Feedback about the Gini coefficient

[rafasashi]

Hello there,

Thank you for this article about Gini coefficient applied to the cryptocurrency.

I know this is probably not the place to leave my comment so I will make this issue about suggesting you to activate Github Discussions for that matter.

This being said, I don't know how much time you put into documenting yourself before summing all this up into flawless articles but I admire your talent and above all your perseverance in the face of obstacles on your quest to extinguish inequalities.

I particularly like this post because among other things, it reminds me of my time as a student of Financial Analysis. It was right after the subprime mortgage crisis and I could not connect the dots between risk, debt, valuation, income and who gets to get bailed out.

In other words I needed and still need to define the concept of "wealth" in a world dominated by the rules of economics where researchers and other intellectuals will probably never agree on one way to define and represent this concept because it is a problem involving "ideological recursiveness" (if such a thing exists).

Back to your post, I agree with the conclusion.

Unfortunately I do not possess the mathematical background nor the type of brain to picture the inconsistency of the Gini coefficient applied to cryptocurrency like you do. In fact my understanding stopped at the dotted line telling me:

No one possessing nothing = everyone possessing everything

Furthermore I cannot stop asking myself how one can measure inequality without first defining "wealth"?

Don't get me wrong, I am not aiming at the structure of your article, I am questioning the ability of mono-criterion models to represent any situation, regardless of their complexity, when the main criteria is not defined within the model itself in a recursive manner.

In the case of Gini coefficient applied to inequalities what I mean is that in the real life the definition of wealth changes from one culture to another, the local challenges and as we move up in social and economic status.

The same observation can be made about our voting systems, our risk management models, our economic forecasting...

In my opinion if you want to analyze the relation between cryptocurrency and inequalities I suggest to try "multiple-criteria decision analysis" and "multi-objective optimization".

A multi-criteria paradigm not only defines a list of criteria being used to represent the problem but also requires the object to interact directly with your model during the research.

It starts simply with step by step survey and it ends with complex math as usual :D

Step 1 - to prepare a list of criteria defining "wealth" in a specific part of the world at a specific time

Step 2 - to conduct a "survey" asking people from different background to order the list from the most important criteria to the least, let's call it the "profile" (this can dramatically change the definition of inequality from one place/group to another ).

Step 3 - to ask people to apply a coefficient for each criteria for example asking: "how holding crypto affects your situation in term of criteria N (I guess this step will also dramatically change the results depending on the local regulations regarding crypto)

Step 4 - to use a model to visualize the effect of crypto on inequalities according to each profiles defined in Step 2. (I guess we should see similar profiles depending on the social status in a specific place)

Step 5 - to eventually extrapolate in a way a multi-profile analysis could be made

What do you think about this method?

In the meantime I wish everyone a great day!

[vbuterin]

This is a good question, and I actually think it ties in well with the ideas in the post. This is because the thing that you are measuring (for "wealth") itself depends on why you care about measuring wealth!

For example, should you count number of hours of free time per day/year as part of wealth? It may well be a good idea: imagine a society that actually does a good job of being egalitarian and fair, but where the Gini is nevertheless high just because some people really care about earning money and others want long vacations, and both groups get what they want. But if you're trying to understand concentration of power in that society, then the people who have more money are going to have more power than the vacationers and that could be a problem even if each individual vacationer doesn't care about themselves not having power.

So depending on whether you care about minimizing suffering from lack of resources, or power concentration, it makes sense to define the criteria differently and there's going to be lots of different subtleties in each case.

[rafasashi]

Thank you for taking the time to reply Vitalik, your observations added an extra dimension to an already complicted topic but I guess it is what Sundays are made for, so forgive me if I take advantage of the conversation to dig deeper even though the day is almost finished :)

This is because the thing that you are measuring (for "wealth") itself depends on why you care about measuring wealth!

It is exactly what I was trying to express when I used the terms "ideological recursiveness".

Considering the 3 fundamental effects that you have introduced: intentionality, power and wealth.

