Math/Economics psychology

[Tordon22]

Just quickly before I head out to the gym, the expected values thing works by taking the outcomes * the probability.


So expected value just for game one is:

Taking the 500 gives you 1000 + (500 * 1) = 1500

Going for the coin flip gives you 1000 + (1000*.5 + 0*.5)= 1500

[moot]

You don't get 1500 in the first one's coin toss.

[CptTrips]

I'm just guessing.  Have you recently read "How We Decide"?

Regards,
Wab

[CptTrips]

I give you $1000.  Then I give you a choice: we flip a coin for a chance at an extra $1000, or I just give you an extra $500.  Which do you choose?

I give you $1000, but, since I'm not nice, I give you another choice: we flip a coin to decide whether I take it all away, or you just give me $500.  Which do you choose?

To answer your question, my gut tells me those are all equivelent probabilities.  But I haven't put it to pencil and paper.  Hence why I have never had a facination with Las Vegas.    Or "Lost Wages" in the original Spanish pronounciation.

 ,
Wab

[FireDrgn]

  i would take the 1000.00  take the 500.00  take the 1000.00  give you 500.00  so id walk away with 2000.00

<S>

I'm guessing here the presupposition is what is the better choice mathematically.  I would take the sure bet over the odds.

[Banshee7]

Gavagai you make my head hurt 

[Anaxogoras]

I'm just guessing.  Have you recently read "How We Decide"?

Regards,
Wab

No, but I recently read "The Ascent of Money" and "The Age of Keynes," and this problem comes from one of these books, I'm not sure which one.  The other problem with donkeys and a million bucks I just heard from word of mouth when I used to play a lot of poker.

[Tordon22]

You don't get 1500 in the first one's coin toss.

Right, but that's the average return(expected value) you'd expect if you asked 10 people who played the game and went for the extra 1000 what they made. With the values presented by Gavagai the average return you can expect from either decision is the same. It just shows how risk adverse you may or may not be.

Like I said though, if he would only hand over $350 in the first game but the coin flip option remained the same. Would you still just take the $350 knowing that people taking the risk are likely to make more money?

-Zap

[Anaxogoras]

When someone says "EV is the same," they mean the EV for the coin toss or the sure thing in the first game is $500; the EV for the coin toss or the sure loss in the second game is -$500.  In both games, the choices yield the same EV.

In empirical studies, 90% of people say they prefer the coin toss when they have a chance to gain.  On the other hand, 90% of people prefer the sure thing when they know there's a potential for loss.

[BnZs]

I give you $1000.  Then I give you a choice: we flip a coin for a chance at an extra $1000, or I just give you an extra $500.  Which do you choose?

I give you $1000, but, since I'm not nice, I give you another choice: we flip a coin to decide whether I take it all away, or you just give me $500.  Which do you choose?

I quickly look around to see if there are any witnesses, then I stab you and take all that cash you are lugging about....

But more seriously, first case, I have $1000 to gain and only $500 to loose. I take that bet.

Second case, I have $1000 to lose and only $500 to gain. I do not take this bet.

[AWwrgwy]

1. Take $1500 free money

2. Take $500 free money

Now, if you give me $1000 and tell me I can double or nothing on a coin flip I will flip the coin.  In that scenario I either end up with $2000 or back where I started with nothing. 

Since I had nothing to begin with, I really have nothing to lose if I lose the flip because I'm right back to the beginning.


wrongway

[bozon]

First senario:
The 1000$ you already game me are irrelevant as I keep them either way - I put them in my pocket. Then I have the choice between getting 500$, or getting 500$ on average. It is the same as if you gave me 500$ and asked me to flip a coin for double or nothing.

The big question is are we playing this once or many times? If we play once, it depends if this punk feels lucky. If we play many times, I gamble and wait for a highly probable fluctuation threshold before quiting - play the variance.

Second:
I assume I have to choose one of the two? In that case it is again equivalent to giving me 500$ and playing double or nothing. Again, since I cannot go to negative profit here, if we play many times, set a highly probable limit for a fluctuation and quit once you hit it.

[moot]

Right, but that's the average return(expected value) you'd expect if you asked 10 people who played the game and went for the extra 1000 what they made. With the values presented by Gavagai the average return you can expect from either decision is the same. It just shows how risk adverse you may or may not be.

Like I said though, if he would only hand over $350 in the first game but the coin flip option remained the same. Would you still just take the $350 knowing that people taking the risk are likely to make more money?

-Zap

I get it.  The context was aggregate.  I agree on 350 being a tighter alternative.  I think I might flip a coin myself, to choose between the no-conditions 350 and the 50/50 larger payoff.

[RTHolmes]

In empirical studies, 90% of people say they prefer the coin toss when they have a chance to gain.  On the other hand, 90% of people prefer the sure thing when they know there's a potential for loss.

interesting, I would have said 90% would take the money in both cases as about 10% of people are risk-seekers. *scratches head*

[rabbidrabbit]

I'm pretty sure I would take the coin toss both times but I'm not sure how the conveyor belt will affect the odds.