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

41 Post author: kilobug 31 January 2012 08:34PM

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Comment author: mfb 15 February 2012 12:45:40PM 0 points [-]

your agent has money and is standing next to a soda machine, getting progressively more thirsty. How does that trigger the exchange if you tie utility of money to utility of water to drink? In that case, he knows that at some time he has to buy water and a part of his money is equivalent to the soda. He is indifferent between buying it now and later (again assuming the machine works perfectly). When he begins to become thirsty, the utility of the soda increases and he will buy one.

If you don't assign utility to money, you have to violate one of the rules given here: http://en.wikipedia.org/wiki/Utility#Additive_von_Neumann.E2.80.93Morgenstern_utility - or you have to take choices which do not maximize your utility.

But maybe there is an additional thing to consider: Time. Money is an option to get stuff in the future. Having money as an intermediate step is useful to have food/house/whatever later.

How can we define a single number for a utility, if we want to have food all the time? Maybe like this: Define a current utility density. Integrate the (expected) utility density over the lifetime. In that case, having money increases the expected utility density in the future, and therefore the total utility.

Comment author: Dmytry 15 February 2012 04:10:13PM *  2 points [-]

See, the core of the issue is that assigning some utility to money is just a heuristic. The foresight-oriented agent does not need to do that, for it automatically tries to acquire money (and trades wisely) when maximizing other utility such as e.g. quality of life over the future. Such agent, btw, would need to assign not utility number to the money, but the future utility distribution (at very least mean and standard deviation) that he expects to get from having the money at some point in closer future.

And with regards to assigning utilities from the future to the items in the now, well, chess AI doesn't need to do that, it doesn't need to have some floating point value for each piece and update those all the time. (see my chess example in another post).

The problem with assigning same type of utility to money as to the items those money buy, as per

In terms of "Hey, I have this nice-looking coin", of course. But as you can buy items with money (and you know it), money has a comparable utility.

is that if you do so as you get thirstier, the utility of the coin should also increase.

The big issue here is that people speak very informally of the utilities all the time. We do, internally, distinguish between some derived utility (like that of money) and some primary utility (that of water when thirsty), at least to the extent necessary to avoid getting stuck when getting thirsty. Albeit it IS the case that some people act as misers, which is probably due to some confusion.

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