Rationalist Harry Potter and the Collapse of Crypto

I promise you are not ready for how stupid this gets.

Those of you who are regular listeners of the show will know that I got kinda obsessed with the epic saga of Sam Bankman-Fried and FTX, the massive crypto exchange that just collapsed and nuked like, $30 billion of funny money and probably like $8 billion real dollars.

As soon as the company collapsed stories started to filter out about FTX’s sister company, Alameda Research, which apparently gambled away the client funds that went missing in a manner likely to result in prison time for several people. The financial press seemed particularly fascinated by Caroline Ellison, the 28-year-old CEO of the company, on-again-off-again polyamorous lover of Sam Bankman-Fried, and Harry Potter devotee.

I’m not particularly interested in finance or the nitty gritty of Crypto, but I am endlessly entertained by the way the mainstream press rode the dicks of the people who ran FTX and Alameda. The short of it is that FTX and Alameda were big gambling platforms, in which nerds in their late 20s with delusions of grandeur bet on what are called “shitcoins” while giving interviews about effective altruism and claiming that all of this was being done in the service of charity.

The way the tech press fell for this is fascinating, but today we’re going to look at some of the ideology that helped inspire the greatest disaster in crypto history. And to tell that story, we need to look back at Caroline Ellison, and her obsession with Harry Potter.

I think the first reporting on this I saw was from the totally legit reporting platform “efinancialcareers.com”, which simply noted:

“Before joining Alameda as a trader in March 2018, Ellison spent 19 months as a junior trader at Jane Street after graduating from Stanford University with a bachelor's degree in mathematics in 2016. In a podcast two years ago, Ellison explained that Jane Street was her first job out of college. A diehard mathematician and Harry Potter fan born of two economists, Ellison she hadn't wanted to go into trading but "just didn't really know what to do" with her life.”

A Forbes article, published November 18th, provided more information, claiming Ellison was a “Harry Potterhead”, and that her parents first started reading the books to her when she was three years old.

But if Caroline were just obsessed with the normal Harry Potter series, I would not be writing about it.

Her old Tumblr existed under the name “WorldOptimisation”. Gawker revealed this for an article in which they also noted she was heavily into fan fiction. Several folks on Twitter pointed out that the phrase “World Optimisation” has its origin in another piece of fan-fiction, an epic re-write of the first Harry Potter book called Harry Potter and the Methods of Rationality.

If you are a normal, decent, well-socialized human being, you probably have not heard about Harry Potter and the Methods of Rationality. Actually explaining what this thing is will have to happen in several different stages. But I should start by telling you this re-write of the first Harry Potter book is around 660,000 words long.

The entire Lord of the Rings series, including The Hobbit, comes in at a little less than 580,000 words.

About ten years ago, when the first chapters of Rationalist Harry Potter were posted by a guy name Eliezer Yudkowsky, it was quickly heralded by a weird number of mainstream media figures as a work of brilliance. Legal scholar William Baude, writing for the Washington Post, called it "one of my favorite books written this millennium" in 2015. In 2021, Joe Biden appointed him to the Presidential Commission on the Supreme Court.

Ben Wikler, Chair of the Wisconsin Democratic Party, called Rationalist Harry Potter "the #1 fan fiction series of all time," in The Guardian. David Whelan, writing for Vice, called it “curiously mind-altering” and we’re going to come back to that Vice article in a second because it is very silly. All these guys are very silly.

(William Baude (left) and Ben Wikler (right), two normal dudes who wrote articles about a 600,000 word Harry Potter fanfic and went on to high-powered jobs in the Democratic establishment. This is very funny, as is the fact that Will’s Wikipedia picture seems to have been screencapped during a Skype call while Ben got the best head-shot J.C. Penney could provide.)

First: what is Rationalist Harry Potter about? The story itself is an alternate version of Harry Potter history, where Aunt Petunia’s sister receives the magic equivalent of elective surgery (via her sister Lily) which makes her hot, so she marries an Oxford professor instead of Vernon Dursley. Lily and James still get murdered by Voldemort, so Hot-Petunia and Oxford guy raise Harry, who is also a supergenius in this story.

