Now, admittedly I haven’t seen a whole lot of evidence in this area, but I’ve seen some, and I couldn’t name a single woman I know personally who has ever, in my presence or by report that I’ve heard, gone for a jerk.
Perhaps this behavior is less common among women who would rather have a 15% chance of $1,000,000 than a certainty of $500 (because most random women I’ve tested choose the certain $500, but every single woman in our community that I’ve asked, regardless of math level or wealth level or economic literacy or their performance on the Cognitive Reflection Test, takes the 15% chance of $1M.)
Or maybe “jerk” is being used in some sense other than what I associate it with, i.e., wearing motorcycle jackets, rather than not caring about who else you hurt.
Now, admittedly I haven’t seen a whole lot of evidence in this area, but I’ve seen some, and I couldn’t name a single woman I know personally who has ever, in my presence or by report that I’ve heard, gone for a jerk.
I could name a fair number (in the “doesn’t care about hurting others” sense, not the “wears motorcycle jackets” sense,) but none of them have been girls or women I would want to date me instead.
I suspect that the perceived trend owes a lot to a horns effect that guys build up around other guys who’re dating girls they want to be dating.
Was this downvoted because someone is just downvoting every single comment on this subthread because they don’t like the idea of this topic being discussed here? Because I can’t see anything wrong in Desrtopa’s comment.
Perhaps this behavior is less common among women who would rather have a 15% chance of $1,000,000 than a certainty of $500 (because most random women I’ve tested choose the certain $500, but every single woman in our community that I’ve asked, regardless of math level or wealth level or economic literacy or their performance on the Cognitive Reflection Test, takes the 15% chance of $1M.)
Whoa. A majority of people choose $500 in EV instead of $150,000?
That’s scary. Have you written about this before? If not, care to give us rough numbers of how many people you’ve talked to about it? That blows my mind that a majority of people wouldn’t get it when it’s so far apart.
No, but I doubt it’s so non-linear for most people that it remotely justifies such a choice.
If someone e.g. urgently needs a life-saving surgery that requires 500$, then they may be justified to choose a certainty of $500 over a 15% probability of a million dollars. But outside such made-up scenarios, I very seriously doubt it.
Obviously, I agree. But let me ask: for what values of X would you choose X$ with 15% chance instead of 1,000,000,000$ with 100% chance?
A quite extreme, but still somewhat defensible theoretical assumption is that utility is logarithmic in money. I once heard Bernoulli already worked with this assumption, many hundred years before Neumann-Morgenstern, and it is probably not so silly to assume this near the power-law tail of the wealth distribution. Not that I think it means anything, but from this admittedly extreme starting point, we get that lg(500) = 2.7 is three times as useful as 0.15*lg(1000000) = 0.9.
That’s not quite right in practice either. Even if you took all my money, I’d still take the 15% chance at $1M and maybe sell a 15% chance of $5k for $500.
Or if that is somehow not allowed, then I’d run into a bit of debt until my next pay check. Even if I really was spending all the money I make and averaging $0, $500 is a mere blip in the noise, not a factor of infinity more money.
It makes more sense to look at the total money in over whatever time scale you plan for.
The present value of my expected future income stream from normal labor, plus my current estimated net worth is what I use when I do these calculations for myself as a business owner considering highly risky investments.
For most people with decent social capital (almost anyone middle class in a rich country), the minimum base number in typical situations should be something >200kUS$ even for those near bankruptcy.
Obviously, this does not cover non-typical situations involving extremely important time-sensitive opportunities requiring more cash than you can raise on short notice (such as the classic life-saving medical treatment required).
Yeah, the prospect of other incomes makes a big difference. I neglected to include a requirement that the initial amount, whichever value it takes, is as much as you can come up with before you’ll be needing money again.
Very true, thanks, I missed that. Obviously I am not an economist. Maybe Eliezer has only ever asked the question from people having less than 191 dollars.
Why would people downvote this? Isn’t it both correct and obvious? It also has fairly significant implication as to the extent of the applicability of the simplified model.
It depends on what is meant by “debt” and “net value”, and as those words are usually used, it is false.
