If you're looking at a marginal benefit, you definitely don't want to be maximising the log of that benefit.
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Of course not. But again, I am not talking about maximization of subjective enjoyment. I am talking about managing a portfolio in order to maximize wealth
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The model doesn't assume that the portfolio is all of your wealth, but it does assume that it never interacts with the rest of your wealth. More realistic in some cases (like a Roth IRA) than others
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I mostly disagree with this: log isn't linear.
So if you separately have $1b on the side and are considering what to do with $1k, then the growth rates are going to be roughly 0.00005% instead of 50%, and the nonlinear terms are going to be much weaker
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Totally, it’s irrelevant. But given that you are managing this $1k as its own pot, might as well manage it well. If you robotically maximize EV for it, then it will get St. Petersburged and end up at 0 with very high probability
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Imagine you divided your $1b into 1 billion pots of $1 each, managed independently. (A really bad idea!)
The right strategy for each one would be to maximize its own log growth.
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yeah I think this is the exact debate we had yesterday and I disagree strongly.
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Awesome—sounds like we’ve hit on a real disagreement (although I think we have to delineate the question more formally because there are probably some underlying different assumptions around what kind of active management is allowed)
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Is your position that each sub-portfolio manager should always maximize EV(wealth), forever?
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nope!
well, mine is closer to that, but fuck that, let's assume that I like ev(log(wealth)) instead of ev(wealth)
For instance, assume that there are the following assets in the world:
1) USDC
2) BTC
3) ETH
assume that ETH and BTC both have positive growth rates, and USDC = USD
Say portfolio (a) can only have USD and/or ETH, and portfolio (b) can only have USD and/or BTC
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and finally assume you're trying to maximize ev(log(wealth))
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