When Rational Harry Potter he gets his invitation to Hogwarts and learns that magic is real he decides to apply the scientific method to understanding and manipulating the arcane arts. That’s actually not a bad premise for a fan-fiction, or even a work of original satire inspired by the Harry Potter series. Let me assure you that Eliezer Yudkowsky does nothing cool with this idea beyond introducing it.

In a broader sense, the “story” of Rational Harry Potter has very little to do with what the book is about: Rationalism.

Rationalism is a school of thought dedicated to encouraging people to act more rationally, using reason instead of subjective experience to navigate the world. “But Robert,” I hear you cry, “people’s opinions about what the ‘rational’ choice is in different situations can vary wildly, and the scientific method simply doesn’t apply to many of the most important decisions human beings have to make in life.”

Yes, that’s true, but in another, more important way, it’s false, because the world’s sole arbiter of Rationality is Eliezer Yudkowsky, a man who spent five years writing a Harry Potter fanfic so long the audiobook for it clocks in at 500 hours.

In interviews, Eliezer has claimed Rational Harry Potter was written to push the rational skills he promoted in his online community, LessWrong. LessWrong is now sorta defunct, but at its height it was basically a weird little online cult dedicated to Yudkowsky’s teachings. We’ll talk about him more in a bit, but Rational Harry Potter was basically conceived as an advertisement for LessWrong and it worked spectacularly well in that task.

Reading Rational Harry Potter is supposed to equip you with skills to act less irrationally and gain the kind of super-powers the bad sort of psych nerds think you get from reading enough neuroscience abstracts. Here’s how David Whelan explained it in that Vice article I promised we’d return to:

“All those times in the original where Harry grieved over his dead parents or said precisely the wrong thing to Cho Chang to get in her pants, turns out he was acting irrationally.

This new Potter, though, doesn't. He's basically the Jesus Christ of Rational Thought. He owns this book. He hits Voldemort out of the fucking park with a bunt while scratching his ass with his foot. And—here's the kicker—if you start copying him—that is, making rational decisions that overcome cognitive biases—you, too, can make life your bitch.”

First off, none of this is actually true. While Eliezer’s Harry Potter is obsessed with rationalist thought experiments and Bayes’s Theorem, he very rarely solves any problems via logic and intelligence. Instead he gets a time-turner (Harry Potter time machine) right away and then uses time travel to solve nearly all of his problems. I have read roughly 100,000 words of this stupid thing, along with a chapter-by-chapter review by an actual scientist. If you’re the kind of person who learns useful life lessons from Rational Harry Potter, you’re probably multi-billion dollar fraudster Caroline Ellison.

Speaking of which, remember when I said her Tumblr name “WorldOptimization”, was a reference to Rational Harry Potter? It comes from this line, spoken Eliezer’s 11-year-old protagonist:

"World domination is such an ugly phrase. I prefer to call it world optimization."

Rational Harry Potter spends a mind-numbing portion of the book’s total length discussing his desire to take over the world once his rationalist skills allow him to hack magic. He is not depicted as being a bad guy for wanting this.

World domination is a background theme that runs through the whole online rationalist community. In February of 2021 Caroline Ellison posted a list of “cute boy things” that, not by coincidence, describes the protagonist of Yudkowsky’s fanfic perfectly:

There’s a lot more here because the story of Rational Harry Potter, and the community around it, eventually ties into Peter Thiel, Elon Musk, and some of the worst science-fiction I’ve ever read in my life. And if you want to learn more about all that, I’ll be going into much more depth on it with Margaret Killjoy, in an upcoming live episode of Behind the Bastards.

You can buy a ticket now! The show is December 8th, at 6PM PST, and will also conclude a live Q&A afterwards! If you can’t make that time, you can still buy a ticket and watch the replay for whole week. So if you found this article interesting, or you just like Behind the Bastards and think seeing my face during an episode would be neat for some reason, book today!