Monte Carlo and Us

This, by Corey  Hoffstein, is the most insightful thing I read yesterday.

You are not a Monte Carlo Simulation” (click title for link)

It presents a simple but profound idea. It helped me pull together and contextualize several “gut feelings”.

  • The average experience of a population (ensemble average) can be very different from the experience of the average person (median)
  • This is especially true when the lower bound is zero and the upper bound is infinity. Income is a classic example
  • It helps understand why we are risk averse: why we feel the loss of $1 to be twice as painful as the gain of $1. The log-scale provides an appropriate measuring tape
  • Our lives are a single replica multi-period game, not multiple replicas of a single game

Check it out!

 

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