Oops; I knew there was something wrong with my math. If the proposal is to pay $1 for an 80% chance of winning $2 and a 20% chance of not getting any money back, the EV of that bet is actually $1.60. Right?
On Sun, 2024-01-28 at 10:58 +1100, Jeremy Bornstein via Silklist wrote: > I agree that if you take a bet at fair odds you are purchasing > variance. I think Charles' explanation below doesn't make it clear > that the reason that the bet happens is because there is a > disagreement about what fair odds are, which could happen because one > party is misinformed about or ignorant of some relevant facts, or > because one party has insider/secret information not available to the > other party. So you may think you're making a bet on a 50% likely > outcome, but I know something that allows me to believe that it's > really only 20% likely... from my point of view my expected return is > 1.4x my bet, not 0.5x. (I think. I'll know I'm wrong if Charles > expresses even more enthusiasm for wagers with me.) > > On Sun, 2024-01-28 at 12:00 +1300, Charles Haynes wrote: > > There are a few ways to set a betting line. The two most common in > > this case are "over/under" where you disagree about the likelihood > > of some value - a typical example would be the value of bitcoin on > > some date. One of you picks a value they think is 50/50, and the > > other can bet that the value will either be "over" or "under" that > > value. The bet would be at even money. The second would be to give > > odds for the occurence of an event. So an example would be someone > > who says "Nikki Haley has no chance! She should just drop out!" and > > I would offer them odds of, say, 10000:1 that Nikki Haley is > > elected president in 2024. In both cases I'd also say the maximum > > I'd be willing to wager. (10000:1 is not fair odds, I believe the > > current betting line is closer to 300:1 against.) > > > > — Charles > > > > On Sat, 27 Jan 2024 at 16:58, Yeddanapudi Radhika > > <[email protected]> wrote: > > > I'm definitely influenced by the endowment effect when it comes > > > to hoarding books on my shelf and there is definitely loss > > > aversion in this context. I'm wondering if the sunk cost fallacy > > > explains why I cling on to my place even though it's costing me > > > an arm and a leg to retain it although there are other variables > > > acting on me like having built a whole life around the location > > > of said place (smells like a justification and it probably is). > > > I'm not sure I completely understand "setting a betting line". > > > > > > On Fri, Jan 26, 2024 at 3:45 PM Charles Haynes via Silklist > > > <[email protected]> wrote: > > > > One other way that economics (and specifically behavioural > > > > economics) has changed my way of looking at the world is that > > > > I'm now more aware of my own paradoxical behaviours. Like the > > > > endowment effect and the sunk cost fallacy. I have also found > > > > one tool to be particularly valuable and that's the notion of > > > > "setting a betting line." Which is a way of measuring my > > > > confidence in something. One thing I've noticed though is that > > > > people who do this are not always completely honest with > > > > themselves. In theory you should be willing to take "either > > > > side" of such a bet, but when I set a line like that, I'm often > > > > reluctant to take one side of the bet - which means I've set > > > > the line wrong and I'm lying to myself about how likely I > > > > really think something is. > > > > > > > > I'm not sure I explained that well, but in practice it works > > > > out to me asking people "how much are you willing to bet" if > > > > they say something I disagree with - and sometimes ending up > > > > actually making wagers with people. If you see me say something > > > > you think is outrageous I encourage you to ask me to put my > > > > money where my mouth is. :) > > > > > > > > — Charles > > > > > > > > On Fri, 26 Jan 2024 at 23:01, Jeremy Bornstein > > > > <[email protected]> wrote: > > > > > I would definitely do this for USD $500/day. For one, I am > > > > > convinced that it's in the realm of things that I (and most > > > > > people) would get used to quickly enough for the unpleasant > > > > > aspects to fade to tolerability or even pleasure. Also, I may > > > > > have some minor masochistic tendencies... but not enough of > > > > > them to do this for $100/day. > > > > > > > > > > I don't believe absolutes such as "no amount of money" for > > > > > things like this. Imagine a million dollars, or more. Even > > > > > for people who have sufficient access to funds for their own > > > > > direct use, that would represent a huge amount of leverage > > > > > for helping other people, which I think most folks would > > > > > eventually decide made the agony worth it. > > > > > > > > > > Of course, this potentially opens up the thought experiment > > > > > to other things even less universally appealing than cold > > > > > showers, but I'm not sure that actually discussing those > > > > > possibilities would be sufficiently edifying or amusing for > > > > > us. > > > > > > > > > > Jeremy > > > > > > > > > > P.S. Apologies for the previous empty mails... it looks like > > > > > my mail client had been in a running broken state. > > > > > > > > > > > > > > > > Clearly I cannot afford this but I still want to test the > > > > > > longevity/sustainability of this decision - that USD 500 is > > > > > > enough. > > > > > > > > > > > > Can you convince yourself that you receive 500 dollars > > > > > > worth of health, motivation and resilience benefits to > > > > > > withstand 180 seconds of 12-15 centigrade water every. > > > > > > Single. Day. for a week? > > > > > > > > > > > > My assumption is that you’ll decide it isn’t worth it, even > > > > > > for USD 500. > > > > > > > > > > > > My motivation for cold showers (6 months of pure agony, > > > > > > I’ll add) is twofold and deeply personal -watching my > > > > > > father die -cancer- and be miserable about being cold, and > > > > > > my own mental health benefits enormously from it (it is the > > > > > > hardest thing I can do in a day, everything else is a piece > > > > > > of cake). But no amount of money would incentivise me to do > > > > > > this. > > > > > > > > > > > > Huda Masood > > > > > > +91 9886796967 > > > > > > > > > > > > > > > > > > On Fri, 26 Jan 2024 at 02:37, Charles Haynes > > > > > > <[email protected]> wrote: > > > > > > > I would do the shower thing for somewhere between USD$100 > > > > > > > and USD$500 per day. ($100 is probably not enough, $500 > > > > > > > definitely is.) > > > > > > > > > > > > > > One learning about money is that looking at investments > > > > > > > daily makes me unhappy and that for me the "asymmetry of > > > > > > > happiness" is real - that losing $100 makes me more > > > > > > > unhappy than winning $100 would (and it's not just about > > > > > > > the non-linearity of the value of money, but it may be an > > > > > > > endowment effect). So in circumstances where good and bad > > > > > > > things are both likely to happen relatively frequently I > > > > > > > try to "smooth out" the frequency by checking less often. > > > > > > > > > > > > > > On Fri, 26 Jan 2024 at 07:52, Huda Masood via Silklist > > > > > > > <[email protected]> wrote: > > > > > > > > Tell me then, in what other areas of your life have you > > > > > > > > applied the new learnings with money? > > > > > > > > > > > > > > > > I find the human relationship with money > > > > > > > > extraordinarily interesting. My current social > > > > > > > > experiment is asking how much could I pay them to take > > > > > > > > a 3 minute cold shower every day, for a whole year. No > > > > > > > > hot water before or after. > > > > > > > > > > > > > > > > I’ve had no takers so far. Everyone wriggles out with > > > > > > > > some condition or the other. No amount of money is > > > > > > > > incentive enough. > > > > > > > > > > > > > > > > But they’d happily do it if family was in danger or > > > > > > > > they could work half time for the same pay. > > > > > > > > > > > > > > > > I find that very telling. > > > > > > > > > > > > > > > > Huda Masood > > > > > > > > +91 9886796967 > > > > > > > > > > > > > > > > > > > > > > > > On Thu, 25 Jan 2024 at 18:27, Christopher A Kantarjiev > > > > > > > > via Silklist <[email protected]> wrote: > > > > > > > > > On 1/24/24 10:16 PM, Udhay Shankar N via Silklist > > > > > > > > > wrote: > > > > > > > > > > > > > > > > > > > Very interesting thought. The most thought- > > > > > > > > > provoking part is "changing > > > > > > > > > > your mental model" which resonated with me, because > > > > > > > > > the mental model > > > > > > > > > > which causes this to be an issue in the first place > > > > > > > > > is "Am I being taken > > > > > > > > > > advantage of?" (which is completely different from > > > > > > > > > "Can I afford this?" > > > > > > > > > > which requires a separate thread, I think.) > > > > > > > > > > > > > > > > > > Yes ... I grew up in a household where my father > > > > > > > > > tracked every penny of > > > > > > > > > expenses and basically invented a double-entry > > > > > > > > > bookkeeping system so he > > > > > > > > > could resolve his cash accounts Sunday night. I guess > > > > > > > > > it was "fun" for > > > > > > > > > him, but hell for everyone else when he wandered the > > > > > > > > > house saying "where > > > > > > > > > did I spent twelve cents?". > > > > > > > > > > > > > > > > > > It came both from a history of not having enough (he > > > > > > > > > lived through WWII > > > > > > > > > in Germany) and a fear of being taken advantage of > > > > > > > > > ... which I, somewhat > > > > > > > > > unfortunately, inherited. > > > > > > > > > > > > > > > > > > Those two things were very intertwined in my attitude > > > > > > > > > towards money, and > > > > > > > > > this experience was a big step in learning to let go > > > > > > > > > of them. > > > > > > > > > > > > > > > > > >
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