Hacker News Reader

Comment by OscarCunningham | Hacker News Reader

I think I showed why his justification is wrong.

But if I wanted to explain why treating house money differently from your own money was wrong I'd use the example of two people who entered the casino with different amounts of money but now have the same amount (somewhere in between where they each started). Then one is betting with house money and the other isn't. But I claim that it would be rational for them to behave the same way. This is because the consequences of having a certain amount of money will be the same for both of them, no matter where that money came from.

View on HN

As someone that makes casino games and is an active gambler, I have to disagree with this assessment. The amount of money a person initially brings to the casino is often a function of many variables of their life outside the scope of a casino visit. I've gone to the casino with $500 (my ATM limit) alongside someone who brought $5,000 only to see us both end up with $1,000 in our respective pockets. The different variables that caused us to bring the initial sums definitely influenced our behavior once the values equalized. Income, assets, risk adverseness, etc. that all influence the initial sum still come into effect later on when the sums equalize.

So Taleb says the function that controls how you spend your money is a path function and you say that it is a state function. does anyone know how this could be tested? or does anyone have any good gedankenexperiments to illustrate the difference that they would like to share?

I'm not claiming that they will make the same bets, just that it would be in their interest to do so.

so the sunk cost fallacy is a similar case. rationally, a budget is a state function, but people tend to think of it as a path function. thanks for explaining.

Why would it be rational for them to behave the same way?

Because each of their actions have exactly the same consequences.

So A enters the casino with $100 and B enters the casino with $50 -- he then proceeds to double them, whereas A remains steady. So, now both have $100, and B plays with just the house money.

A is losing money they had put aside -- B is losing money he didn't have to begin with.

E.g. A might be playing with borrowed mafia money, or his kids college fund (and risks losing them), whereas B doesn't risk going anywhere below where he was when he entered the casino. If anything, he has a chance to make his winnings even bigger (or at worse, lose them).

In real life (as opposed to thought experiments treating those persons like abstract entities) the origin of those money has a story, so the A=B=100 state is not all that matters to determine the consequences.

Sure. By altering external factors we can make the agents do whatever we want. Perhaps the fact that B only brought $50 indicates his frugal nature, and suggests that he also has a better financial situation outside the casino.

>Sure. By altering external factors we can make the agents do whatever we want.

You say it as it's some kind of cheating -- instead of enriching the in vitro abstract example with real world impact, and showing why its abstract conclusions don't apply to the real world.

Reply on news.ycombinator.com