How To Do Exactly the Right Thing at All Possible Times or
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Transcript of How To Do Exactly the Right Thing at All Possible Times or
How To Do Exactly the Right Thing at All Possible Times
or
The Idea That Changed the WorldNothing
^____
E(u | p, X) = x X p(x)u(x)
Expected Value =
(Odds of Gain) X (Value of Gain)
E(u | p, X) = x X p(x)u(x)
1/2 X $10
If it comes up heads I’ll give you $10. Should you pay $4 to play?
= $5
Expected Value =
(Odds of Gain) X (Value of Gain)
Yes!
Errors in Odds Errors in Value
Expected Value =
(Odds of Gain) X (Value of Gain)
Expected Value =
(Odds of Gain) X (Value of Gain)
Errors in ValueErrors in Odds
Errors in Odds
Are there more dogs or pigs on leashes in Oxford?
Errors in Odds
_ _ R _ R _ _ _
BARE, FORT, PARK...
Are there more 4-letter English words with R in the 3rd or 1st place?
Errors in OddsErrors in Odds
RING, RANG, RUNG...
Cause Estimate Actual
Tornado 564 90
Fireworks 160 6
Asthma 506 1886
Drowning 1684 7380
Per 200 million US residents per year
Errors in OddsErrors in Odds
Cause Estimate Actual
Tornado 564 90
Fireworks 160 6
Asthma 506 1886
Drowning 1684 7380
Per 200 million US residents per year
Errors in OddsErrors in Odds
>>>
>
Errors in OddsErrors in Odds
Errors in OddsErrors in Odds
Errors in OddsErrors in Odds
Errors in OddsErrors in Odds
Errors in Odds
?Errors in Odds
• 10 tickets
• $1 to play
• $20 if you win
Errors in OddsErrors in Odds
1/10 X $20 = $2
Errors in OddsErrors in Odds
1/10 X $20 = $2
Expected Value =
(Odds of Gain) X (Value of Gain)
Errors in Odds Errors in Value
Errors in Value
Is this Big Mac worth $25?
Errors in Value: Comparing with the Past
COMPARING WITH
the Past instead of the Possible
$60K in Year 1
$50K in Year 2
$40Kin Year 3
$35Kin Year 1
$45Kin Year 2
$55Kin Year 3
$15
0K
$13
5K
Errors in Value: Comparing with the Past
A $2000 Hawaiian vacation package is on sale for $1600. Would you buy it?
Errors in Value: Comparing with the Past
A $2000 Hawaiian vacation package is on sale for $700. You think it over for a week, and by the time you get to the ticket agency, the best fares are gone and the package will now cost you $1500. Would you buy it?
Errors in Value: Comparing with the Past
$2000 $1600
Errors in Value: Comparing with the Past
$2000 $700 $1500
Yes
No
You are on your way to the theatre. In your wallet you have a ticket for which you paid $20, and a $20 bill. When you arrive at the theatre you discover that you’ve somehow lost the ticket.
Would you spend your remaining $20 on a ticket?
Errors in Value: Comparing with the Past
No
You are on your way to the theatre. In your wallet you have two $20 bills. When you arrive at the theatre you discover that you’ve somehow lost one of the bills.
Would you spend your remaining $20 on a ticket?
Errors in Value: Comparing with the Past
Yes
The Lost MoneyThe Lost Ticket
X X
Errors in Value: Comparing with the Past
Errors in Value
COMPARING WITH
the Possible instead of the Past
COMPARING WITH
the Past instead of the Possible
Errors in Value: Comparing with the Possible
$8.00 $27.00 $33.00
Errors in Value: Comparing with the Possible
$8.00 $27.00 $33.00 $51.00
Errors in Value: Comparing with the Possible
Errors in Value: Comparing with the Possible
1
2
3
4
5
6
7
P r e d i c t i o n E x p e r i e n c e
C h o c o la t eS p a m
L i k i n g o f C h ip s
You want to buy a car stereo. The dealer near your house sells it for $200, but if you drive across town, you can get it for $100. Would you drive to get 50% off (saving $100)?
Errors in Value: Comparing with the Possible
Yes
You want to buy a car with a stereo. The dealer near your house sells it for $31,000, but if you drive across town, you can get it for $30,900. Would you drive to get .003% off (saving $100)?
Errors in Value: Comparing with the Possible
No
Errors in Value: Comparing with the Possible
A B C D
Errors in Value: Comparing with the Possible
TODAY TOMORROW NEXT WEEK NEXT YEAR
Errors in Value: Comparing with the Possible
$60 NOW
$50 NOW
Errors in Value: Comparing with the Possible
OR
Problem #1
• More is better than less
Errors in Value: Comparing with the Possible
$60 NOW
$50 NOW
Problem #1
$60NOW
Errors in Value: Comparing with the Possible
OR
Problem #2
$60 In 1
month
$60NOW
Errors in Value: Comparing with the Possible
• Now is better than later
Problem #2
$60 In 1
month
$50NOW
Errors in Value: Comparing with the Possible
Now is better than later
More is better than less
OR
BUT
Problem #3
$60 In 1
month
$50NOW Impatience
Errors in Value: Comparing with the Possible
Now is better than later
More is better than less
Problem #3
$60 In 1
month
$50NOW Impatience
Errors in Value: Comparing with the Possible
Now is better than later
More is better than less
OR
$50 In 12
months
$60 In 13
months
$60 In 1
month
$50NOW
$50 In 12
months
$60 In 13
months
Impatience
Patience
Errors in Value: Comparing with the Possible
Now is better than later
More is better than less
$60 In 1
month
$60
$60
$60
$60
$60
$50
$50
$50
$50 $50
NOW 1 MONTH 12 MONTHS 13 MONTHS
SU
BJE
CTI
VE
VA
LUE
30 Days 30 Days
Errors in Value: Comparing with the Possible
Impatience
Patience
Errors in Value: Comparing with the Possible
Illusions of Spatial Perspective
Errors in Value: Comparing with the Possible
1 ft 21 ft 2000 ft 2021 ftAs seen from
Illusions of Spatial Perspective
Errors in Value: Comparing with the Possible
1 ft 21 ft 2000 ft 2021 ft
20 Feet 20 Feet
As seen from
$60
$60
$60 $60
$60
$50
$50 $50
$50
$50
NOW 1 MONTH 12 MONTHS 13 MONTHS 2O YEARS
SU
BJE
CTI
VE
VA
LUE
Illusions of Temporal Perspective
Errors in Value: Comparing with the Possible
As seen from
$60
$60
$60
$60
$60
$50
$50
$50
$50 $50
NOW 1 MONTH 12 MONTHS 13 MONTHS
SU
BJE
CTI
VE
VA
LUE
Illusions of Temporal Perspective
30 Days 30 Days
Errors in Value: Comparing with the Possible
As seen from
If we’re so stupid, then how did we get to the moon?
Conclusion