If I borrow money to buy a house, the house being security for the loan, then I am “in debt” by the ordinary use of those words—I owe money to someone—yet if my net worth includes the house, it should still be positive (if the lender was prudent). If I borrow money, secured only against my expectation of future income, then again assuming a prudent lender, the present expected value of that future income will exceed the value of the loan. In that case, I am “in debt”, and my net worth will be positive or negative depending on whether expected future income is counted or not.
The more usual word for someone whose net worth is negative, measured by the whole of their debts and assets, is “bankrupt”.
The more usual word for someone whose net worth is negative, measured by the whole of their debts and assets, is “bankrupt”.
To be precise, it’s “insolvent.” “Bankrupt” means that a particular kind of legal decision has been made about how the assets and liabilities of the insolvent party will be handled.
Also, there’s the issue of one of the more spectacular and shameless rhetorical scams of the modern age, in which certain kinds of insolvency get to be described as “illiquidity,” whereupon such insolvent parties get to claim a blank check on the rest of us to fix their problem.
To be more precise it is “balance sheet insolvency”. “Insolvent” also commonly refers to the inability to pay debts when they fall due (“cash flow insolvency’).
Also, there’s the issue of one of the more spectacular and shameless rhetorical scams of the modern age, in which certain kinds of insolvency get to be described as “illiquidity,” whereupon such insolvent parties get to claim a blank check on the rest of us to fix their problem.
Grrr. Yes. I am not a fan! I’d be even more averse to the idea when the blank check was coming from me.
To be more precise it is “balance sheet insolvency”. “Insolvent” also commonly refers to the inability to pay debts when they fall due (“cash flow insolvency’).
Frankly, I think this “cash flow insolvency” stuff is already in the territory of self-serving obscurantism. If you are balance-sheet solvent, you can always pay debts when they fall due by selling your assets or borrowing money against them. I don’t see any good reason why such a simple, clear-cut, and bullshit-free notion as “insolvency” should be complicated and obscured this way.
(Of course, here I assume that the goal is to arrive at an accurate understanding of reality, not to master the present language of finance and various related areas of economics, which has a lot of such self-serving obscurantism built in, often quite intentionally. I certainly agree that if one wants to speak this language like an insider, one should be careful to make such distinctions.)
Frankly, I think this “cash flow insolvency” stuff is already in the territory of self-serving obscurantism. If you are balance-sheet solvent, you can always pay debts when they fall due by selling your assets or borrowing money against them. I don’t see any good reason why such a simple, clear-cut, and bullshit-free notion as “insolvency” should be complicated and obscured this way.
I’m with you on keeping things simple and free of bullshit but I’ve got to say in this case it is the cash flow insolvency that is the core of the matter. Insolvency, if it is to be described in a simple one liner, is “is the inability of a person—an individual or a corporation—to pay all their debts as and when they fall due.”
Having negative net worth just isn’t a big deal so long as you can keep paying the payments on your loans, keep buying the stuff you need to run your business and keep paying the employees. In fact large business often merrily operate that way and everybody is happy. It becomes a problem when they can’t make the payments they are obliged to make—then they may be forced into liquidation (or bankruptcy depending on the naming convention in the jurisdiction.)
You are right. I have no problem if a business that is balance-sheet insolvent argues that it is still cash-flow solvent and should therefore be allowed to operate in hope of achieving balance-sheet solvency. (Of course, only as long as this doesn’t involve defrauding the long-term creditors by lying about how likely that actually is.) This basically means borrowing money against the optimistic possibilities opened by the uncertainty about the future. (Without such uncertainty, balance-sheet insolvency would imply a predictable future point of cash-flow insolvency, so allowing the business to operate normally would mean favoritism towards shorter-term creditors.)
What I do have a problem with, however, is claiming to be balance-sheet solvent while being cash-flow insolvent. There is simply no good reason to grant anyone that status in any circumstances. Either money can be readily borrowed against the positive net assets, or the accounting on which the claim about the positive net worth is based is fraudulent one way or another.
I have no problem if a business that is balance-sheet insolvent argues that it is still cash-flow solvent and should therefore be allowed to operate in hope of achieving balance-sheet solvency.
I actually have no problem with a business operating in a perpetual state of balance sheet insolvency. If the creditors are happy and getting the payments they desire, the employees are happy and the owners are happy then there just isn’t any issue. No expectation of, desire for or hope that that particular number to be positive is required. It just isn’t an important number.
