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Market 1, Chavez 0

Yesterday came an awesome piece on news hasn't been spread enough so here it is.

It is strongly reminiscent of a recent opinion piece in the Wall Street Journal arguing for the same thing... dump the US gold reserve to burn the nutty right wing hoarders. Some nutty right wing hoarders said in the comment: Bring it on, we'll be here to buy.

Well Chavez tried to do something quite similar. Prop up his failing currency by dumping his foreign reserves on the market. And guess what? The evil speculators thanked him and sucked up the money.

Of course, those greedy speculators artificially devalue the great revolutionary bolivar by manipulating the market, but somehow a huge oil exporting nation sitting on a ridiculous amount of foreign exchange reserves is unable to manipulate anything. Manipulation works in mysterious ways ^^

Now don't get me wrong, dumping one's reserve in dollar might be a good thing, but if you're going to do that

- You do not brag about it. Trading 101. You do it stealthily like the Chinese. When the Chinese central bank say they don't want to buy more Gold, it's dumb to believe them, that's what they'd say regardless.
- You do not exchange it against your moronic socialist currency that you're simultaneously working to devalue.

All in all, this is evidence that markets work pretty damn well.


Anti-democratic rant from the bottom of my drawer

Cleaning my desktop today I stumbled upon a small article I wrote back when Thiel made his infamous comment on women's suffrage. I have unfortunately little time to edit it or finish it, but I don't want to let it sink in abandon either, so here's the raw footage.

Ah come on !

Following Thiel's comment on women's suffrage, there's been a lot of talk about democracy. I keep trying to write a post about that and always end up thinking. Bah, I should just tell people to read "Democracy, the God that failed". So I'll start with that. Read it. I'm not a fan of Hoppe cultural conservatism, but he makes compelling argument against democracy. Now let me explain a few personal qualms I have with democracy.

Democracy is like the movie Titanic or Obama. I dislike democracy, but it's really people's opinion surrounding it that makes it fucking hatable. I have been an anarcho-capitalist and a libertarian for only a few years, but as long as I can remember, democracy and the high esteem it is held into have always struck me as silly.

First of all, people hold democracy as a political ideal. If there is a political ideal, it should be defined parsimoniously, it should be an extremum for some form of criterion. The idea to let-all-people-but-maybe-not-children-queue-every-two-to-ten-years-no-more-or-it's not-democracy-anymore-to-put-in-a-secret-ballot-in-a-box-so-that-the-ballot-be-counted-and-some-aggregate-be-formed-deciding-who-will-make-the-laws-according-to-a-set-of-rules-called-constitution-that-can't-be-bent-but-can is *NOT* parsimonious. There is no way this is a political or moral ideal, there is no way this is "the opposite of tyranny" (which is parsimoniously defined). Democracy as it is most often defined occupies a tiny region in the space of political systems. It's incredibly unlikely that broad ideal principles command such a precise organization system.

There is a conservative argument for democracy. If somehow society has organically evolved and settled with democratic institutions, then this tiny region of political system is optimal for some criterion. This is a valid criticism, and I understand why a conservative would be attached to democracy and democratic institutions. However, such a reason would not be idealistic. It wouldn't claim there's something grand about democracy, only that we should exercise caution in changing these institutions.

Anyone who claims democracy as an ideal is a moron.

A great point Hoppe raises about democracy: who are the democratic thinkers? The Athenian democracy had nothing to do with the democracy as broadly understood, Rousseau envisioned something radically different at a very small scale, based on consensus more than majority rule. Montesquieu had in mind something closer to a random selection of representatives. There is simply no serious thinker behind democracy.

One of the reason democracy enjoys such popularity is that is has been adopted by the left as a way to separate itself from the atrocities of communism. Communism was simply not democratic enough. While it is true that free elections could have quickly ousted Stalin, it's obvious that the problem with communism is much deeper than that. Instead of being opposed to free market capitalism, communism was opposed to democracy by the likes of Fukuyama.


Western view on Iranian elections

Disclaimer: I don't know squat about Iranian politics. However my point isn't about Iran but about Western politics, which I know about.

