Timeline for Expected value as decision criterion in the context of rare events
Current License: CC BY-SA 2.5
4 events
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| Dec 31, 2010 at 18:20 | history | edited | Steven Landsburg | CC BY-SA 2.5 |
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| Dec 31, 2010 at 17:33 | comment | added | Steven Landsburg | David: This type of reasoning is based on certain axioms about preferences, of which the most contentious is this: If L = px+ (1-p)y is a lottery (that is, L gives you probability p of winning prize x and probability 1-p of winning prize y --- you should treat x and y as symbols here, not as real numbers) and M = qx+(1-q)y is another, you'll be indifferent between rL+(1-r)M on the one hand and (rp + (1-r)q)x + (r(1-p) + (1-r)(1-q))y on the other hand. This is certainly an assumption, but I'd hesitate to call it a psychological model. | |
| Dec 31, 2010 at 17:23 | comment | added | David Harris | If I am not mistaken, this type of reasoning requires subscribing to a particular model of human psychology, the "rational behavior" as in classical economics. This model of psychology has little to no scientific basis. For small bets, the law of large numbers based reasoning requires only that people prefer more money, which seems much less contentious. | |
| Dec 31, 2010 at 16:55 | history | answered | Steven Landsburg | CC BY-SA 2.5 |