What I do have a problem with, however, is claiming to be balance-sheet solvent while being cash-flow insolvent. There is simply no good reason to grant anyone that status in any circumstances. Either money can be readily borrowed against the positive net assets, or the accounting on which the claim about the positive net worth is based is fraudulent one way or another.
It does seem like being balance sheet solvent but cash flow insolvent should be impossible in an efficient market with optimal laws in place. And I agree that usually a discrepancy here implies dubious accounting.
Of course things being this neat essentially requires the balance sheet assets to exactly track (or never fall below) the value at which a creditor would loan money based on that asset. Yet it becomes complicated when I, as a potential creditor, expect the business to fare poorly in the future. In that case the amount I would pay to purchase the asset is greater than the amount that I would loan because of the asset (unless I can get some sort of shifty deal where I am paid back first.) Since some assets are essentially the core of the business and cannot realistically be sold while still maintaining the business at all this puts them in a position that can legitimately be described as cash flow insolvent but balance flow solvent. This is a rather strong sign that is time to disband the company and sell the pieces!
It does seem like being balance sheet solvent but cash flow insolvent should be impossible in an efficient market with optimal laws in place. And I agree that usually a discrepancy here implies dubious accounting.
This may be of interest here (it corrects this earlier analysis, which would really have been apropos here if it hadn’t been flawed).
And are thrown in a mix with liquidation, administration and various deals where they get official help wrangling their way out of some of their debts while being restricted or get partially nationalised or somesuch thing. Whatever rules the government has made up to forcefully remedy cash flow insolvency propblems.
The more usual word for someone whose net worth is negative, measured by the whole of their debts and assets, is “bankrupt”.
That’s not the word either. Obviously simple ‘debt’ isn’t the word: someone with a million dollars in cash who owes his mate ten bucks for the meal the other night. But ‘bankrupt’ means a different thing again. If you have a $1m mortgage on a house and the property prices have fallen then the value of your assets may well have fallen below that needed to cover your debt but you still aren’t bankrupt. At least, not yet and not while you can keep up the payments. Unless your lawyers and accountants recommend it as an option.
I would have guessed the word for what Hugh was referring to would be “net debt” but that is a bit off too (since it doesn’t take into account long term assets, just liquid assets). Just plain “deficit net worth” is the simplest description I know of but it seems to be something that deserves a word of its own. Anyone know of one?
Have you written about this before? If not, care to give us rough numbers of how many people you’ve talked to about it?
Consider item g in the first chart on page 10 of “Cognitive Reflection and Decision Making” by Shane Fredrick. In this study, 31% of subjects with low scores on a “cognitive reflection test” took the 15% chance of the million dollars, whereas 60% of high-scoring subjects did. The p-value was less than 0.0001.
I have a suspicion that this “effect” is exaggerated by the stickiness of abusive relationships—once a woman, by ill luck or trickery, does fall into a relationship with a jerk, she may find it difficult, even difficult in the sense of “serious physical danger”, to shake permanently loose of it. The emotional reaction of “why would a woman go with that guy? he’s such a jerk” is ignorance of how abuse works and “because she likes jerks” is a hypothesis being privileged because it reduces the feeling of dissonance.
For what it’s worth, I can name one. She was a not-too-bright high school student, but her on again, off again boyfriend had definite sociopathic tendencies...
because most random women I’ve tested choose the certain $500, but every single woman in our community that I’ve asked, regardless of math level or wealth level or economic literacy or their performance on the Cognitive Reflection Test, takes the 15% chance of $1M.
Well, that doesn’t surprise me but I don’t think it’s got that much to do with personality: I’d think that a person struggling to make ends meet would be a lot more likely to choose the sure $500 than a reasonably wealthy person, and I don’t think there are many of the former kind among people who have enough spare time to read LessWrong, whereas there are lots of them among random people in the streets (at least in 2011 -- there probably were fewer in the 1980s, and more in the 1930s).
As a substantial portion of the population doesn’t play the game of thought experiments very well, it would be worthwhile to ask a second, unrelated thought-experiment question. Anyone who says something like “But a fat man wouldn’t weigh enough to stop a trolley!” or “You can’t keep a violinist alive by connecting them to a person!” and also doesn’t ask something like “Can I have investors bet on whether or not I will receive the $1M?” is just stupid.
Well, it just didn’t occur to me that I could make such a bet.