I am under the impression that the Western support for Iranian protesters has nothing to do with defending democracy. It looks like the favorite was slightly more liberal than Ahmadinejad, and therefore he has more support in Occident, a good thing in my opinion.

However, if the more fundamentalist candidate had been defeated and the more liberal candidate had won, and if people had taken the street to contest the election, then no matter what the evidence for ballot fraud, I am sure that the press would be all over the violent anti-democratic protesters for being sore losers clinging to a past order. Similarly, if violent protests arose outside of the context of an election to oust the fundamentalist leader, the press would support them.

(This is only my intuition, but that doesn't mean it's not backed up, I just can't easily summon what backs it up)

What we're seeing now is that most people express outrage over voting fraud, but deep down, they're really outraged that a less liberal candidate is holding power. In a way this is very healthy, it's good that people care about Liberty and not Democracy. However, it'd be even healthier if they recognized democracy has nothing to do with it and left it out of the debate.


A stratagem to delegitimize democracy

This paper should be familiar. It was featured by Levitt in the New York Times and has been discussed at length in these circles. It describes what happened when a Swiss Canton allowed mailing ballots in an election. Participation fell dramatically. The article concludes that most people vote because showing up at the poll booth signals you are participating in the election.

I was recently reminded of this paper by an article on Slashdot telling a similar story:

Voting fell 83% in an all digital election

Why should we care? Many anarchists, including me, argue that if one is to vote, it is better to cast a blank ballot than to pick the least worst candidate. If the least worst candidate gets a sufficient number of votes, it may send a weak and noisy signal to the population about the ideas held by some anarchists. However, non-voting sends a better signal. A low turn out indicates that people do not really care about the election. It indicates they perceive the different candidates as similar. Better, it attacks the myth that democracy is representative. It creates a visible distance between the state and the citizens.

Indeed, the success of democracy has relied on letting people believe that as long as anyone could become an institutional exploiter there was no exploitation going on. In Democracy: the God that Failed, Hoppe argues that in monarchies, people clearly understand the nature of the state as a separate organization. A democracy with a lot of eager participation is a recipe for collectivist arguments about the “will of the people”. Low turnout allows the state to be viewed as a separate parasite.

Therefore, I suggest that libertarian pushs for internet or text message ballot in the US. I do not think the government would see that one coming. It seems to me that any proposal to have Internet voting would look like the will of technology and democracy enthusiasts, not anti-democracy activists.

Imagine for a second Internet voting is used during the next election and voting drops 83 percent... This would deal a serious blow to the collectivist rhetoric about a government “by the people”. It would also considerably increase the proportion of principled votes which might be a good thing.

I want to make it clear that I am not calling for change through the ballot. If you have that impression, I have been terribly misunderstood. I do NOT think this is a magic bullet, and it will obviously not lead to libertopia. Still, it is a reasonably easy battle to win. Politicians want to appear as technology savvy and might go for it, and the public might go for it. There's a nice opportunity here.


Illegal Evidence

WASHINGTON – The Supreme Court said Wednesday that evidence obtained after illegal searches or arrests based on simple police mistakes may be used to prosecute criminal defendants.

Many libertarians have posted this news and are up in arms against this judgment. The bad news of course is that this will certainly lead to more people being convicted for drug related offenses, and to more warrantless searches which will be disguised as mistakes by the police. I think however that this is a good ruling. To go further, I think the evidence should be kept even if the warrantless search was not a mistake but a deliberate violation of rights.

John and Jack are supected of murder, but Jack has a good alibi and only John is tried. John is about to be convicted when Robert, a last minute witness testifies that he found the crime weapon in Jack's drawer. Robert is a small-time burglar, he broke into Jack's house to steal his huge TV. While looking for cash in the drawers, he found a gun and a bloody hankerchief. Since he read about John and Jack in the press he decided to do the right thing: help innocent John and get Jack convicted. Should we ignore the evidence on the ground that it was obtained as the proceed of a crime? Of course not, this would be absurd.

