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roystgnr comments on Prospect Theory: A Framework for Understanding Cognitive Biases - Less Wrong

66 Post author: Yvain 10 July 2011 05:20AM

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Comment author: roystgnr 15 February 2012 07:15:59PM 1 point [-]

Unless you have a good estimate of your future earnings and can borrow up to that at low interest rates, I think "amounts that are insignificant compared to your current liquidity" might be a slightly more rational metric. Note also that any explanation of human risk aversion (as opposed to rational risk aversion) is trying to explain behaviors that evolved during a time when "borrowing at low interest rates" wasn't really an option. If a failed risk means you starve to death next year, it doesn't matter how copious a quantity of food you otherwise would have acquired in subsequent years.