My intuitions match the stated naive intuitions, but I reject your assertion that the pair of preferences are inconsistent with Bayesian probability theory.
You really underestimate the utility of certainty. “Nainodelac and Tarleton Nick”’s example in these comments about the operation is a perfect counter.
With a 33% vs. 34% chance, the impact on your life is about the same, so you just do the straightforward probability calculation for expected value and take the maximum.
But when offered 100% of some positive outcome, vs. a probability of nothing, it seems perfectly rational to prefer the guarantee. Maximizing expected dollar winnings is not necessarily the same as maximizing utility. And you’re right, the issue isn’t decreasing returns. But the issue is the cost of risk.
Your money pump doesn’t convince me either. I’d be happy to pay the two cents, both times, and not regret the cost at the end, just as I don’t regret paying for insurance even if I happen not to get sick.
My intuitions match the stated naive intuitions, but I reject your assertion that the pair of preferences are inconsistent with Bayesian probability theory.
You really underestimate the utility of certainty. “Nainodelac and Tarleton Nick”’s example in these comments about the operation is a perfect counter.
With a 33% vs. 34% chance, the impact on your life is about the same, so you just do the straightforward probability calculation for expected value and take the maximum.
But when offered 100% of some positive outcome, vs. a probability of nothing, it seems perfectly rational to prefer the guarantee. Maximizing expected dollar winnings is not necessarily the same as maximizing utility. And you’re right, the issue isn’t decreasing returns. But the issue is the cost of risk.
Your money pump doesn’t convince me either. I’d be happy to pay the two cents, both times, and not regret the cost at the end, just as I don’t regret paying for insurance even if I happen not to get sick.