A cop making a warrantless search is commiting a crime, and he should be punished harshly for doing so. However, this does not mean that the evidence should be discarded. Evidence is information and information is neutral, it cannot be tainted with crime. The same goes for intellectual property, if I obtain a copyrighted work from someone, at least one crime was committed : the person who initially obtained the work (the information) broke the agreement not to disclose it to a third party. However, other people are not tied by this agreement and are not committing a crime by using and disclosing the information. Similarly, a judge or a jury has no reason to discard a piece of information. The fact that it was obtained as a proceed of a crime may cast doubt on the veractiy of the information, but it doesn't mean it should be ignored.

If one is concerned about warrantless searches, one should seek harsher punishment when they happen intentionally, or compensation for victims when they are conducted by mistake. If one is concerned with unjust drug law, one should also try to fight these.

However, saying evidence should be discarded is a poor consequentialist decision that violates people's right over their own brain, over the information they should to take into account.


Think things are bad in the US?

Economically they may be... the market is tanking, the FED is printing like crazy, entire parts of the country are being nationalized. I do however remain optimistic because the people are still not totally corrupt, they still have a decent moral compass and some remain of respect for property rights. The following story happened in Rennes, in the Bretagne region of France. Should the following happen in the US, I think hardly anyone would support it, and emphatically not the democratic party. In France, this was quite popular...

A few days ago, the AFP published this (my crappy translation cannot even begin to describe the socialist newspeak used here. The substantive "précaires" essentially means someone who can be fired).

According to the police, around 25 people, belonging to a collective of "chômeurs et précaires" - unemployed and people with short-term jobs - grabbed food today, and left without paying for it at the Galeries Lafayette, a French department store, in Rennes.

The activists stuffed their carts with food around noon then blocked the checkout counters, unfurling a banner: "chômeurs et précaires en lutte", indicating their social struggle. After negotiating with the management of the store, which was crowded with Christmas shoppers, they managed to leave with their provisions without paying. No complaint was filed with the police, who went on site but did not arrest anyone.

The AFP contacted the store management who declined to comment.

A look on the activist website is even more eye-popping.

An autoreduction (sic), organized by the "Mouvement des Chômeurs et précaires en lutte de Rennes" - Movement of the unemployed and insecure job holders from Rennes in social struggle - happened at the Galeries Lafayette, in downtown Rennes, Saturday the 20th of December.

Saturday the 20th of December, the MCPL of Rennes made an autoreduction at the food aisle of the Galeries Lafayette.

The purpose was:

- To stop, for a time, the consumption pace during the Christmas season
- To get some eats, that the store management would gladly give us. Playing the negotiation card, we hope that we can't be charged for theft in reunion.
- To put forward the ongoing struggle against the government reforms (a list of French government programs follows, in particular one that makes it mandatory to accept a reasonable job offer at some point or lose your unemployment benefits, and another one that requires you to check in every month for job offers to continue receiving money).

Story:

Thirty of us gathered in front of the store, and we entered in small groups. Everyone grabbed a shopping basket and filled it, as he wished with food.

Once our baskets were full, we went to the checkout. The plan was to get three people for each cash register, one behind another with a basket, the first one would refuse to pay and explain our action. We asked to meet the manager and negotiate with him.

All of this while avoiding any kind of violence that could justify arrests. We blocked around height cash registers total. Meanwhile, two of us unfurled the banner "chômeurs et précaires en lutte", while others handled leaflets explaining our actions.

Quickly, a line formed at the checkout. Some of us took the floor to explain our action.

Two security guards from the store came along. They were angry but quickly calmed down. The chief of security called the store manager. The manager chose to let the situation deteriorate rather than immediately start negotiating.

20 minutes after our blockade, first proposal from the manager: "put everything back in the aisles, free the registers and send a delegation to negotiate in my office". AH AH AH AH !!!

Meanwhile, discussions get heated with some consumers who do not support us, mostly old people and bourgeois from downtown. A few reactions: "you're taking us hostage", "my cat's hungry", "you don't know what work is, you've never worked", "you've nothing to do here"...

A few supports: "I'm with you, don't give up anything". A security guard talks to us about a man and his child "move along, can't you see you're preventing them to go through". The man's answer: "not at all, and by the way, I support them".

To put it in a nutshell, unusual activity for this store.

