Hard Light Productions Forums

Off-Topic Discussion => General Discussion => Topic started by: General Battuta on May 03, 2010, 05:16:12 pm

Title: A brilliant demonstration of human irrationality
Post by: General Battuta on May 03, 2010, 05:16:12 pm
We are all a little bit stupid. Humans are, fundamentally, not wired to make rational decisions. This is part of the reason capitalism consistently fails to be as excellent as theory suggests it should be.

Today I saw a great game to demonstrate this fact. Here are the rules.

I am going to put a $20 bill up for auction.

The bidding starts at $1. You may top the previous bid by $1, no more, no less. You may not top your own bid. (The first bid will thus always be $1, the second $2, and so on. You can't raise your own bid; you must wait for someone else to top it, and then top them in turn.)

When the auction concludes, the winning bidder must pay the amount they bid for the $20 bill. Additionally, the second-highest bidder must pay the full amount of their bid, but they receive no compensation of any form.

No communication of any kind is permitted except for the bids themselves.

I watched this exercise performed by dozens of students at one of the top universities in the US. I also saw data on the outcome of this exercise with economics professors, Goldman-Sachs analysts, executives at other major financial firms, and young entrepreneurs.

What do you think happened? How much do you think the bill went for?

Title: Re: A brilliant demonstration of human irrationality
Post by: Shivan Hunter on May 03, 2010, 05:22:51 pm
well, obviously > $20.

$40? Tell me more or less and I can do a sort-of-binary-search for it.
Title: Re: A brilliant demonstration of human irrationality
Post by: Herra Tohtori on May 03, 2010, 05:24:47 pm
Clever. No one wants to be the second, so the bidding goes on and on because if someone outbids you, their loss is N-20 dollars while you as second bidder lose N-1 dollars (N being the final bid).

I'm guessing two people ended up in a bidding match well beyond the 20 buck range... with my supercalibrated stetson-harrison method I estimate a sum of 143 dollars as final bid.
Title: Re: A brilliant demonstration of human irrationality
Post by: Ghostavo on May 03, 2010, 05:59:33 pm
The winner is the one that doesn't bid at all.

I'd guess the bid went extremely high, a couple of million dollars.

I remember reading a study about something similar to this. When people invest effort (money, time, etc.) in something, they are more likely to continue investing effort in that very same thing, even if logically it would be best to cut your losses and start with something else.
Title: Re: A brilliant demonstration of human irrationality
Post by: Turambar on May 03, 2010, 06:13:21 pm
I'd never go above $19
Title: Re: A brilliant demonstration of human irrationality
Post by: Herra Tohtori on May 03, 2010, 06:21:43 pm
Well, a rational approach to this would be to make a deal with everyone present that one person will make the starting bid, no one else will bid at all, and the bid as well as the 20 dollar bill would be divided amongst the party.

With twenty people present, everyone would benefit 95 cents, so it would be just as sensible to simply let someone make the starting bid, and let him benefit 19 dollars.

Of course, in contests like this "winning" is not the same as "profit".


Or, in other words: If the people in the "auction" would consider them as one participant in the contest and the auction keeper(s) as the other party, they would see that the only way for them to win and the auction keeper to lose is if the total bid stays below or at maximum of ten dollars in the case of 20 dollar bill.

Instead, they fall into the pit hole of thinking each other as their "enemies" and try to win at that contest instead of seeing the obvious - the only one who will benefit when the bid goes past certain mark is the one who is auctioning the 20 dollar bill.


Turambar also falls into this sort of thinking. If you switch your paradigma from "me versus others" (me vs other bidders) to "us versus them" (bidders vs auction keepers), the contest gains a whole new meaning.

In ideal case, no one rises the bid after the opening bid. In no case is it beneficial for the bidders as a whole to raise the bid over half of the prize money (with these rules). At any time when bid goes past half the prize, the auction keepers are getting profit.


This, of course, is limited to purely monetary definition of profit. There are other ways one could benefit from winning a contest.

"Look at me! I have so much money I can bid this much for essentially worthless victory over these other guys around here!"


Yep, I can see how in high society that could be beneficial signal to send out - and the actual monetary losses can still be negligible to the people I'm thinking of.
Title: Re: A brilliant demonstration of human irrationality
Post by: General Battuta on May 03, 2010, 06:24:23 pm
*a plan*

I think you forgot one rule:

Quote
No communication of any kind is permitted except for the bids themselves.
Title: Re: A brilliant demonstration of human irrationality
Post by: Turambar on May 03, 2010, 06:25:47 pm
That involves people working together.  People are dicks.  I think that's the point.
Title: Re: A brilliant demonstration of human irrationality
Post by: Herra Tohtori on May 03, 2010, 06:27:53 pm
Well, yeah. That.

