.5) = about 4.4 over four = about 110% of your stake. So this is a winning gamble, so EV maximization predicts you will take it.
However: more than half of that EV, (1.5 x 1.5)/4 = 56% out of that 110%, comes from the relatively rare event in which you win two coin flips in a row.
The other three outcomes have to share the remaining 54% EV between them. It should make sense by now that if you lose, and play again, you can expect to lose again, despite still having a positive EV on the toss.
So the essential question the author is asking, the thing that makes this metaphysically controversial but not mathematically so, is this:
Assuming there's no mechanism to actually share the EV, how much should those three out of four parallel-universe versions of you who individually lose, and collectively have to come up with the cash to pay out 2x winnings, care about the one out of four of you who's taking those 2x winnings home?
And the political question is: Does more than 1/4 of you still think EV is a good basis for decision making absent a mechanism to actually share the EV?
The article seems pretty reasonable to me, the theory seems to work. Can you clarify which part of it you find problematic because I don't see it in the article?
> It makes giant claims, like the headline here which seems intended to be read as “mathematics proves collectivism is best” - and yet offers little empirical evidence beyond saying that an abstract mathematical model can tell us something about the real world. Spherical horses and all that.
True. And I agree it seems like bullshit. Now consider the entirety of economics.
Well, a lone author publishing a 4 page essay on arXiv isn't particularly compelling to say the least. I could take two hours of my afternoon and write “«‘Ergodicity Economics’ is Pseudoscience» is Pseudoscience” and publish it there.
In fact, the author of the said PDF[1] explicitly write down that he doesn't really attempted to understand the point of the guy he's criticizing:
From the second paragraph:
> it is not easy to define what EE is because I am not
an expert on this field
> It is not clear what kind of economic questions the author is trying to address
> I interpret that EE prescribes
Dude this isn't how science works, you don't just publish papers to shit on someone else's research without even having attempted to understand what it is about. WTF
Edit: oh I was missing that little gem: “Until EE provides testable implications, we should stay away from it as pseudoscience.” Coming from an economist, this is peek irony (or peek hypocrisy, you decide)
Well, it's not like mainstream econ cares about empirical evidences either… Also the track record of Welfare state vs “supply side economics ” is a good one here.
Seems like the good old false Marxist argument, in a sexy new "mathematical" package to appeal to a geeky crowd. I predict it will do extremely well here.
You dont need abstract math to research collectivism, in fact you shouldnt since you will consistently fail to factor properly the most important part - human nature. Just look at communism and its utter failures in ie eastern europe when it was enslaved by soviet russia union during cold war.
Nobody wanted willingly to give up their fields and farms, so fathers we re forced to sign contracts at gunpoint. Stories like these are not that rare, I knoe personally few whose granddads lost it all to aparatchiks.
Anyway, it was an utter failure, as communism is. Central planning doesnt work, farmers with intimate knowledge of their fields and crops were much more effective and motivated than then some random workers who tought mainly about themselves and stealing common property rather some common good.
Corruption, selfishness, laziness are things that collapse any similar pipe dream society, or make it at least very ineffective.
Society, at least in the classic European model, works just the same: everyone (yes, I know, there are exceptions, that's not the point) pays their share into health insurance, LTD insurance, unemployment insurance, workplace accident insurance, pension systems and a ton of other social benefit systems. And everyone benefits from this kind of collective solidarity - our societies are far less combative (both in the literal and the proverbial sense) than the US are.
I think the Personal Liability insurance that almost everyone has in Germany is an overlooked societal lubricant. For €10 a month, you get €10 million in coverage for accidental damage.
* No incentive for revenge law suits.
* Damages are well regulated so you can't sue for €1 million just because someone's bicycle ran over your toe.
* Can't sue for exorbitant medical expenses because in most cases there are no personal medical expenses i.e. covered anyway by govt health insurance.
I'm unsure if personal liability insurance is popular elsewhere in Europe.
Then why is real gdp per capita in many Western European countries mostly stagnant since 2008? If what you’re saying was true, Europe should be growing faster than USA and even faster than countries like China that have much worse social safety nets.
Tbh there is a price for that, our taxation is one of the highest in the world with stagnation for past 15 years (even with enormous "immigration" flow).