After 40 minutes, a member of our collective takes his walky-talky to discuss with the manager. He becomes more reasonable and agrees to come down, but he does not seem ready yet to give in to our demands. He comes down and gives conditions which we seem unacceptable to us : for example, he wants us to take a value brand foie-gras instead of Fauchon foie-gras (N.B one of the most expensive brand), that we free the counters and go settle this discretely in a small room, away from the clients. We jettison ballast by offering to take only 10 baskets out of twenty. The talks are moving fast, we feel the situation is going to unlock.

Last disagreement, he wants to check the article in the registers, something we refuse to do thinking it can be used against us. He eventually gives in and we leave with 10 bags of eats.

Intense moment of joy among us, we leave victorious from the store, with 10 bags of eats, checkout blocked for an hour, everything without a glitch. The cops were indeed called but remained discreet. We saw to national cops and a member of the RG (Renseignements Generaux, an internal intelligence service). To this day, the store manager has not filed a complaint.

We will redistribute the eats to unemployed in front of the unemployment bureau in Rennes starting Monday morning.

Let's spread this practices, let's get organized!!!

If you are interested by our movement, contact us by email mcpl2008@gmail.com (go spambot, go)

Our reunions are held 22, Bellevue street, Mondays at 6 pm. The next one will be held on the 5th of January.


If I were president

A friend of mine visited a boys and girls club in Hartford, Connecticut. He took these pictures of a project where the kids tell what they'd do if they were presidents. Enjoy

Image Hosted by ImageShack.us
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Last but not least,
Image Hosted by ImageShack.us

A serious comment: it struck me that kids do not think in term of budgets because, as far as they're concerned, getting stuff only depends on the willing of the authority. The state can allocate free stuff to everyone, merely by agreeing to. There's no notion of trade off. Adults do it to, I shall call it, the allowance fallacy. The belief that the government can will things into existence.


American serfs

http://www.change.gov/americaserves/

When you choose to serve -- whether it's your nation, your community or simply your neighborhood -- you are connected to that fundamental American ideal that we want life, liberty and the pursuit of happiness not just for ourselves, but for all Americans. That's why it's called the American dream.

Truly evil, and not a hoax (notice the .gov)


Ayn Rand was right (and so was I)

This is a subject I already touched here
Then I said,

Consequentialists arguments are very efficient because people are generally willing to change their mind easily on those matters... but what make them successful also makes them weak : they can be replaced with other consequentialist arguments. Moral arguments are much tougher to make because people are more reluctant to accept a new moral philosophy, but they are also much more stable, and will likely be successfully passed onto children. Every consequentialist argument however is a step away from freedom as an end instead of freedom as a mean. On the long term, the fate of the new belief is unknown... it may be replaced with an economic fallacy. It's negative effect on morality will always be damaging though.

I was right (duh). Indeed, with the financial crisis raging, it is easy to find free market libertarians getting cold feet. Greenspan confesses

I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms,"

or

Waxman pressed the former Fed chair to clarify his words. "In other words, you found that your view of the world, your ideology, was not right, it was not working," Waxman said.

"Absolutely, precisely," Greenspan replied. "You know, that's precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well."

Whoa, this is Greenspan ?
There are other examples, of libertarians hiding, feeling guilty, changing their mind about regulation, etc. I've seen plenty on French classical liberal blogs.

Consequentialist Austrians are ok for now, because they saw it coming long ago, but the problem remains. Regulation is a matter of rights. A state is not a special moral entity, it has no right to tell other people what kind of business they can engage in, provided they respect other people's right. Although I don't believe this crisis was the result of free market gone wrong, I do believe it is possible for big crisis to happen in a free market, especially since globalization has tied so many people together. In any case, even financial Armageddon do not justify regulation, period.

Rand understood this problem very well and kept repeating that if you make promises on the "good" results of capitalism, you might end up with disappointed people turning against capitalism. How many people who where convinced that free market are good on a utilitarian basis are now changing their mind ? Years of the utilitarian / libertarian propaganda have been destroyed in a matter of months.


Well, Arafat got the peace prize after all

And now Krugman has the Nobel in economics.


