Randaly comments on Why I'm Skeptical About Unproven Causes (And You Should Be Too) - Less Wrong

31 Post author: peter_hurford 29 July 2013 09:09AM

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Comment author: Randaly 29 July 2013 06:15:07PM 18 points [-]

Would you play a lottery with no stated odds?

Imagine another thought experiment -- you're asked to play a lottery. You have to pay $2 to play, but you have a chance at winning $100. Do you play?

Of course, you don't know, because you're not given odds. Rationally, it makes sense to play any lottery where you expect to come out ahead more often than not. If the lottery is a coin flip, it makes sense to pay $2 to have a 50/50 shot to win $100, since you'd expect to win $50 on average, and come ahead $48 each time. With a sufficiently high reward, even a one in a million chance is worth it. Pay $2 for a 1/1M chance of winning $1B, and you'd expect to come out ahead by $998 each time.

But $2 for the chance to win $100, without knowing what the chance is? Even if you had some sort of bounds, like you knew the odds had to be at least 1/150 and at most 1/10, though you could be off by a little bit. Would you accept that bet?

Such a bet seems intuitively uninviting to me, yet this is the bet that speculative causes offer me.

The reason not to play a lottery is because it is a zero-sum game in which the rules are set by the other agent; since you know that the other player's goal is to make a profit, you should expect the rules to be set up to ensure that you lose money. Obviously, reality is not playing a zero-sum game with humanity; if one chooses a different expected payout structure- say, you have no idea what the specific odds are, but you know that your crazy uncle Bill Gates is giving away potentially all his money to family members in a lottery with 2$ tickets- then obviously it makes sense to play.

Comment author: Muhd 29 July 2013 10:35:07PM 9 points [-]

These were my thoughts when I read this.

A better analogy might be buying stock in a technology startup which is making a product completely unlike anything on the market now. It is certainly more risky than the sure thing, with lots of potential for losing your investment, but also has a much much higher potential payoff. This is generally the case in any sort of investing, whether it be investing in a charity or in a business -- the higher the risk, the higher the potential gain. The sure stuff generally has plenty of funding already -- the low hanging fruit has already been taken.

That being said, one should be on the lookout for good investing opportunities of both kinds -- charging more (in terms of expected payoff) for the riskier ones but not shunning either completely.

Comment author: Vulture 12 January 2014 04:49:08AM *  0 points [-]

A better analogy might be buying stock in a technology startup which is making a product completely unlike anything on the market now.

I think this is also a dangerous example because most of the salient and readily-available examples of doing this are the highly-publicized successes (this might be less true for people who are actually actively involved in technology investment - I say this from the perspective of an outsider).

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