Incidentally, a handful of things have crossed my path at the same time, such that I think I have a better explanation for the psychology underlying the Allais Paradox. [I’m not sure this will seem new, but something about the standard presentation seems to be not giving it the emphasis it deserves, or speaking generally instead of particularly.]
The traditional explanation is that you’re paying for certainty, which has some value (typically hugely overestimated). But I think ‘certainty’ should really be read as something more like “not being blameworthy.” That is, connect it to handicapping so that you have an excuse for poor performance. The person who picks 1B and loses know that they missed out on a certain $1M, whereas the person who picks 1A can choose to focus their attention on the possibility of losing the $1M they did get instead of the $4M they might have had and don’t.
I admit that I occasionally envy the people who bought Bitcoin early for nothing and are now billionaires and retired. One thing that soothes this envy is reading about people who bought Bitcoin early for nothing and are now theoretical centimillionaires but lost their private keys and can’t access the money. I may have no Bitcoins, but at least I haven’t misplaced a fortune in Bitcoins.
“At least I haven’t misplaced a fortune in Bitcoins”! Or, in other words, two different ways to “gain $0″ with different Us.
[For what it’s worth, I think this sort of “protecting yourself against updates” is mostly a mistake, and think it’s better to hug reality as closely as possible, which means paying more attention to your mistakes instead of less, and being more open to making them instead of less. I think seeing the obstacles more clearly makes them easier to overcome.]
Incidentally, a handful of things have crossed my path at the same time, such that I think I have a better explanation for the psychology underlying the Allais Paradox. [I’m not sure this will seem new, but something about the standard presentation seems to be not giving it the emphasis it deserves, or speaking generally instead of particularly.]
The traditional explanation is that you’re paying for certainty, which has some value (typically hugely overestimated). But I think ‘certainty’ should really be read as something more like “not being blameworthy.” That is, connect it to handicapping so that you have an excuse for poor performance. The person who picks 1B and loses know that they missed out on a certain $1M, whereas the person who picks 1A can choose to focus their attention on the possibility of losing the $1M they did get instead of the $4M they might have had and don’t.
As Matt Levine puts it,
“At least I haven’t misplaced a fortune in Bitcoins”! Or, in other words, two different ways to “gain $0″ with different Us.
[For what it’s worth, I think this sort of “protecting yourself against updates” is mostly a mistake, and think it’s better to hug reality as closely as possible, which means paying more attention to your mistakes instead of less, and being more open to making them instead of less. I think seeing the obstacles more clearly makes them easier to overcome.]
Sounds like the thing that is typically called “regret aversion”.