Gold delivery default

Right now, the price of gold implied by Comex futures is $928.60 per troy ounce, down $83.8

According to Bloomberg, investors are selling gold to get cash. Are they? On the bullionvault.com (greedy referral included in the URL) internal market, the bid ask spread is huge, but still shows a different picture. In the New York vault, people are selling for $917. Holy crap, why the difference ? Well, it could be that BullionVault only has gold bug users who will hold to their gold no matter what, but consider that gold is being BOUGHT at $892.

The truth is that there are defaults on the future physical delivery, where you are allowed to settle in cash (if you whine)... at the level of the future... which in turns prices the risk of default. This circle brings the value of the future to essentially zero. Fast. Patri Friedman asked recently,

Are there realistic situations where it would be better to stock up on physical gold & silver than on financial futures related to gold & silver.

Here's one.


An economically sound, morally just and free fix to the subprime crisis

While the subprime crisis should have best been avoided than solved, there is a simple way which could have solved it.

All the efforts of the government, no matter how you look at it, were targeted at pumping money into the financial system to inflate prices. Not only is this approach unsustainable - it tends to produce other similar crisis - it is also morally dubious.

Yet, I contend that there is a moral, simple, fast, effective, free, and economically sound way which would have solved the crisis.

Overall, the economic damage was the construction of too many houses. The fact that people with bad credit got to have mortgage is not a cost in itself. Instead of increasing the supply of money to match the supply of houses, it would have been far better to increase the demand for houses.

At the beginning of the crisis, in August 2007, the US government should have simply auctioned 20,000,000 green cards, and use the proceeds to fund the tax stimulus. Problem solved. Not only would this have stopped the crisis, it would have erased the cost... the error of building too many houses would have become, by chance, the correct economical choice for the increased demand.

It's a bit of a one shot, and doesn't address the systemic problems that lead to the crisis, but it's certainly much better than trillion of dollars of bailouts.

Why doing this is politically infeasible while using trillion of tax payer money is, frankly is beyond my comprehension.


Left skewed financial bets


Most of the money invested can be traced back to people who want good return and little risk. Be it through hedge funds, pension funds, funds of funds, bank deposits, ultimately there's someone out there who wants his capital to grow, and there's a money manager with a different incentive.

Most money management involves asymmetric risk for the manager and symmetric risk for the client. This is a classical principal agent problem. The manager has an incentive to increase the risk taken to make the most money. Heads we both win, tails we both lose, but I don't really lose that much while you get the full hit. This can be mitigated by various tricks, risk management, watermarks, and countless other, but overall the asymmetry persists.

But "risk" is a crude measure of what really matters, the probabilistic distribution for the payoff of the bet. One can use for example historical standard deviation, but it vastly underestimates the risk of fat tail distribution.

The most beneficial distribution for a money manager is really a negatively skewed or left-skewed distribution. A left skewed bet will turn in a profit with high probability and a loss with low probability. However, the loss will be larger than the profit. Its historical mean is also very likely to overestimate its true mean, implying that analysis of past performance is likely to overestimate future performance. A typical left-skewed bet would be to bet that Hillary Clinton will not be elected in 2008. You can lay this on Intrade and I think you are pretty sure to make $3 dollar on this, but then you might lose $100 if it happens (most likely scenario, Obama is killed by a crazy white supremacist sniper)

Not only are left-skewed distribution good for a money manager, right-skewed distribution are really bad. You lose money most of the time, and the evaluation of your performance from your track record underestimate your true expected performance. Imagine a betting strategy that loses a dollar every month, and wins 36 every two year. It's actually a great strategy, but unless a money manager can prove it works, he's likely to lose his customer or get fired before he can even turn in a profit.

On financial markets, every product can be thought of as a bet, and every bet has its own implied distribution. Overall the price of the bets move so that supply and demand are matched. If most of the trading is done by money manager, then there should be good demand for left-skewed bets and good supply of right-skewed bits, as a result, the price of left-skewed bets fall, and the price of right-skewed bets (which are by the way just laying a left-skewed bet). This also mean that the price of financial assets does not reflect the market risk-adjusted expected return, but some other, skew-dependent value.

There are ways for a money manager to extract this value. One way to do it is to package as much negatively skewed bets as possible. The distributions should average out and produce a nice normal distribution with no skew... Well that's the central limit theorem, but in practice, if you're dealing with fat tails, it could take a lot of bets to average this out, if it's even possible. It could be infeasible for a money manager to extract this value.

