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FTX is Rationalism's Chernobyl

You may be familiar with Curtis Yarvin's idea that Covid is science's Chernobyl. Just as Chernobyl was Communism's Chernobyl, and Covid was science's Chernobyl, the FTX disaster is rationalism's Chernobyl.

The people at FTX were the best of the best, Ivy League graduates from academic families, yet free-thinking enough to see through the most egregious of the Cathedral's lies. Market natives, most of them met on Wall Street. Much has been made of the SBF-Effective Altruism connection, but these people have no doubt read the sequences too. FTX was a glimmer of hope in a doomed world, a place where the nerds were in charge and had the funding to do what had to be done, social desirability bias be damned.

They blew everything.

It will be said that "they weren't really EA," and you can point to precepts of effective altruism they violated, but by that standard no one is really EA. Everyone violates some of the precepts some of the time. These people were EA/rationalist to the core. They might not have been part of the Berkley polycules, but they sure tried to recreate them in Nassau. Here's CEO of Alameda Capital Caroline Ellison's Tumblr page, filled with rationalist shibboleths. She would have fit right in on The Motte.

That leaves the $10 billion dollar question: How did this happen? Perhaps they were intellectual frauds just as they were financial frauds, adopting the language and opinions of those who are truly intelligent. That would be the personally flattering option. It leaves open the possibility that if only someone actually smart were involved the whole catastrophe would have been avoided. But what if they really were smart? What if they are millennial versions of Ted Kaczynski, taking the maximum expected-value path towards acquiring the capital to do a pivotal act? If humanity's chances of survival really are best measured in log odds, maybe the FTX team are the only ones with their eyes on the prize?

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I think the most likely explanation is that at some point in the past they were a legitimate business that ran out of legitimate funds, probably due to their known penchant for highly leveraged bets. Then they deluded themselves into believing that if they dipped into customer accounts they could gamble their way out, return the customers money, and have nobody be the wiser. Cut forward some undefined span of time and the hole gradually grew to 8 billion dollars and the whole thing collapsed.

I mostly say this because most people aren't sociopaths and this seems like the most likely route this could have happened if Bankman is not a sociopath. If he is a sociopath and planned the elaborate fraud from the start, i guess nevermind. Feels less likely, though.

Anyway, I don't think we're looking at anything more or less than a polycule of stim-abusing rationalists with a gambling problem, good PR, and access to several billion dollars with which to gamble.

I think that the main lesson here is that you can't trust people just because they use lots of ingroup shibboleths and donate lots of money to charity, even though (to be honest) that would be kinda my first impulse.

Agree with all of this, seems pretty clear (as much as anything is clear at this point) that Alameda Research was deep in the hole with bad trades and SBF decided to try to help them gamble their way out of the hole with FTX customer money.

I do think there's a genuine EA angle here though. SBF did not believe in declining utility of money because he was going to use it to do good in the world. Saving ten lives in the developing world is ten times better than saving one life, in much the way that buying ten fancy cars is not ten times better than buying one fancy car. SBF was willing to take this to the extreme, even biting the bullet on St. Petersburg Paradox in his interview with Tyler Cowen:

COWEN: Okay, but let’s say there’s a game: 51 percent, you double the Earth out somewhere else; 49 percent, it all disappears. Would you play that game? And would you keep on playing that, double or nothing?

BANKMAN-FRIED: With one caveat. Let me give the caveat first, just to be a party pooper, which is, I’m assuming these are noninteracting universes. Is that right? Because to the extent they’re in the same universe, then maybe duplicating doesn’t actually double the value because maybe they would have colonized the other one anyway, eventually.

COWEN: But holding all that constant, you’re actually getting two Earths, but you’re risking a 49 percent chance of it all disappearing.

BANKMAN-FRIED: Again, I feel compelled to say caveats here, like, “How do you really know that’s what’s happening?” Blah, blah, blah, whatever. But that aside, take the pure hypothetical.

COWEN: Then you keep on playing the game. So, what’s the chance we’re left with anything? Don’t I just St. Petersburg paradox you into nonexistence?

BANKMAN-FRIED: Well, not necessarily. Maybe you St. Petersburg paradox into an enormously valuable existence. That’s the other option.

COWEN: Are there implications of Benthamite utilitarianism where you yourself feel like that can’t be right; you’re not willing to accept them? What are those limits, if any?

BANKMAN-FRIED: I’m not going to quite give you a limit because my answer is somewhere between “I don’t believe them” and “if I did, I would want to have a long, hard look at myself.” But I will give you something a little weaker than that, which is an area where I think things get really wacky and weird and hard to think about, and it’s not clear what the right framework is, which is infinity.

All this math works really nicely as long as all the numbers are finite.

So yeah -- he sees literally no moral limits to this style of gambling in our finite universe.

This is both a worldview that (a) is distinctly consistent with EA, and (b) encourages you to double or nothing (including, as in the hypothetical, with other people's stuff) until you bust. And now he took one too many double-or-nothing bets, and ended up with nothing.

I think the honest response to this disaster is to say "yeah, I gambled with customers' money, and it was the right thing to do because I had a better than even chance of pulling it off, and I would have used that money to do good in the world so there's no declining value to each dollar. Sure, I gambled with other people's money, but wouldn't you dive in the pond to save the drowning child even if your expensive suit were borrowed from an acquaintance? Well that's what I did, with a lot of people's suits, and it was the right thing to do."

Of course, utilitarians don't believe in honesty -- it's just one more principle to be fed into the fire for instrumental advantage in manufacturing paperclips malaria nets.

Now, who knows -- maybe he would have committed the same kind of fraud even if he had never heard of EA and were just a typical nerdy quant. But, when your whole ideology demands double-or-nothing bets with other people's interests, and when you say in interviews that you would follow your ideology and make double-or-nothing bets with other people's interests, and then you do make double-or-nothing bets with other people's interests, and one of those bets finally goes wrong... yeah, I think one can be forgiven for blaming your ideology.

(b) encourages you to double or nothing (including, as in the hypothetical, with other people's stuff) until you bust.

If you ignore the caveat he gave up-front which is that this reasoning only applies if the universes are non-interacting?

That caveat is only to establish that you actually double your utility by duplicating the earth -- and not just duplicating it onto a planet that we would have settled anyway. He is explicit about that. The point is that in raw utility calculations short of the infinite, he is willing to gamble with everyone's utility on any bet with positive expected value.

nah that was a trivial objection on his part, most of the value of the earth comes from the fact that we might colonize the universe, so he wanted to make sure that the "double" in "double or nothing" truly meant doubling the value of the earth, if the second earth appeared close-by to us, it wouldn't really be doubling the value since there's still only one universe to colonize. But if one is assured that the value can indeed double, then SBF was completely on-board with betting it all.