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JEB_4_PREZ_2016 comments on Open thread, May 15 - May 21, 2017 - Less Wrong Discussion

1 Post author: Elo 15 May 2017 07:06AM

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Comment author: philh 17 May 2017 09:51:13AM 0 points [-]

I think "everyone" is pretty much true. Your counterexample seems like it only works as long as Alice and Bob's preferences aren't in conflict. And I guess they often won't be. But I don't think that being in that situation means people care about their preferences equally; it just means they don't have to choose right now.

To be more explicit about when your counterexample fails: suppose Alice wants a particularly fancy load of bread. It takes you all day to bake so you can't make bread for Bob (or any of your other customers) any more, but she's willing to pay $1000 for it.

She doesn't actually care very much about having this $1000 loaf over a $1 loaf, which is why she's only willing to pay $1000, which isn't very much to her. Bob's $1 has more value to him than $1000 does to Alice. The cost to Bob of not getting the $1 loaf is more than the value to Alice of getting the $1000 loaf instead of the $1 loaf.

But you make the $1000 loaf anyway. This is great for you. But it's pretty bad for Bob, and only slightly good for Alice.

Comment author: JEB_4_PREZ_2016 17 May 2017 04:03:17PM *  1 point [-]

Alice would probably not want to pay $1,000 for a loaf that she prefers only slightly to the $1 loaf. She'd likely be willing to pay $1.05 or $1.10 for it. And Bob would be willing to pay $2 or $3 or maybe even $4 since he wants it so badly.

Comment author: philh 19 May 2017 10:03:06AM 0 points [-]

Alice would probably not want to pay $1,000 for a loaf that she prefers only slightly to the $1 loaf. She'd likely be willing to pay $1.05 or $1.10 for it.

I did not intend that to be taken literally. I picked an extreme example to make the effect intuitively obvious, not because it was realistic.

If you think the effect doesn't exist, or is too small to be worth mentioning, at realistic levels, then that seems worth saying. But it doesn't seem very interesting to say that my example was unrealistic.

Bob would be willing to pay $2 or $3 or maybe even $4 since he wants it so badly.

There exists an amount that Bob can value a loaf of bread, where he's willing to pay $1 but not $2. Nothing I said is inconsistent with Bob valuing the bread at that level.

Comment author: ChristianKl 18 May 2017 03:23:59PM 0 points [-]

Some billionaire's like Warren Buffet do care about the price difference between a $1,000 and a $1 loaf but many don't.

It might be more clear when you replace "loaf of bread" with wine.

Comment author: JEB_4_PREZ_2016 18 May 2017 08:08:40PM *  1 point [-]

All [long-term] wealthy people care about price differences. They'd go broke if they didn't (see lottery winners). Even billionaires don't just throw their money around, because their money is still scarce and they want to spend it so as to maximize their expected utility.

Replacing bread with wine doesn't change anything; if a billionaire slightly prefers one type of wine to another, he doesn't arbitrarily pay a ton more for it. He pays the market price.

Comment author: ChristianKl 18 May 2017 08:51:14PM 0 points [-]

There's a reason the saying "If you have to ask for the price, it's too expensive for you" exists.

A huge reason why lottery winners go broke is that they don't earn more money, there are other rich people who do earn money and who spent it lavishly.

Comment author: JEB_4_PREZ_2016 18 May 2017 11:17:36PM *  1 point [-]

There's a reason the saying "If you have to ask for the price, it's too expensive for you" exists.

That saying has more to do with poor people not having the purchasing power of rich people and less to do with rich people and their lack of stinginess.

A huge reason why lottery winners go broke is that they don't earn more money

False. Most jackpot winners (and almost all of the ones that go broke), come from the lower and less educated classes. If they were to invest their entire prize in passive investments and live off the annual returns, they'd be earning far more money than any salary they could've ever hoped to achieve with their labor. These people don't go broke because they don't earn more money--they go broke because they squander multiple lifetimes worth of upper class earnings astonishingly quickly.

there are other rich people who do earn money and who spent it lavishly.

Not in the way that was described in the original example. Note that in philh's comment, Alice "doesn't actually care very much about having this $1000 loaf over a $1 loaf," but decides to go ahead and drop $1,000 on it anyways. The overwhelming majority of ultra rich people don't spend this way. And when they sort of do, they don't stay ultra rich over the long run.