# WrongBot comments on What Cost for Irrationality? - Less Wrong

54 01 July 2010 06:25PM

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Comment author: 01 July 2010 08:15:12PM 2 points [-]

I have an objection to the first example listed.

Pacific Gas asked customers with unreliable service whether they'd be willing to pay extra for more reliable service, and customers with reliable service whether they'd be willing to accept a less reliable service in exchange for a discount. The customers were presented with increases and decreases of various percentages, and asked which ones they'd be willing to accept. The percentages were same for both groups, only with the other having increases instead of decreases. Even though both groups had the same income, customers of both groups overwhelmingly wanted to stay with their status quo.

Let's look at this scenario with some numbers attached. A and B each pay Pacific Gas \$100 each month. A has less reliable service, and B has more reliable service. To simplify the given scenario, let's say that only one percentage change in price is offered to each group, 30%. So A is offered a \$30 surcharge for more reliable service, and B is offered a \$30 discount for less reliable service. Money has diminishing marginal utility, so these two offers can not be compared in an entirely straightforward fashion. Let's suppose that A and B both have a monthly discretionary spending budget of \$500, with their other income going to fixed costs like rent. If A takes Pacific Gas's offer, his budget drops to \$470. If B takes his own offer, his budget goes up to \$530. In terms of marginal utility, the difference between \$470 and \$500 is bigger than the difference between \$500 and \$530. If the disutility of less reliable service is smaller than that difference, then there are utility values for which both A and B are rational. If the disutility is instead larger than the difference between the expected positive of utilities for A and B, then one of them must be rational.

So in this example it's unclear that there's any irrationality at all; even if there is, it's easy to just assume one would be in the "better" group and so avoid confronting the reality of the Status Quo bias. A better example would involve a situation in which group A's status quo is worse than group B's status quo, group membership is determined randomly, and the members of group A tend to reject an offer which would clearly move them into a position identical to B's status quo.

Comment author: 02 July 2010 12:07:52AM 4 points [-]

If we're talking about small amounts of money (relative to people's incomes) the utility of money should be extremely close to linear. It seems very implausible that this effect would be big enough to account for the results of the study.

I have also seen many studies which are designed to directly rule out this kind of possibility (e.g. some people have a chance to get \$30, others get \$30 and then have a chance to lose \$30), and they consistently find similar results to studies that don't take that extra step (e.g. some people have a chance to get \$30, others have a chance to lose \$30).

Comment author: 01 July 2010 08:29:52PM *  0 points [-]

This is a very good point.