(Or even, I might sell the lottery ticket with an auction: someone richer than me (who would assign roughly the same utility as me to $1M but much less utility than me to smaller amounts such as $500) might buy it for a lot more money.)
If it wouldn’t have seemed to you like a decisive refutation that a fat man might not be able stop a trolley, then you’re not stupid, and didn’t immediately think of auctioning off the ticket because you understand how these things are supposed to work.
Well, I sometimes do think about non-LPCW answers to hypothetical dilemmas (though I don’t say them aloud), but in this case I didn’t even think of it. (I feel like my inclination to come up with non-LPCW answers is a function of the scenario’s plausibility, but not a monotonic one.)
Now, admittedly I haven’t seen a whole lot of evidence in this area, but I’ve seen some, and I couldn’t name a single woman I know personally who has ever, in my presence or by report that I’ve heard, gone for a jerk.
Perhaps this behavior is less common among women who would rather have a 15% chance of $1,000,000 than a certainty of $500 (because most random women I’ve tested choose the certain $500, but every single woman in our community that I’ve asked, regardless of math level or wealth level or economic literacy or their performance on the Cognitive Reflection Test, takes the 15% chance of $1M.)
Or maybe “jerk” is being used in some sense other than what I associate it with, i.e., wearing motorcycle jackets, rather than not caring about who else you hurt.
I could name a fair number (in the “doesn’t care about hurting others” sense, not the “wears motorcycle jackets” sense,) but none of them have been girls or women I would want to date me instead.
I suspect that the perceived trend owes a lot to a horns effect that guys build up around other guys who’re dating girls they want to be dating.
Was this downvoted because someone is just downvoting every single comment on this subthread because they don’t like the idea of this topic being discussed here? Because I can’t see anything wrong in Desrtopa’s comment.
Whoa. A majority of people choose $500 in EV instead of $150,000?
That’s scary. Have you written about this before? If not, care to give us rough numbers of how many people you’ve talked to about it? That blows my mind that a majority of people wouldn’t get it when it’s so far apart.
Keep in mind that utility isn’t linear in money.
No, but I doubt it’s so non-linear for most people that it remotely justifies such a choice.
If someone e.g. urgently needs a life-saving surgery that requires 500$, then they may be justified to choose a certainty of $500 over a 15% probability of a million dollars. But outside such made-up scenarios, I very seriously doubt it.
Obviously, I agree. But let me ask: for what values of X would you choose X$ with 15% chance instead of 1,000,000,000$ with 100% chance?
A quite extreme, but still somewhat defensible theoretical assumption is that utility is logarithmic in money. I once heard Bernoulli already worked with this assumption, many hundred years before Neumann-Morgenstern, and it is probably not so silly to assume this near the power-law tail of the wealth distribution. Not that I think it means anything, but from this admittedly extreme starting point, we get that lg(500) = 2.7 is three times as useful as 0.15*lg(1000000) = 0.9.
That assumes someone who initially has $1, and in that case it’s certainly true. If on the other hand you initially have, say, $10k...
log(10.5k) - log(10k) ≈ 0.02
0.15 * (log(1.01M) - log(10k)) ≈ 0.3
The crossover point based on this system is $191. Less than that, and you do better with $500. More than that, and you’d try for the million.
That’s not quite right in practice either. Even if you took all my money, I’d still take the 15% chance at $1M and maybe sell a 15% chance of $5k for $500.
Or if that is somehow not allowed, then I’d run into a bit of debt until my next pay check. Even if I really was spending all the money I make and averaging $0, $500 is a mere blip in the noise, not a factor of infinity more money.
It makes more sense to look at the total money in over whatever time scale you plan for.
The present value of my expected future income stream from normal labor, plus my current estimated net worth is what I use when I do these calculations for myself as a business owner considering highly risky investments.
For most people with decent social capital (almost anyone middle class in a rich country), the minimum base number in typical situations should be something >200kUS$ even for those near bankruptcy.
Obviously, this does not cover non-typical situations involving extremely important time-sensitive opportunities requiring more cash than you can raise on short notice (such as the classic life-saving medical treatment required).
Yeah, the prospect of other incomes makes a big difference. I neglected to include a requirement that the initial amount, whichever value it takes, is as much as you can come up with before you’ll be needing money again.
