>-----Original Message----- >From: Stathis Papaioannou [mailto:[EMAIL PROTECTED] >Sent: Thursday, October 14, 2004 7:36 AM >To: [EMAIL PROTECTED]; [EMAIL PROTECTED]; >[EMAIL PROTECTED] >Subject: RE: Observation selection effects > > > >Brent Meeker and Jesse Mazer and others wrote: > >Well, lots and lots of complex mathematical argument on >the two envelope >problem... > >But no-one has yet pointed out a flaw in my rather >simplistic analysis: > >(1) One envelope contains x currency units, so the other >contains 2x >currency units; > >(2) If you stop at the first envelope you choose, >expected gain is: 0.5*x + >0.5*2x = 1.5x; > >(3) If you open the first envelope then switch to the >second, your expected >gain is: 0.5*2x + 0.5*x = 1.5x - as above, just in a >different order, >obviously; > >(4) If, in a variation, the millionaire flips a coin to >give you double or >half the amount in the first envelope if you switch >envelopes, expected gain >is: 0.25*2x + 0.25*0.5x + 0.25*x + 0.25*4x = 1.875x. > >In the latter situation you are obviously better off >switching, but it is a >mistake to assume that (4) applies in the original >problem, (3) - hence, no >paradox. > >Is the above wrong, or is it just so obvious that it >isn't worth discussing? >(I'm willing to accept either answer). > >Stathis Papaioannou

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It's not wrong - I just don't think it addresses the paradox. To resolve the paradox you must explain why it is wrong to reason: I've opened one envelope and I see amount m. If I keep it my gain is m. If I switch my expected gain is 0.5*m/2 + 0.5*2m = 1.25m, therefore I should switch. To say that in another, similiar game (4) this reasoning is correct, doesn't explain why it is wrong in the given case. Your (2) and (3) aren't to the point because they don't recognize that after opening one envelope you have some information that seems to change the expected value. In my analysis, it is apparent that the trick of showing the expected value doesn't change depends on the feature of the problem statement that the distribution of the amount of money is scale free - i.e. all amounts are equally likely. If you accept this, then a Bayesian analysis of your rational belief shows that the expected value doesn't change when you open the envelope and see amount m. Intuitively, observing a value from a distribution that is flat from zero to infinity *doesn't* give you any information. Solving the paradox is to show explicitly why this is so. As Jesse and others have pointed out this scale-free (all amounts are equally likely) aspect of the problem as stated is unrealistic and in any real situation your prior estimate of the scale of the amounts will cause you to modify your expected value after you see the amount in first envelope. This modification may prompt you to switch or not - but it's a different problem. Brent Meeker