When is randomness an asset vs a tax? (opens in new tab)

Click Activate above to run the code cells in this post. This post is a companion to the Sharpe post and is meant to dig deeper into scenarios where randomness helps vs hurts. Let’s formulate a lot of real-world scenarios as: You get a random variable X, which you might have some control over, say its mean or distribution. Life then passes it through some function f, and the outcome you observe is f(X). A simplistic worldview, but one that captures a surprising number of situations. Take 3 di...