steven0461 comments on Is risk aversion really irrational ? - Less Wrong

41 31 January 2012 08:34PM

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Comment author: 31 January 2012 08:46:16PM 0 points [-]

Anyone willing to write a summary?

Comment author: 31 January 2012 10:09:10PM 9 points [-]

In summary : when you have to chose between two options, one with a certain (or almost certain) outcome, and another which involves more risk, even if in term of utilons (paperclips, money, ...) the gamble has a higher expectancy, there is always a cost in a gamble : between the time when you take your decision and know if your gamble fails or succeeded (between the time you bought your lottery ticket,and the time the winning number is called), you've less precise information about the world than if you took the "safe" option. That uncertainty may force you to make suboptimal choices during that period of doubt, meaning that "risk aversion" is not totally irrational.

Even shorter : knowledge has value since it allows you to optimize, taking a risk lowers your knoweldge.

Comment author: 31 January 2012 10:23:05PM *  5 points [-]

Thanks! (Also to cousin_it and Tordmor.)

This point applies even in some situations where there's no uncertainty about utility, right? If you're indifferent between soup and steak, you'd prefer either to a random choice of them, because then you'd know whether to get a spoon or a knife.

Comment author: [deleted] 01 February 2012 12:42:01AM 2 points [-]

You're explaining aversion to uncertainty, not risk. What if you think of buying a lottery ticket, do so immediately, and are immediately informed of the outcome (immediate meaning within a few seconds). You then would have endured potentially high risk (if the ticket was very expensive) with negligible uncertainty (only endured for a few seconds, where there's negligible likelihood that you would make contingent choices in the interval). The thought experiment shows that risk aversion obtains without uncertainty.

General comment: You and another poster supplied excellent summaries. What I wonder is why is it (often) seen as necessary to belabor the obvious, when the point can be stated succinctly with greater clarity?

Comment author: 01 February 2012 11:51:55AM *  3 points [-]

What I wonder is why is it (often) seen as necessary to belabor the obvious, when the point can be stated succinctly with greater clarity?

Summary: Because updates don't propagate automatically. A story with examples has higher chance of triggering a real update. Stories about people having significant losses and gains have the highest chance.

Long version:

I should insert here a story about how I did some faulty reasoning for years, even though I knew the correct theory, because I knew the theory only on a "teacher's password" level, and I didn't realise that my problem is an instance of the theory. I lost my money, my home, my girlfriend, and spent five years in a mental institution. Then I tried to kill myself and almost succeeded.

Lorem ipsum dolor sit amet, consectetuer adipiscing elit. Aenean commodo ligula eget dolor. Aenean massa. Cum sociis natoque penatibus et magnis dis parturient montes, nascetur ridiculus mus. Donec quam felis, ultricies nec, pellentesque eu, pretium quis, sem. Nulla consequat massa quis enim. Donec pede justo, fringilla vel, aliquet nec, vulputate eget, arcu. In enim justo, rhoncus ut, imperdiet a, venenatis vitae, justo. Nullam dictum felis eu pede mollis pretium. Integer tincidunt. Cras dapibus. Vivamus elementum semper nisi. Aenean vulputate eleifend tellus. Aenean leo ligula, porttitor eu, consequat vitae, eleifend ac, enim. Aliquam lorem ante, dapibus in, viverra quis, feugiat a, tellus. Phasellus viverra nulla ut metus varius laoreet. Quisque rutrum. Aenean imperdiet. Etiam ultricies nisi vel augue. Curabitur ullamcorper ultricies nisi. Nam eget dui.

And then I understood my mistake, and now I am wealthy multi-billionaire, a president of my country, with a harem full of most beautiful girls. All because I took this principle seriously. So, my dear friend, don't make the same foolish mistake that I did. You will thank me later.

And by the way all information in this "long version" is fictional, but it serves to prove my point.

Comment author: [deleted] 01 February 2012 07:28:41PM 4 points [-]

A story with examples has higher chance of triggering a real update.

An important point, deserving serious discussion. It's probably the correct answer as to why posters think examples are generally useful. My own view, which I'm prepared to update as necessary, is that the function of examples is to elucidate a claim that's otherwise hard to understand. When the examples are either tedious or harder to comprehend than the claim, I think examples are self-defeating.

One reason is that the comprehension or impact that triggers updates is often greater when readers construct their own examples. Then, there's also the obvious point that if a posting is overly time-consuming or boring, some people who would have read a more succinct posting won't read one that's bloated.

What actually triggers updates deserves a lot more explicit attention. I'm leery of the oft-heard response, "I've updated." How do you know you have? Or if you have, how do you know you've done it correctly, to the appropriate extent? These questions also raise the issue of whether belaboring an obvious point triggers excessive updating (overcompensation), by making the claim more compelling than it is. I notice that the examples in the lead post concealed the flaw in the reasoning.

Comment author: 02 February 2012 08:14:30AM *  0 points [-]

I think it's not an "either/or" situation. Examples help to understand the issue (understanding the summary requires that writer's and reader's maps are sufficiently similar), to remember it better, and help to think about one's own life (if the example is good). And yes, a bad example is bad, and a long example is inherently bad, unless author has great storytelling talent.

Comment author: 01 February 2012 02:00:02AM 1 point [-]

General comment: You and another poster supplied excellent summaries. What I wonder is why is it (often) seen as necessary to belabor the obvious, when the point can be stated succinctly with greater clarity?

Seconded. I think many posts in the Main section could and should be cut down by a factor of say 2 or 3.

Comment author: 02 February 2012 02:30:40AM 2 points [-]

"I have only made this letter so long because I didn't have time to make it shorter." -- Blaise Pascal

Comment author: 03 February 2012 06:44:15AM 0 points [-]

Hindsight bias. Just because something can be summarized relatively simply in hindsight doesn't mean the same summary would be as convincing or even be remembered if it's all you read. It's the same reason math class isn't just you reading a book that starts with axioms and then lists theorems until you know all of math.

Comment author: 03 February 2012 07:58:01AM 2 points [-]

It can't be hindsight bias in this particular case, because I didn't read the post.

Comment author: 03 February 2012 08:26:33AM 0 points [-]

Did you not read any of the posts? My point wasn't specific to this post.

Comment author: 31 January 2012 09:37:07PM *  3 points [-]

My tentative summary is "risk aversion can help avoid gambler's ruin", but maybe I've missed something.