In that case it would be better to just let the one fast enough to place the starting bid to enjoy the fruits of his or her speedy reaction.

But, this only applies if all the bidders were thinking rationally... :p


Just out of interest, what counts as communication?
Title: Re: A brilliant demonstration of human irrationality
Post by: Turambar on May 03, 2010, 06:30:08 pm
I'm not really sure how to suggest "just one guy bid" using only suggestive eyebrow waggles and winks.
Title: Re: A brilliant demonstration of human irrationality
Post by: General Battuta on May 03, 2010, 06:32:58 pm
There's another excellent game that illustrates this point.

You are going to play a game for ten seconds. You will be partnered with someone else.

From this moment on, you cannot speak or communicate, and you must close your eyes and keep them shut. Please assume the arm wrestling position!

Now, you're going to arm wrestle, and every time your opponent's hand touches the desk, you will receive $1. You have 10 seconds. Go.

I imagine you can tell what the optimal strategy in this game is, and I also imagine you can guess what pretty much everybody actually does.
Title: Re: A brilliant demonstration of human irrationality
Post by: IceFire on May 03, 2010, 06:35:15 pm
Well, yeah. That.

In that case it would be better to just let the one fast enough to place the starting bid to enjoy the fruits of his or her speedy reaction.

But, this only applies if all the bidders were thinking rationally... :p


Just out of interest, what counts as communication?
We're only rational in spurts... as soon as something like a competition comes along we're pre-wired to compete.  Determining the order of who is "best" or the leader or whatever. Except money isn't really something that works well with those basic instincts... so instead there are a dozen stupid people.
Title: Re: A brilliant demonstration of human irrationality
Post by: Herra Tohtori on May 03, 2010, 06:54:29 pm
I'm not really sure how to suggest "just one guy bid" using only suggestive eyebrow waggles and winks.

Say no more, say no more, know what you mean, nudge nudge, wink wink. ;)


Quote
You are going to play a game for ten seconds. You will be partnered with someone else.

From this moment on, you cannot speak or communicate, and you must close your eyes and keep them shut. Please assume the arm wrestling position!

Now, you're going to arm wrestle, and every time your opponent's hand touches the desk, you will receive $1. You have 10 seconds. Go.

I imagine you can tell what the optimal strategy in this game is, and I also imagine you can guess what pretty much everybody actually does.


Please explain this further. If it means what I think it means, both players would gain most monetary profit by basically moving their hands from one side to another as fast as possible...


Oh, here's another popular game.

If you ever get married, and you're asked the question "do you..." etc, you'll win a box of beer for every second you let pass before you answer. :p

For optimal strategy, linear optimization is required, taking into account your fondness of beer, and the bride's sense of humour.
Title: Re: A brilliant demonstration of human irrationality
Post by: Bobboau on May 03, 2010, 06:59:33 pm
I'm going to guess $26 was the high bid, at that point the whole 'try to reduce my losses' aspect would start breaking down
Title: Re: A brilliant demonstration of human irrationality
Post by: Qent on May 03, 2010, 07:04:34 pm
You're not allowed to waggle eyebrows or wink. The only communication possible is Morse code via bids (very expensive). :P

Oh I got one... six people stand around a table. On the table are six pieces of candy (or dollar bills, but the professor wasn't about to hand out money for a game). They (the people) can say WHATEVER THEY WANT, and each person can take as much as he wants whenever he wants. If no one touches it for a whole minute, then the referee doubles the amount. It can only get doubled once.

None of these demonstrate human irrationality. In fact, they demonstrate rationality. At every point, each participant makes the decision most likely to benefit him the most, given incomplete information about the others' intentions. The real point is that being rational in these situations makes everyone lose.
Title: Re: A brilliant demonstration of human irrationality
Post by: General Battuta on May 03, 2010, 07:04:52 pm
I'm going to guess $26 was the high bid, at that point the whole 'try to reduce my losses' aspect would start breaking down

In this group the high bid was about $120.