Also people who are in top of their fields almost never stay in Europe (especially if they are young) as potential tax burden for top brackets (which aren't that high its mostly middle class in US wealth scale) are enormous and total taxation can be as high as 60-65% (with VAT and local laws [homes, car, fuel]) for 1.5-3x less money then in US or even in some Asian based corporations which directly makes EU stagnant in most of the R&D fields (even in IT i can make like triple the money in US or 1.5x in China corporations).
EU system is good if you are making money not from work but from wealth (rent, stocks etc.) which is only for folks who already make a lot of investments in younger days or just inherit a lot of cash/properties/stocks.
I know US folks love to be angry about their country, but they are in best position for making decent living in the whole world, except possibly some small asian/european states like Switzerland/Singapore etc.
Hard disagree on that - I would be much better of with a US health insurance were there weren't months of waiting time for treatment.
Sure if I am unemployed I would be better of with the version we have in Denmark, but I won't be unemployed for long. And if I get a disability, I have private insurance for that too, because the public one isn't good enough.
The unemployment insurance portion I pay will pay out something like 1/2 my salary, but because everyone pays the same in I am subsidising those who are much more likely to be unemployed (bricklayers in winter, to make a simple example). Oh and many of those are going to get most of their salary paid out because they are not over the cap.
So to sum up: by having a single system everone pays into you are going to be put together with people who have an entirely different risk profile and you will be better of in a system were you could choose your own insurances.
Then of course I am also subsidicing all the drug users and alcoholics, but thats also an issue in the US, because society has decided that we must.
The only problem with this model is that it doesn't seem to be working long term. Economically, Europe has been stagnating for a long time, and recently its been in a decline.
So it's a nice model as long as you can maintain it, which doesn't seem to be very long.
This model works well in countries that already have the wealth to support it, usually from spending centuries colonizing other countries and sucking them dry. It doesn't work quite as well in the countries that had been colonized.
But the US taxpayer also pays into health insurance (for retirees, low income and subsidies for everyone else), long-term disability, unemployment insurance, workers compensation, social security pension.
I have an amateur theory on a similar idea and could use some feedback on it. I’m sure this isn’t an original idea, but I’m not an economist.
The argument goes like this: the wealthy members of society have a higher quality of life when income inequality is not extreme. Not because of diminished social ostracism, but because the luxury products they want to consume would not exist without the markets and broad consumer base to fund them.
In other words, the average wealthy person today has access to technology, exotic food, plumbing, fast cars, etc. that even kings didn’t have a few centuries ago. These things only exist because wealth was sufficiently distributed to incentivize their development. Many or most of them would not exist in a world of extreme inequality, if only from lack of interest (e.g., a wealthy 17th century aristocrat isn’t going to start a plumbing business, but the son of a tradesman will.) All the money in the world won’t help the King of France build a private jet in 1770.
The conclusion of this is that from a purely selfish point of view, the wealthy have a vested interest in not centralizing all wealth.
Edit: it's so bizarre when people don't reply and just downvote a comment that is purely speculating.
Seems reasonable to me, go with it. I mean, it also makes sense even at a societal level, would you rather people around you when you walk in the street be content/satisfied or looking out for a victim to steal from? I'd rather all people have sufficient access to life's needs so that selfishly i'm not scared that I'll be robbed. Your theory makes sense in many levels.
Good points. If one looks at military technology, it often tries to be ahead of mainstream off the shelf solutions.
It ends up extremely expensive and slow to develop.
After the development is finished, it might be that many of the commercial solutions could be better.
In a field where the mainstream is making rapid progress, it often doesn't make sense to create your own bespoke solution.
Some time ago I asked myself: why did gambling become so addictive? You always loose, but it’s so powerfully addictive the behaviour must be beneficial in some way. It occurred to me that you always loose when doing “artificial gambling” (casinos, horse races etc) but “natural gambling” is different. Should we explore this coastline, should we try and cultivate this plant, should we run this scientific experiment? These bets may not pay off individually, but for the overall population over time they always pay off. The natural world has ergodicity.
Often the overall notion of something being good or bad is extremely dependent on the specific details of how it's applied, and their dynamics. While pooling capital or wealth and sharing it among a voluntary, mutually interested group may work for making that wealth grow (after all it's the basis of market exchange and so much built prosperity), this shouldn't be used as a justification for defending forced collectivization and collectivism. These latter tactics might work sometimes in very specific contexts, but their dynamics make them very different and much more plausibly destructive than useful, or even moral.
