Stupid Questions May 2015

Gondolinian

This thread is for asking any questions that might seem obvious, tangential, silly or what-have-you. Don't be shy, everyone has holes in their knowledge, though the fewer and the smaller we can make them, the better.

Please be respectful of other people's admitting ignorance and don't mock them for it, as they're doing a noble thing.

To any future monthly posters of SQ threads, please remember to add the "stupid_questions" tag.

Please be respectful of other people's admitting ignorance and don't mock them for it, as they're doing a noble thing.

To any future monthly posters of SQ threads, please remember to add the "stupid_questions" tag.

If someone reports inconsistent preferences in the Allais paradox, they're violating the axiom of independence and are vulnerable to a Dutch Book. How would you actually do that? What combination of bets should they accept that would yield a guaranteed loss for them?

There is a demonstration of exactly this in Eliezer's post from 2008 about the Allais paradox.

(Eliezer modified the numbers a bit, compared with other statements of the Allais paradox that I've seen. I don't think this makes a substantial difference to what's going on.)

3Xachariah11y

The point of the Allais paradox is less about how humans violate the axiom of independence and more about how our utility functions are nonlinear, especially with respect to infinitesimal risk. There is an existing Dutch Book for eliminating infinitesimal risk, and it's called insurance.

0Manfred11y

You get them to pay you for one, in terms of the other. People will pay you for a small chance of a big payoff in units of a medium chance of medium payoff. People will pay you for the certainty of a moderate reward by giving up a higher reward with a small chance of failure. All of the good examples of this I can think of are already well-populated business models, but I didn't try very hard so you can probably find some unexploited ones.