Exposition of a New Theory on the Measurement of Risk (1738) [pdf] | Hacker News Reader

Exposition of a New Theory on the Measurement of Risk (1738) [pdf]

engineering.purdue.edu

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Must Read:

Peters, O. (2019). The ergodicity problem in economics. Nature Physics, 15(12), 1216-1221.

https://scholar.google.com/scholar?cluster=16380731883124301...

https://en.wikipedia.org/wiki/Kelly_criterion

If interested, two books on this are great:

“fortunes formula” for a more riveting story of thorp and Shannon

“Kelly capital growth investment criterion” by Thorp, Maclean, William — for the more technical take

I found this essay in this second book, and liked it so much I found the standalone pdf.

It’s inspiring how approachable and human some of the best minds in the world were

See also:

Peters and Gell-Mann (2015) https://arxiv.org/abs/1405.0585

Adamou et al (2019) https://arxiv.org/abs/1910.02137

We have done some simulations and explorations on Peters and Adamou's work:

- https://lambdaclass.com/finance_playground/ergodicity/ergodi...

- https://lambdaclass.com/RGBM_animations/

Hihi, me too: https://github.com/trishankkarthik/notebooks/blob/master/Eva...

Hi Trish!

Hi Stan!

The original Latin text (1738) https://archive.org/details/SpecimenTheoriaeNovaeDeMensuraSo...

If expected utility is actually logarithmic, then that would an imply that a flat tax is actually fair. But a real flat tax, not the kind some Republicans have advanced in the past. It would appeal to worked/earned income and capital income.

I wonder what kind of findings there are indicating that progressive is actually more fair than flat? Perhaps most of the pro-progressive argument is just to counteract other regressive elements.

You’re arguing as if the goal of taxes is to “punish” people and therefore taxing everyone the same fraction results in the same did-utility. Needless to say, there are ostensibly many other reasons/justifications for taxes.

There are arguably two competing directives, one is too get the most revenue per disutility generated, in which case the flat tax is definitely not desirable. But another is fairness, it seems unfair to only make certain people suffer disutility, this logic is commonly accepted when discussing minority rights. So maybe the flat tax is minority rights for the rich? And what societies try to find a middle ground between the two goals?

Arguably far more concrete notions of utility (such as benefits obtained, or resources consumed, and development of human potential) are preferable for basing policy decisions on, rather than such abstract notions as logarithmic utility of made-up concepts.

Indeed. Taxes suck, bad for trade. But we need some or all spending is by the individual which kind of destroys societies (some services are best provided by-all for-all). No since we need to have taxes,why not tax the "unwholesome" instead of the "wholesome". I mean, nowadays income-from-labour and houses are taxed a lot; they seem pretty essential... Why not tax pollution instead? The market would reward sustainability instead of "easy money by maximizing on the near-free polution". Actually I think it is backwards that we tax wholesome behavior so much; much more than pollution.

It's true that a flat tax rate results in the same disutility for everyone, and if your goal is perfect equality of disutility, it seems correct.

However, as a counterpoint, following the same theory, preferentially taxing the rich concentrates the disutility in a smaller group: if you add up all the utility values in a progressive tax system you get a higher total result, though the individual results vary.

EDIT: e.g. https://i.imgur.com/DppEKTT.png

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