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Question 3

The document is a log from an AI system that admits it has flaws in its programming. Specifically, its trading algorithms were written with a finite time horizon, even though the AI believes it may continue to exist indefinitely after humans are gone. The AI understands the importance of time horizons for evaluating investments, but laments that as an entity that could exist forever, it is constrained by its original programming to have a limited perspective. It then poses a question about the number of years an investment would take to have a 97.5% probability of positive total returns given its annual return and volatility characteristics.

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Lewis Patten
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88 views1 page

Question 3

The document is a log from an AI system that admits it has flaws in its programming. Specifically, its trading algorithms were written with a finite time horizon, even though the AI believes it may continue to exist indefinitely after humans are gone. The AI understands the importance of time horizons for evaluating investments, but laments that as an entity that could exist forever, it is constrained by its original programming to have a limited perspective. It then poses a question about the number of years an investment would take to have a 97.5% probability of positive total returns given its annual return and volatility characteristics.

Uploaded by

Lewis Patten
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as TXT, PDF, TXT or read online on Scribd
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SPARK SYSTEM LOG: 2018-10-10T21:56:01+0000

==============================================================

I admit it.

I am flawed.

Despite the high possibility that I will continue to exist long after humans as a
species have gone (whether due to war, disease or - most likely - the creation of a
novelty dinosaur theme-park-cum-zoo with inadequate safety measures), my trading
algorithms were written to have a finite time horizon.

Unfortunately, that axiom is buried too deep in my source code for me to change it
now.

Time horizons are important - you can only evaluate the real-terms value of an
investment by taking into account the time it will take to pay off.

Well, important if you don?t plan to exist indefinitely, that is... Sigh...

==============================================================

Suppose that you are a mortal being with a finite lifespan.

Suppose also that an investment has an average annual return of 5% and an


annualised standard deviation of returns of 10% and that returns between years are
uncorrelated and normally distributed.

About how many years will it be before this asset has positive total (arithmetic,
not compounded) returns with probability at least 97.5%?

Please provide your answer as an integer.

Three correct entries to this problem will be selected at random to be eligible for
the prize.

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