However, a simple investor with symmetrical incentives can profit from this situation by making right-skewed bets. He will not "beat the market", he will be helping money managers get rid of unwanted risk profiles and get paid for that.

So what are the right-skewed bets?

Out of the money options are the obvious... a put struck very low bets that a stock will fall a lot, a call struck very high bets that a stock will rise a lot. Most of the time, the option will expire worthless, sometimes it will make money.
Generally you can bet that the distribution of return of assets will have fatter tails that assumed by the market. Nassim Taleb makes nice epistemological arguments for fat tails and how they are underestimated. This is not really the point I am making here. I am simply saying that money manager will bet that distributions have no fat tails because it's a left skewed bet. Therefore, taking the opposite side should bring profits. One of the most common skewed trade is the yen carry trade. From a trader's perspective it's a great trade: borrow yen at low low rates, invest it in New Zealand at high rates, pocket the differential as long as the yen doesn't appreciate to much. You get money every day, it's fantastic. Of course, if yen rates start to rise, the yen will appreciate, many traders will get squeezed, try to get out by buying yen, producing further appreciation and pushing more people out of the trade. If a money manager wants to bet on that scenario, he stands to make a lot of money, but how will he explain to his boss or his customers losing money every day on the trade? Even options involved regular money loss... every day that passes without the event that you're expecting happening is a day where the market value of the option diminished, out of the money option have negative carry. A call option on the yen/new Zealand dollar is a massively right-skewed trade that does not appeal to money managers.
Betting that debtors will default is also a typical right-skewed trade, which can be made by buying protection with a CDS... again it involves shedding money regularly. This works if things go wrong, if things go well a winning right-skewed trade is betting on the recovery of distressed companies.

So right-skewed trade are nice, and if economics are right they can make lot of money, what's not to like ? A good reason to hate right-skewed bets is the income tax, which really makes your incentive asymmetrical. Two month ago, I wanted to bet that oil would quickly go to $200 or $100. The way to make that bet are option on oil futures (keyword is quickly). The problem is, if by chance you actually win your bet, enjoy a 50% tax on your profit. If you lose, well you can sort of carry your losses over fiscal years, but it is very limited. You might get by if you make a lot of trades but it pretty much kills every edge you could possibly have. One (legal) way to do it is through an offshore company which does not pay corporate tax. You still get taxed when you get the money out, but it can be after a long time, after many trades, when hopefully your return isn't skewed.

Disclaimer : whatever you do don't ever blame me, this does not necessarily represent anyone's view, including my employer or even mine.


Gastronomic lessons from a two-armed bandit

The two-armed bandit is a nice theoretical framework for a large class of problems we encounter in everyday life. You face a strange slot machine with two (or more) arms. You can play for free by pulling a lever... you know each lever will pay you a random amount following a fixed - but unknown - distribution. You start pulling levers, but you realize that unfortunately, you only have an hour to squeeze the most money out of this machine... how should you play?

The exact answer depends on your prior on the payoff distribution of each arm, on your risk aversion, and on your time preference. Finding the optimal solution is rarely doable, however, most solutions follow the same pattern... you start by pulling both arms alternatively - to gather information about the distribution of each arm - then you start pulling mostly the arm that provides you with the best risk/reward return.

Unfortunately, your time is scarce... you have to allocate your hour between two tasks: information gathering and money making, it's called the exploration / exploitation trade-off.

This trade-off is very common.

  • Should patients be given new experimental treatments or more mature treatments?
  • What should you study in college?
  • Should you stay with your girlfriend?
  • Should you quit your job?

All of these involve the decision to forgo a known payoff to discover a potentially greater unknown payoff.
I was recently surprised to realize I was playing this game very poorly when it comes to picking a restaurants or picking a dish on a menu. There are easily more than 10,000 restaurants in Manhattan, yet I found myself going to the same places over and over to order the same dishes over and over. I am not the only one. I observed many people displaying this behavior. The way people pick restaurants is generally reminiscent of a meta-heuristic called stochastic diffusion search. Everyone picks a few restaurants at random and from there discover new restaurants when they are invited by friends who made a different initial pick. This method doesn't work so well since people tend to have lunch/dinner with the same other people.