This article mistakes "altruism" with "cooperation". With cooperation there are no free gifts, everything comes with strings attached. And defection and breaking rules is punished!
As an individual participant you can optimize your outcomes further by hiding some gains and claiming them as losses. In this way, you can extract more from the system. You have an added cost of determining whether to hide a particular win and an added cost of hiding the win itself. But in exchange you can juice your returns.
Therefore, just like so many old economic puzzles rely on ergodicity, this one relies either on full cooperation: either through honesty or through cheap verification (either through transparency or something else).
With that assumption visible, we can see why such an obviously positive result still doesn’t result in that action among informed participants when that precondition is not met.
I like being on the receiving end of people sharing their money. I worked so hard for so long and got nothing out of it so whenever someone gives me free money, I feel like I earned it. I only look for easy money these days and free money is the easiest of all.
Most wealthy people these days received their wealth for free if you think about it... They got it through talking BS. It's all about manipulating people to choose them, to keep them on as a supplier, to give them extra big contracts with friendly terms, to direct traffics to their websites... Anyone earned serious money through hard intelligent work?
This is shown time and time again (see all the studies about unconditional giving or basic income), and yet those with the most hoard their wealth keeping it out of the useful economy.
The mathematics of this seem sound. The ideological overhead ("cooperation is good"), however, seems wrong. The same outcome that the author achieves with pooling in a group can be achieved by an individual just splitting their wealth into N pools, and then playing the coin-toss individually with each of those N pools.
Also, I suspect an even better outcome for an individual would be achieved by essentially using the Kelly criterion, which means that you wager a certain fraction of year wealth on every coin-toss. The optimal fraction that should be wagered on each toss can be calculated with pretty basic math.
For the lefties: this doesn't mean that cooperation is bad, of course. It just means that the argument in the article can not be used in support of your ideology.
I don't think the ideological overhead of "cooperation is good" is a leftist one. Quite the opposite, if we qualify it down to "voluntary cooperation is good" it forms the heart of capitalism. The problem with leftism is that often it is also fine with "forced cooperation is good", and that's where it goes bad.
[+] [-] jl6|2 years ago|reply
It seems largely pushed by one guy - Ole Peters. It seems he created the Wikipedia page on this subject. His research is done under the umbrella of the authoritative sounding “London Mathematical Laboratory”, which he founded.
It makes giant claims, like the headline here which seems intended to be read as “mathematics proves collectivism is best” - and yet offers little empirical evidence beyond saying that an abstract mathematical model can tell us something about the real world. Spherical horses and all that.
It even pulls the classic pseudoscience manoeuvre of positioning itself against “mainstream economics”.
Crank until proven otherwise IMHO.
Edit: looks like it’s not just me: https://arxiv.org/pdf/2306.03275.pdf
Edit 2: he has a Twitter account where he rails against mainstream economics. He’s a physicist.
[+] [-] gmerc|2 years ago|reply
[+] [-] Cushman|2 years ago|reply
"Expected value (a mathematical object belonging to the very rigorous field of probability theory) is often used by economists in a non-rigorous way."
The covert implication is something along the lines of, economists do this deliberately to gain the benefit of rigor that the empirical performance of economic theory hasn't earned. You should definitely interpret that first as a political argument, motivated by a metaphysical argument, motivated by a mathematical argument.
And you're right to hear some alarm bells, because that's certainly a controversial claim.
But it's not an outlandish claim. The field of psycho-economics is basically the study of the many ways that people observably, empirically don't make economic decisions on the basis of EV maximization, so what more need be said?
And there are plenty of other metaphysical arguments that you probably accept in principle. Pascal's Wager, and the converse Pascal's Mugging, clearly show that EV maximization at least has to "break down at high energy levels", to borrow a metaphor.
So, this thought experiment is one of those, but it's actually a pretty elegant one:
In a series of two coin flips you have four outcomes, so your expected value is a quarter of (0.6 x 0.6) + (0.6 x 1.5) + (1.5 x 0.6) + (1.5 x 1.5) = about 4.4 over four = about 110% of your stake. So this is a winning gamble, so EV maximization predicts you will take it.
However: more than half of that EV, (1.5 x 1.5)/4 = 56% out of that 110%, comes from the relatively rare event in which you win two coin flips in a row.
