Monday, June 30, 2008

The problem of being gifted

Geniuses are able to invent explanations on all fronts with no apparent difficulty. When those guys come up with a nice theory, be skeptic. They have the capability of making up endless kinds of theories explanation and combinations thereof. That is a big problem.

Saturday, June 28, 2008

Tricking conflicting wants

Much of trouble we face comes from the fact the many of our wants are confliting with each other [1: examles].

Some of these are unavoidable in a complex reality whihc is not built to fulfill our wants.
Other conflicts are only apparant conflicts. They arise because in the default state of things they are conflicting. But there are ways around.

Finding ways around conflicts (i.e. learning how to eat the cake and have it, too) may hold a big promise to improve lfie quality. I would guess that people just do not explore all space of ways to put things together.

Caveat: I may prove wrong. THnking too much, tricking things, etc., and getting used to eat the cake etc. may prove negative on balance. I hope I am right.

[1: examples] Baumeister holds that over half of self-defeating behavriors are actually trade-offs. Alcohol abuse come from wanting the joy of alcohol but neglecting the consequences. and so on.

There are more examples, whihc I may add later.

Three degrees of rationality in Economics

I believe that economical decisions can be roughly divided into three levels with rationality decreasing: Outside arbitrage. Big consequences. Small consequences.

1) Outside arbitrage. Where a few rational individuals can make money out of other’s inconsistencies. Example put/call parity in options.Here the market is almost always rational. Because it is enough to have very few rational guys to rationalize it. These rationalizing the market should be have an interest in rationalizing the market. E.g. making money of other's irrationality

2) Big consequences refers to where irrational decisions are going to be exposed no matter how careless people are. Example: The very idea of saving for pension.
While single individuals ignore saving many times, there is public awareness to the need, and society makes an effort to rationalize behavior.Other examples relate to financial decisions that many people know they have to consult about. The big consequences ultimately insert rationality in the system, via various routes.

3) Small things. Here I see no doubt that human nature is quite capricious. There are so many examples about this.

I believe that rejecting an even chance bet of winning 200 and losing 100 is strictly irrational. Many reject such a gamble. But this is a small decision. The direct consequences of this irrationality are not that big to make society aware on them.

I never saw this distinction written, but it looks obvious. Anyone saw these definitions stated somewhere?

PS. Definition of small/big
When I talk about big decisions, I am not talking about the effect of the decision itself. I am sure people make irrational decisions about huge decisions.
My category of “big” talks about mistakes that are repeated many times, and their effect is disastrous. This may lead to correction from various places. Not taxing car entrance to the city centers can be said irrational, and one city at least reacted, while other tried. It can be seen that rationality emerges when the effects are severe enough. Even then rationality does not rule.