Very true, thanks, I missed that. Obviously I am not an economist. Maybe Eliezer has only ever asked the question from people having less than 191 dollars.
Many people are in debt. If you are, then your net worth is less than $191.
Why would people downvote this? Isn’t it both correct and obvious? It also has fairly significant implication as to the extent of the applicability of the simplified model.
It depends on what is meant by “debt” and “net value”, and as those words are usually used, it is false.
If I borrow money to buy a house, the house being security for the loan, then I am “in debt” by the ordinary use of those words—I owe money to someone—yet if my net worth includes the house, it should still be positive (if the lender was prudent). If I borrow money, secured only against my expectation of future income, then again assuming a prudent lender, the present expected value of that future income will exceed the value of the loan. In that case, I am “in debt”, and my net worth will be positive or negative depending on whether expected future income is counted or not.
The more usual word for someone whose net worth is negative, measured by the whole of their debts and assets, is “bankrupt”.
To be precise, it’s “insolvent.” “Bankrupt” means that a particular kind of legal decision has been made about how the assets and liabilities of the insolvent party will be handled.
Also, there’s the issue of one of the more spectacular and shameless rhetorical scams of the modern age, in which certain kinds of insolvency get to be described as “illiquidity,” whereupon such insolvent parties get to claim a blank check on the rest of us to fix their problem.
To be more precise it is “balance sheet insolvency”. “Insolvent” also commonly refers to the inability to pay debts when they fall due (“cash flow insolvency’).
Grrr. Yes. I am not a fan! I’d be even more averse to the idea when the blank check was coming from me.
Frankly, I think this “cash flow insolvency” stuff is already in the territory of self-serving obscurantism. If you are balance-sheet solvent, you can always pay debts when they fall due by selling your assets or borrowing money against them. I don’t see any good reason why such a simple, clear-cut, and bullshit-free notion as “insolvency” should be complicated and obscured this way.
(Of course, here I assume that the goal is to arrive at an accurate understanding of reality, not to master the present language of finance and various related areas of economics, which has a lot of such self-serving obscurantism built in, often quite intentionally. I certainly agree that if one wants to speak this language like an insider, one should be careful to make such distinctions.)
I’m with you on keeping things simple and free of bullshit but I’ve got to say in this case it is the cash flow insolvency that is the core of the matter. Insolvency, if it is to be described in a simple one liner, is “is the inability of a person—an individual or a corporation—to pay all their debts as and when they fall due.”
Having negative net worth just isn’t a big deal so long as you can keep paying the payments on your loans, keep buying the stuff you need to run your business and keep paying the employees. In fact large business often merrily operate that way and everybody is happy. It becomes a problem when they can’t make the payments they are obliged to make—then they may be forced into liquidation (or bankruptcy depending on the naming convention in the jurisdiction.)
You are right. I have no problem if a business that is balance-sheet insolvent argues that it is still cash-flow solvent and should therefore be allowed to operate in hope of achieving balance-sheet solvency. (Of course, only as long as this doesn’t involve defrauding the long-term creditors by lying about how likely that actually is.) This basically means borrowing money against the optimistic possibilities opened by the uncertainty about the future. (Without such uncertainty, balance-sheet insolvency would imply a predictable future point of cash-flow insolvency, so allowing the business to operate normally would mean favoritism towards shorter-term creditors.)
What I do have a problem with, however, is claiming to be balance-sheet solvent while being cash-flow insolvent. There is simply no good reason to grant anyone that status in any circumstances. Either money can be readily borrowed against the positive net assets, or the accounting on which the claim about the positive net worth is based is fraudulent one way or another.
I actually have no problem with a business operating in a perpetual state of balance sheet insolvency. If the creditors are happy and getting the payments they desire, the employees are happy and the owners are happy then there just isn’t any issue. No expectation of, desire for or hope that that particular number to be positive is required. It just isn’t an important number.
It does seem like being balance sheet solvent but cash flow insolvent should be impossible in an efficient market with optimal laws in place. And I agree that usually a discrepancy here implies dubious accounting.