The other three outcomes have to share the remaining 54% EV between them. It should make sense by now that if you lose, and play again, you can expect to lose again, despite still having a positive EV on the toss.
So the essential question the author is asking, the thing that makes this metaphysically controversial but not mathematically so, is this:
Assuming there's no mechanism to actually share the EV, how much should those three out of four parallel-universe versions of you who individually lose, and collectively have to come up with the cash to pay out 2x winnings, care about the one out of four of you who's taking those 2x winnings home?
And the political question is: Does more than 1/4 of you still think EV is a good basis for decision making absent a mechanism to actually share the EV?
[+] [-] unknown|2 years ago|reply
[deleted]
[+] [-] stagas|2 years ago|reply
Edit: here is also the source code for the cooperative coin, if it helps the discussion https://github.com/lmlhub/ee_web_apps/blob/main/cooperating_...
[+] [-] anothernewdude|2 years ago|reply
True. And I agree it seems like bullshit. Now consider the entirety of economics.
[+] [-] littlestymaar|2 years ago|reply
Well, a lone author publishing a 4 page essay on arXiv isn't particularly compelling to say the least. I could take two hours of my afternoon and write “«‘Ergodicity Economics’ is Pseudoscience» is Pseudoscience” and publish it there.
In fact, the author of the said PDF[1] explicitly write down that he doesn't really attempted to understand the point of the guy he's criticizing:
From the second paragraph:
> it is not easy to define what EE is because I am not an expert on this field
> It is not clear what kind of economic questions the author is trying to address
> I interpret that EE prescribes
Dude this isn't how science works, you don't just publish papers to shit on someone else's research without even having attempted to understand what it is about. WTF
Edit: oh I was missing that little gem: “Until EE provides testable implications, we should stay away from it as pseudoscience.” Coming from an economist, this is peek irony (or peek hypocrisy, you decide)
[1]: https://xkcd.com/2304/
[+] [-] littlestymaar|2 years ago|reply
Well, it's not like mainstream econ cares about empirical evidences either… Also the track record of Welfare state vs “supply side economics ” is a good one here.
[+] [-] NeverFade|2 years ago|reply
[+] [-] saiya-jin|2 years ago|reply
Nobody wanted willingly to give up their fields and farms, so fathers we re forced to sign contracts at gunpoint. Stories like these are not that rare, I knoe personally few whose granddads lost it all to aparatchiks.
Anyway, it was an utter failure, as communism is. Central planning doesnt work, farmers with intimate knowledge of their fields and crops were much more effective and motivated than then some random workers who tought mainly about themselves and stealing common property rather some common good.
Corruption, selfishness, laziness are things that collapse any similar pipe dream society, or make it at least very ineffective.
[+] [-] tremon|2 years ago|reply
"Pooling and sharing of computer source code makes everyone's products better"
Is there enough empirical evidence to support that analogy? Why shouldn't the same apply to wealth in a broader sense?
[+] [-] mschuster91|2 years ago|reply
[+] [-] heavyset_go|2 years ago|reply
Everyone pays their fair share based on income from working, but not from their wealth, assets, dividends, interest, etc in many places.
If your "income" comes from those sources, you aren't paying your fair share compared to people who must work to eat.
[+] [-] iknownothow|2 years ago|reply
* No incentive for revenge law suits.
* Damages are well regulated so you can't sue for €1 million just because someone's bicycle ran over your toe.
* Can't sue for exorbitant medical expenses because in most cases there are no personal medical expenses i.e. covered anyway by govt health insurance.
I'm unsure if personal liability insurance is popular elsewhere in Europe.
[+] [-] jiofj|2 years ago|reply
[+] [-] logifail|2 years ago|reply
There appear to be a growing number of voters who disagree.
https://www.theguardian.com/world/2023/jun/30/far-right-on-t...
[+] [-] playday|2 years ago|reply
[+] [-] machinekob|2 years ago|reply
Also people who are in top of their fields almost never stay in Europe (especially if they are young) as potential tax burden for top brackets (which aren't that high its mostly middle class in US wealth scale) are enormous and total taxation can be as high as 60-65% (with VAT and local laws [homes, car, fuel]) for 1.5-3x less money then in US or even in some Asian based corporations which directly makes EU stagnant in most of the R&D fields (even in IT i can make like triple the money in US or 1.5x in China corporations).