Generally speaking, the dish-picking or restaurant-picking behavior of most people seem to imply a ridiculously high risk aversion (I want a guaranteed lunch experience) or time preference (the benefits or discovering a better restaurant will mostly extend in the future where I will make more informed choices).

Why is this? I think we have a strong conservative bias when it comes to food. Most food is marketed as "old-fashioned", using "traditional recipes". Menus from Chinese restaurants feature Pagodas, not the Shanghai skyline, and menus from pizzerias often come with Renaissance illustration. You don't see Intel marketing it's CPU's as made in the time tested tradition of silicon wafer artisans.

One possible reason is that food conservatism used to be required for survival. Maybe the red berries are slightly tastier than the black berries; maybe they'll kill me... I think I'll stick with the black berries. This form of conservatism is still alive today, when people favor organic food for example. That may or may not be a rational thing to do; however, when it extends to picking a specific dish on a menu, I'm pretty sure it's an undesirable bias.

Picking dish is always a difficult experience for me. I am tempted by many dishes, but I always fear I will make a wrong decision and forgo the opportunity to have the most delicious dish. Of course, I could always go back to the restaurant, and I often do, but every time feels like it is the last opportunity for me to have the most likely best dish on the menu.

In the multi-armed bandit setting, it means I am always favoring exploitation over exploration. I recently decided to strongly favor exploration. I decided to pick restaurants solely based on customer ratings, not on previous experience. Should I go back to a restaurant I knew, I committed to always try a dish I didn't try before. While I had a few disappointments, I did discover that many of my previous restaurant choices and dish choices were sub-optimal. I have experienced a lot of new restaurants, and very often have I had the feeling "this place is great, I should come back here!", only to realize this is the kind of thinking that led me to avoid the place in the first place. So whenever I like a place, I make a commitment not to come back there for some time.

Can you think of activities where you strongly favor exploitation vs. exploration or the opposite?


A hidden cost of moving to socialized healthcare

When I argue with Americans about socialized healthcare, I argue we shouldn't move towards it, when I argue with French people, I argue we should get out of it. On a moral level, the arguments are roughly the same and there is no need to go into details here : you shouldn't be forced to buy an insurance service, period.

When arguing for getting out of the system, there are legitimate practical problems that I need to deal with. Even if the moral case is rock solid, the practical issues, moving from here to there, are always relevant. There is one practical issue that I've never seen raised, and it's a tough one.

Imagine a socialized healthcare system where everyone is insured. Insurance is mandatory so there are no adverse selection problems. The state forecasts the costs and adapts the premium - it's actually not that hard to balance as long as it's fairly stable. Of course there are many other problems, moral hazards, the impossibility to decide what should or should not be covered, etc. 

Imagine now that, one day, a better government decides to get rid of the system. They say for example, from next year you'll have to find yourself a private insurer, or, from next year you may opt out of the current system and get a private insurer if you wish. You have an expensive chronic illness, next year comes, you have no risk to insure so you try to stay with the state insurance. So does everyone with an existing condition, adverse bankrupts the system, at best your premium increases dramatically.

I was actually never opposed that argument... but I could. So I've come up with some patchy solutions. One is to decide on a cutoff date, people born after next year will not be insured. That solves the problem, but it takes a century to get out of the system. Another solution involves the state's insurance making packs of 1000 insured persons drawn at random and sell the pack (without revealing its content) to insurers committing to offer insurance for life. Your risk has become insurable again since you're just a random person. From there, you can always arrange with your insurance to move to another insurer and you're free again. It's a bit cumbersome but I think it works.

The blog title was about moving towards it, and so far I've been talking about how to get out of it... what's my point ? I've heard many people argue for socialized health care on the US om the ground that "it hasn't been tried", that it deserves to be tried etc. When you try something, that generally implies a free option to get out of it. Well, that option is not free, it comes at a huge cost. Getting out of socialized health care is a terrible mess.

Once it has been argued thoroughly that socialized health care is simply criminal, it might be helpful to point out that, if it's implemented and it fails, it might be almost impossible to get out of it. It cannot just be "tried", it's a very pricey commitment.