The examples of K&T that I prefer are those which offer the same utility, but with different reference points since these seem the most ‘irrational’. These instances don’t offer the same utility, because the different dilemmas will involve different states of wealth. The more interesting examples for are those where the dilemma appears identical, but differs only in reference point. Say you are £500 up and faced with an all-in scenario with marginal value, which will leave you down £500 if you lose, with reference points of having been up 2k 10 minutes earlier or down 2k 10 minutes earlier. How do poker-playyers respond?
The second of your two dilemmas presents quandry the following to me:
Choice A: You’re f*cked
Choice B: probably a bit more f*cked (i.e. your still f*cked) or a lowish chance you’re not f*cked.
No wonder the chose B.
I’m not keen on the prehistoric man/ deer example to illustrate/explain K&Ts findings. Describing, as you’ve done, the second redundant deer as redundant, you’re talking purely utility and is more appropriate for highlighting Bernoulli’s or Von Neumann’s perspective. It may serves to illustrate why, at times, we behave in a risk-averse way. K&T concluded, as your example illustrated, that people are (more) loss-averse than risk averse. Even though the two dilemmas might be identical, if one outcome feels like winning in one dilemma but losing in the other, then responses may well change in light of these reference points.
Imo, a more appropriate pre-historic hunting man (!) K&T example would be this:
Four cavemen go out hunting: chase deer; catch nothing; achieve a high state of ‘knackeredness’ and decide to return to the caves.
The same four cavemen go out hunting: chase deer; catch deer; kill deer and then are forced to abandon deer to sabre-toothed tigers. They have reached the same state of knackeredness as before and, as before, they have nothing. They carry on hunting.
In the second example the caveman would have to return to the caves having ‘lost a deer’, in the first case they never had it to lose and, of course, are in a completely different frame of mind.
For me this has applications to poker, particularly in tournaments, as I wrote on BDD’s blog last year some time.
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Date: 2005-07-02 11:56 pm (UTC)Not surprising I sniffed this one out.
The examples of K&T that I prefer are those which offer the same utility, but with different reference points since these seem the most ‘irrational’. These instances don’t offer the same utility, because the different dilemmas will involve different states of wealth. The more interesting examples for are those where the dilemma appears identical, but differs only in reference point. Say you are £500 up and faced with an all-in scenario with marginal value, which will leave you down £500 if you lose, with reference points of having been up 2k 10 minutes earlier or down 2k 10 minutes earlier. How do poker-playyers respond?
The second of your two dilemmas presents quandry the following to me:
Choice A: You’re f*cked
Choice B: probably a bit more f*cked (i.e. your still f*cked) or a lowish chance you’re not f*cked.
No wonder the chose B.
I’m not keen on the prehistoric man/ deer example to illustrate/explain K&Ts findings. Describing, as you’ve done, the second redundant deer as redundant, you’re talking purely utility and is more appropriate for highlighting Bernoulli’s or Von Neumann’s perspective. It may serves to illustrate why, at times, we behave in a risk-averse way. K&T concluded, as your example illustrated, that people are (more) loss-averse than risk averse. Even though the two dilemmas might be identical, if one outcome feels like winning in one dilemma but losing in the other, then responses may well change in light of these reference points.
Imo, a more appropriate pre-historic hunting man (!) K&T example would be this:
Four cavemen go out hunting: chase deer; catch nothing; achieve a high state of ‘knackeredness’ and decide to return to the caves.
The same four cavemen go out hunting: chase deer; catch deer; kill deer and then are forced to abandon deer to sabre-toothed tigers. They have reached the same state of knackeredness as before and, as before, they have nothing. They carry on hunting.
In the second example the caveman would have to return to the caves having ‘lost a deer’, in the first case they never had it to lose and, of course, are in a completely different frame of mind.
For me this has applications to poker, particularly in tournaments, as I wrote on BDD’s blog last year some time.
regards
chaos