Of course things being this neat essentially requires the balance sheet assets to exactly track (or never fall below) the value at which a creditor would loan money based on that asset. Yet it becomes complicated when I, as a potential creditor, expect the business to fare poorly in the future. In that case the amount I would pay to purchase the asset is greater than the amount that I would loan because of the asset (unless I can get some sort of shifty deal where I am paid back first.) Since some assets are essentially the core of the business and cannot realistically be sold while still maintaining the business at all this puts them in a position that can legitimately be described as cash flow insolvent but balance flow solvent. This is a rather strong sign that is time to disband the company and sell the pieces!
This may be of interest here (it corrects this earlier analysis, which would really have been apropos here if it hadn’t been flawed).
In at least some jurisdictions, those are different.
And are thrown in a mix with liquidation, administration and various deals where they get official help wrangling their way out of some of their debts while being restricted or get partially nationalised or somesuch thing. Whatever rules the government has made up to forcefully remedy cash flow insolvency propblems.
That’s not the word either. Obviously simple ‘debt’ isn’t the word: someone with a million dollars in cash who owes his mate ten bucks for the meal the other night. But ‘bankrupt’ means a different thing again. If you have a $1m mortgage on a house and the property prices have fallen then the value of your assets may well have fallen below that needed to cover your debt but you still aren’t bankrupt. At least, not yet and not while you can keep up the payments. Unless your lawyers and accountants recommend it as an option.
I would have guessed the word for what Hugh was referring to would be “net debt” but that is a bit off too (since it doesn’t take into account long term assets, just liquid assets). Just plain “deficit net worth” is the simplest description I know of but it seems to be something that deserves a word of its own. Anyone know of one?
It is slang but the convention is “underwater”.
Ahh, thanks.
The math works out that he’s in contact with people with more than $191 - and that makes sense.
I meant the “random women” he was talking about.
Consider item g in the first chart on page 10 of “Cognitive Reflection and Decision Making” by Shane Fredrick. In this study, 31% of subjects with low scores on a “cognitive reflection test” took the 15% chance of the million dollars, whereas 60% of high-scoring subjects did. The p-value was less than 0.0001.
I would suggest that it is very easy to concentrate on the 85% chance of getting nothing, and so ignore the difference in EV.
Indeed yeah. But we’re not talking $500 vs. $900, we’re talking orders of magnitude...
This is typical behavior in academic psych work (e.g. the Shane Frederick paper Eliezer pulled this from).
Jerkiness is in the eye of the beholder.
I have a suspicion that this “effect” is exaggerated by the stickiness of abusive relationships—once a woman, by ill luck or trickery, does fall into a relationship with a jerk, she may find it difficult, even difficult in the sense of “serious physical danger”, to shake permanently loose of it. The emotional reaction of “why would a woman go with that guy? he’s such a jerk” is ignorance of how abuse works and “because she likes jerks” is a hypothesis being privileged because it reduces the feeling of dissonance.
For what it’s worth, I can name one. She was a not-too-bright high school student, but her on again, off again boyfriend had definite sociopathic tendencies...
Well, that doesn’t surprise me but I don’t think it’s got that much to do with personality: I’d think that a person struggling to make ends meet would be a lot more likely to choose the sure $500 than a reasonably wealthy person, and I don’t think there are many of the former kind among people who have enough spare time to read LessWrong, whereas there are lots of them among random people in the streets (at least in 2011 -- there probably were fewer in the 1980s, and more in the 1930s).
As a substantial portion of the population doesn’t play the game of thought experiments very well, it would be worthwhile to ask a second, unrelated thought-experiment question. Anyone who says something like “But a fat man wouldn’t weigh enough to stop a trolley!” or “You can’t keep a violinist alive by connecting them to a person!” and also doesn’t ask something like “Can I have investors bet on whether or not I will receive the $1M?” is just stupid.
Well, it just didn’t occur to me that I could make such a bet.
(Or even, I might sell the lottery ticket with an auction: someone richer than me (who would assign roughly the same utility as me to $1M but much less utility than me to smaller amounts such as $500) might buy it for a lot more money.)
If it wouldn’t have seemed to you like a decisive refutation that a fat man might not be able stop a trolley, then you’re not stupid, and didn’t immediately think of auctioning off the ticket because you understand how these things are supposed to work.
Well, I sometimes do think about non-LPCW answers to hypothetical dilemmas (though I don’t say them aloud), but in this case I didn’t even think of it. (I feel like my inclination to come up with non-LPCW answers is a function of the scenario’s plausibility, but not a monotonic one.)