Main Page Contact Register Log In

I seem to have led our discussion into some clearly fallacious logical absolute terms.

If a person voluntarily chooses to engage in an activity, I take that as evidence they derive some value from it, because why else would they do it? This evidence can be undermined by a) direct evidence that the activity is harmful/not valuable, and b) reasons to believe the person would engage in the activity even if it had negative value, i.e. a cognitive bias motivating the activity.

So with drugs, we can see the health dangers, and pretty safely say that hyperbolic discounting will cause people to accept too many distant costs to justify the immediate benefits, and maybe also that the low-probablity high-magnitude harms aren't accounted for correctly.

Whereas with food, if people choose to eat it, I take that as a pretty strong sign that they enjoy eating it (for its price). If it's shown to be unhealthy, I might accept that hyperbolic discounting makes them undercount the downside.

Now, from the fact that a number of people write wikipedia articles without compensation, I conclude that a number of people derive value from writing wikipedia articles. I don't see any way in which this is harmful except the opportunity cost of their time. This cost occurs at the same time as or sooner than the benefit, so time discounting isn't an issue; it's a certain cost, so risk estimation isn't an issue; and I can't think of any other cognitive bias that would cause people to write articles if they didn't value doing so. It's only if we refuse to use people's choices as evidence that we have trouble trying to guess whether writing a wikipedia article is valuable.

Getting back to the original question, a lot of people choose to interact with financial institutions. Credit cards seem like a pretty clear case where hyperbolic discounting leads people into bad decisions. But a company like Goldman Sachs does most of its business with large corporations. These have a different set of biases than individuals, and I'm not sure which would cause them to overpay for underwriting or investment management services. There's the possibility that when Goldman and a corporate client interact they're somehow mutually benefiting at the expense of some third party, but my prior for that is low and I don't see much coherent evidence.

The method you are using is very sensitive on what kinds of methods are used to search for possible explanations for the possibly irrational behaviour. For example the market for miracle cures doesn't have any strong red flag and the method could be employed that religion as a whole seems to be valauble to people and it is not easy to explain religion as being because of single biases.

I for example I were to deside whether I should go with a index found or a managed hedgefund it doesn't that well convince me that a lot of other people have gone with a hedgefund. Crucially some people migth have decided not based on whether other people are doing it but use some other means.

If a miracle cure worker tries to sell me holy water to that cures the common flue and all kinds of headaches, I could reason that because other people are buying it there must be truth behind it. However if I submit the holy water to a medical double blind test it might come back as null effect. Still it could be argued that the miracle cure buyers are infact buying the placebo effect and that the activity has inherent value. If the point of a hedge fund is to generate bigger profits than unmanaged one comparing it to index funds is similar to the medical litmus test. If the result is null profits the profit narrative is false. What comes to mind is that when the money suffers losses they can blame it on the economy but when it goes up they can attribute it to having chosen such a good manager for the funds. Thus when you use a hedge fund and get profits it seems to confirm your earlier beliefs and it is harder to see you would have gotten the gains anyways even without the manager. Just like getting better after consuming a miracle cure.

The profession of a doctor used to be much more low status when the involvement of a doctor didn't have any great health impacts. But even those doctors held beliefs relating to health. But when doctors got better in their craft and involved such methods such as washing your hands and started to belief in germs the status climbed. Even when they didn't have their craft together we did entrust our sick to their care even if it meant a regular description of mercury or having a hole drilled in their skulls, because that was the best shot we got and those were the people that atleast tried. When we are estimating how well economists have their craft together it isn't that telling on whether people are entrusting their money for them to handle or not. Hiding form even the most educated doctors might have been the sane thing to do. Being reserved that economist are not that essential that they like to belief might be similarly warranted even if one isn't a better economic expert or know anyone that does it better.
Replies (0)