In this paper, the talented researcher Cosma Shalizi argues that to fully accept a subjective Bayesian view, one must also accept an unphysical result that the arrow of time (given by the flow of entropy) should actually go backwards. This is mainly an attempt to argue against the maximum entropy / fully subjective Bayesian view put forward and popularized by E.T. Jaynes.
Over at LessWrong, many contributors are very interested in Bayesian probability theory and also in the subjective Bayesian approach as a basis for formal decision theories and a stepping stone toward strong A.I. Eliezer Yudkowsky is a common contributor there and I was recently reading this post when I came across this comment (several other good comments come shortly after it on the original post's page).
Can anyone comment on the validity of Yudkowsky's rebuttal of Shalizi. Briefly, Yudkowsky's argument is that the physical mechanism by which a reasoning agent updates its beliefs require work and hence has a thermodynamic cost that Shalizi is sweeping under the rug. In another comment, Yudkowsky defends this, saying:
"If you take the perspective of a logically omniscient perfect observer outside the system, the notion of "entropy" is pretty much meaningless, as is "probability" - you never have to use statistical thermodynamics to model anything, you just use the deterministic precise wave equation."
Can any probabilists or statistcal mechanics comment on this? I don't care much about arguments from authority regarding either Shalizi's or Yudkowsky's status, but I would really like to see a summary of the ways that Yudkowsky's three points offer criticism of Shalizi's article.
To conform to FAQ guidelines and make this a concretely answerable question please note that I am asking for a specific, itemized response that takes Yudkowsky's three-step argument and indicates where in the Shalizi article those three steps refute assumptions and/or derivations, or, on the other hand, indicates where in Shalizi's paper the arguments of Yudkowsky are addressed.
I've often heard the Shalizi article touted as iron-clad proof that full-blown subjective Bayesianism can't be defended... but after reading the Shalizi article a few times, it looks like a toy argument to me that could never apply to an observer interacting with whatever is being observed (i.e. all of actual physics). But Shalizi is a great researcher, so I would welcome second opinions because it's highly likely that I don't understand important chunks of this debate.