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Topic: Game Theory: discussions (Read 466 times) |
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Benny
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Game Theory: discussions
« on: Jul 17th, 2009, 12:49am » |
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Take this simple test ... and find out how rational you are :
Imagine that each of your three fabulously wealthy cousins offers you a choice of two Christmas gifts. In each case, choose the one you'd prefer.
1. Cousin Snip offers you a choice of :
A. $1 million in cash.
B. A lottery ticket. The ticket gives you a 10-percent chance of winning $5 million, an 89-percent chance of winning $1 million, and a 1-percent chance of winning nothing at all.
2. Cousin Snap offers you a choice of :
A. A lottery ticket that gives you an 11-percent chance of winning $1 million.
B. A lottery ticket that gives you a 10-percent chance of winning $5 million.
3. Cousin Snurr offers you a choice of :
A. $1 million in cash.
B. A lottery ticket that gives you a 10/11 chance of winning $5 million.
P.S. "Rational" does not mean "risk-neutral"
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| « Last Edit: Jul 17th, 2009, 12:50am by Benny » |
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If we want to understand our world — or how to change it — we must first understand the rational choices that shape it.
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Grimbal
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Re: Game Theory: discussions
« Reply #2 on: Jul 17th, 2009, 6:40am » |
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Is it allowed to buy an insurance against loosing?
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Benny
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Re: Game Theory: discussions
« Reply #3 on: Jul 17th, 2009, 5:47pm » |
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on Jul 17th, 2009, 6:40am, Grimbal wrote:Is it allowed to buy an insurance against loosing?
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The problem as stated does not ask us to consider "buying an insurance"
It is interesting though, we could add that element, as we could add other elements, such as 'regret' because you're asked to choose between a sure thing and running the risk to lose by choosing a not-so-sure thing.
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If we want to understand our world — or how to change it — we must first understand the rational choices that shape it.
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Benny
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Re: Game Theory: discussions
« Reply #4 on: Jul 17th, 2009, 5:52pm » |
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on Jul 17th, 2009, 1:49am, pex wrote:| http://en.wikipedia.org/wiki/Allais_paradox |
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Yes, but there's more to it ...
Economists and game theorists seem to disagree on this problem.
Here's the same problem stated a bit differently:
A is the certainty of winning 100, and
B is a 10% chance of winning 500
do you prefer A over B?
C is an 89% chance of winning 100; and
D a 1% chance of winning nothing
do you prefer C over D?
Earlier analysis of game theory had suggested that in the following example, the preference of A over B should entail a preference of C over D.
Allais stated, however, that many sensible people who wanted A over B would choose D or C, suggesting a paradox
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If we want to understand our world — or how to change it — we must first understand the rational choices that shape it.
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