I think that in a recursive problems you will find multiple instances of these effects at different levels of the system but you might or might not be able to regroup them (per class). In other words the intentionality of the observer is different from the intentionality of the participants, separated from one another like matryoshka dolls.

For example regarding the observer intentionality when listing the criteria (step 1) I believe that the bias could/should be minimized on the one hand by selecting a lot of different and diverse criteria and on the other hand by keeping a neutral judgment leaving "good or bad" concerns only for the final stage of analysis.

The best would be to be able to update the list of criteria when a new one is introduced or discovered, update the profiles (step 2) and redo the survey to detect social and cultural shifts

This is leading me to your suggestion:

For example, should you count number of hours of free time per day/year as part of wealth? It may well be a good idea: imagine a society that actually does a good job of being egalitarian and fair, but where the Gini is nevertheless high just because some people really care about earning money and others want long vacations, and both groups get what they want.

Indeed, following this logic I would say that yes you should definitely add vacation, power and capital accumulation, one way or another into the list of criteria and if possible breaking each concepts into the smallest possible pieces. However I would not go too fast in trying to judge or guess the interactions between a cluster of criteria, at least not until the full profile of the participant is defined (step 2 and 3).

Afterwards it should be easier/clearer to match a certain profile against a single criteria (step 4) like "How profile 1 perceives the price of bread in terms of inequality?"

Finally I believe that more democratic decisions could be made without even using referendums or other "standard deviation" based voting systems, observing the effect of a criteria by profiles (step 5) and adapting the governance priorities accordingly.

The challenge of the final step to make 100% democratic decisions is to find an aggregation model to group/identify profiles in which participants are only represented once. In traditional ways of representing a society we unfortunately often used limiting taxonomies like:

• by incomes (low, middle, high)
• by activity (farmer, merchant, politician...)
• by education level
• by gender...

The problem is that neither the voting system nor statistics reflect each individuals because multiple ratios such as Gini are used independently to make one final decision. As a result some individuals are represented multiple times in the decision making process and others are underrepresented (even assuming every vote equal).

For example if I am a "rich women farmer" a political agenda focusing on "gender pay gap in corporations" might win electoral votes but might not represent my issues or suffering even if I share an attribute with the majority.

This being said, I think that the perfect implementation of such model would be to have aggregated profiles by top priorities such as:

P1_1 - attach importance to global markets, stability of financial systems... represents 5%
P1_2 - mostly affected by inflation, interest rates... represents 10%
P2_1 - mostly affected by geopolitical changes, criminality level... represents 5%
P3_1 - rely on price of commodities, weather changes... represents 80%

In given society since P3_1 represents a majority and is very affected by the price of commodities, applying a simple weighted average rule, any change in the "price of bread" should be placed on top of the priorities to govern given society and so on.
The yellow vests protests in France actually started over the price of fuel and I believe a proper application of such model could have predicted it.

But if you're trying to understand concentration of power in that society, then the people who have more money are going to have more power than the vacationers and that could be a problem even if each individual vacationer doesn't care about themselves not having power.

Indeed, I would be naturally tempted to think the same especially when comparing the power of two individuals in terms of monetary advantage. However in some places you could wield more power by controlling a water source with a weapon than importing water barrels with a large sum of money mostly due to logistic and timing reasons.

Therefore for the sake of the exercise considering that the effect of power just like intentionality might be nested like the dolls, the model should probably first reflect different instances of power (national, regional, local, physical, virtual, natural, extra-natural...) then assess the influence of each power over the profile and finally conclude whether wealth directly affects similar participants.

The only exception I see to that, assuming such model would be the primary decision making tool to govern, would be the power to break or change the constitution. However I am not sure that wealth is the driver here.

So depending on whether you care about minimizing suffering from lack of resources, or power concentration, it makes sense to define the criteria differently and there's going to be lots of different subtleties in each case.

I agree 100% with your conclusion. Furthermore your actions have proven that you care about minimizing the suffering of others and for that reason I felt inspired to share that kind of utopia here.

Are you aware of any project in the Ethereum ecosystem that is similar to that kind of methodology?