EU system is good if you are making money not from work but from wealth (rent, stocks etc.) which is only for folks who already make a lot of investments in younger days or just inherit a lot of cash/properties/stocks.
I know US folks love to be angry about their country, but they are in best position for making decent living in the whole world, except possibly some small asian/european states like Switzerland/Singapore etc.
[+] [-] tomjen3|2 years ago|reply
Sure if I am unemployed I would be better of with the version we have in Denmark, but I won't be unemployed for long. And if I get a disability, I have private insurance for that too, because the public one isn't good enough.
The unemployment insurance portion I pay will pay out something like 1/2 my salary, but because everyone pays the same in I am subsidising those who are much more likely to be unemployed (bricklayers in winter, to make a simple example). Oh and many of those are going to get most of their salary paid out because they are not over the cap.
So to sum up: by having a single system everone pays into you are going to be put together with people who have an entirely different risk profile and you will be better of in a system were you could choose your own insurances.
Then of course I am also subsidicing all the drug users and alcoholics, but thats also an issue in the US, because society has decided that we must.
[+] [-] NeverFade|2 years ago|reply
https://archive.ph/5eZjb
[+] [-] bsza|2 years ago|reply
[+] [-] refurb|2 years ago|reply
So what's the difference again?
[+] [-] apples_oranges|2 years ago|reply
[+] [-] CTDOCodebases|2 years ago|reply
[+] [-] ekianjo|2 years ago|reply
[+] [-] keiferski|2 years ago|reply
The argument goes like this: the wealthy members of society have a higher quality of life when income inequality is not extreme. Not because of diminished social ostracism, but because the luxury products they want to consume would not exist without the markets and broad consumer base to fund them.
In other words, the average wealthy person today has access to technology, exotic food, plumbing, fast cars, etc. that even kings didn’t have a few centuries ago. These things only exist because wealth was sufficiently distributed to incentivize their development. Many or most of them would not exist in a world of extreme inequality, if only from lack of interest (e.g., a wealthy 17th century aristocrat isn’t going to start a plumbing business, but the son of a tradesman will.) All the money in the world won’t help the King of France build a private jet in 1770.
The conclusion of this is that from a purely selfish point of view, the wealthy have a vested interest in not centralizing all wealth.
Edit: it's so bizarre when people don't reply and just downvote a comment that is purely speculating.
[+] [-] stagas|2 years ago|reply
[+] [-] Gravityloss|2 years ago|reply
It ends up extremely expensive and slow to develop. After the development is finished, it might be that many of the commercial solutions could be better.
In a field where the mainstream is making rapid progress, it often doesn't make sense to create your own bespoke solution.
[+] [-] d4nt|2 years ago|reply
[+] [-] unknown|2 years ago|reply
[deleted]
[+] [-] southernplaces7|2 years ago|reply
[+] [-] Tee3993|2 years ago|reply
> The cooperating gamblers
This article mistakes "altruism" with "cooperation". With cooperation there are no free gifts, everything comes with strings attached. And defection and breaking rules is punished!
[+] [-] renewiltord|2 years ago|reply
Therefore, just like so many old economic puzzles rely on ergodicity, this one relies either on full cooperation: either through honesty or through cheap verification (either through transparency or something else).
With that assumption visible, we can see why such an obviously positive result still doesn’t result in that action among informed participants when that precondition is not met.
[+] [-] jongjong|2 years ago|reply
Most wealthy people these days received their wealth for free if you think about it... They got it through talking BS. It's all about manipulating people to choose them, to keep them on as a supplier, to give them extra big contracts with friendly terms, to direct traffics to their websites... Anyone earned serious money through hard intelligent work?
[+] [-] playday|2 years ago|reply
[+] [-] _v7gu|2 years ago|reply
[+] [-] PappGaborSandor|2 years ago|reply
[deleted]
[+] [-] stuaxo|2 years ago|reply
[+] [-] levzettelin|2 years ago|reply
Also, I suspect an even better outcome for an individual would be achieved by essentially using the Kelly criterion, which means that you wager a certain fraction of year wealth on every coin-toss. The optimal fraction that should be wagered on each toss can be calculated with pretty basic math.
For the lefties: this doesn't mean that cooperation is bad, of course. It just means that the argument in the article can not be used in support of your ideology.
[+] [-] pcrh|2 years ago|reply
[+] [-] _0ffh|2 years ago|reply