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Hans comments on Misleading the witness - Less Wrong
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As previous comments have said, it would be possible to sell the 15% chance for anything up to $150k. Once people realise that the 15% chance is a liquid asset, I'm sure many will change their mind and take that instead of the $500.
What does this mean? If the 15% chance is made liquid, that removes nearly all of the risk of taking that chance. This leads me to believe that people pick the $500 because they are, quite simply, (extremely) risk-averse. Other explanations (diminishing marginal utility of money, the $1 million actually having negative utility, etc.) are either wrong, or they are not a large factor in the decision-making process.
Note that the standard explanation for risk-aversion just is diminishing marginal utility (where utility is defined in the decision-theoretic sense, rather than the hedonic sense). However, Matt Rabin pretty convincingly demolishes this in his paper Diminishing marginal utility of wealth cannot explain risk aversion.