In the rich executives group it was well over $2000.
Title: Re: A brilliant demonstration of human irrationality
Post by: Titan on May 03, 2010, 07:07:20 pm
OK, I have another game. 12 random people walk into a room. A vending machine in the middle of the room only has one piece of candy in it. They look and see that there is 5 cents short of correct change in the machine. Nobody has any currency on them. Then, one person exclaims, "Is that a nickle on the floor?"
Just then, everybodies stomach starts growling.
...
Title: Re: A brilliant demonstration of human irrationality
Post by: Solatar on May 03, 2010, 08:01:21 pm
I'd never go above $19

But if someone bids $20, you've lost $19 (since you're in second place).  If you then one up them to $21, you only lose $1.

Title: Re: A brilliant demonstration of human irrationality
Post by: Droid803 on May 03, 2010, 08:10:57 pm
It's $20.
I wouldn't bid at all.

The only way to win is if everyone works together.
Obviously you cannot trust anyone to work together.
So don't even play.

It's not about money. It's about the moral victory.
Title: Re: A brilliant demonstration of human irrationality
Post by: el_magnifico on May 03, 2010, 08:25:50 pm
I'd never go above $16. If someone is stupid enough to say $17, someone is probably going to be stupid enough to say $18. I seriously doubt anyone I hang around with will offer any amount >= $19. But who knows...

However, since I'm so distrustful of easy money, I'd probably just avoid bidding altogether if I'm given the option.
Title: Re: A brilliant demonstration of human irrationality
Post by: General Battuta on May 03, 2010, 08:33:53 pm
I'd never go above $16. If someone is stupid enough to say $17, someone is probably going to be stupid enough to say $18. I seriously doubt anyone I hang around with will offer any amount >= $19. But who knows...

However, since I'm so distrustful of easy money, I'd probably just avoid bidding altogether if I'm given the option.

Well, remember that you've just been tossed in to the scenario and don't have time to think about it. In probability a large chunk of 'you and the people you hang around with' would get sucked in.
Title: Re: A brilliant demonstration of human irrationality
Post by: mxlm on May 03, 2010, 09:11:46 pm
Please explain this further. If it means what I think it means, both players would gain most monetary profit by basically moving their hands from one side to another as fast as possible...

I would think the optimal strategy would be for me to smack my hand on the desk repeatedly and rapidly, and then split the money with the other guy. Raising/lowering a few milli/centimeters must be faster than a 180 degree rotation, yes?
Title: Re: A brilliant demonstration of human irrationality
Post by: Timerlane on May 03, 2010, 09:16:07 pm
Quote
You are going to play a game for ten seconds. You will be partnered with someone else.

From this moment on, you cannot speak or communicate, and you must close your eyes and keep them shut. Please assume the arm wrestling position!

Now, you're going to arm wrestle, and every time your opponent's hand touches the desk, you will receive $1. You have 10 seconds. Go.

I imagine you can tell what the optimal strategy in this game is, and I also imagine you can guess what pretty much everybody actually does.


Please explain this further. If it means what I think it means, both players would gain most monetary profit by basically moving their hands from one side to another as fast as possible...
My smart-aleck rules-lawyer sense wants to point out that, technically, both peoples' hands touch the desk either way(the back of the 'losing' hand, back fingertips of the 'winning' hand). Therefore, a dollar should be given to both people when either side 'wins'. :P

Therefore, the ideal strategy is for the weaker individual to let his arm go almost limp, and the stronger individual to raise and lower his opponent's hand as fast as possible. Of course, it depends on what specific rules are required to define "arm wrestle". Must both arms return to a roughly 90o vertical position before another 'win' can be counted, for example? Back and forth would then be ideal, to ensure that dollars will always be given for each 'win'(especially since both players have their eyes closed, and may not be able to verify what angle their arms are positioned at, at a given moment, and in trying to perform a repetitive action in quick succession, it's likely people will fail to raise their arms all the way up between 'wins').

(Yes, I understand and see the scenario as it was 'meant' to be; I just enjoy being difficultsilly.)
Title: Re: A brilliant demonstration of human irrationality
Post by: Bob-san on May 03, 2010, 09:19:54 pm
If it was 2 people going at it, they'd probably not get very far. Using that logic, I'd say the scenario is a bunch of people (5+) that are all bidding. So, as the bids start to take off I'd probably stop at $15 or maybe $18 and call it a day. Someone else will take my position as first and then second place, as there will still be value left in the bids. Then, it's all up to the rest. The problem is the winner will pay $19 less than the loser, and nobody wants to the loser and pay more.
Title: Re: A brilliant demonstration of human irrationality
Post by: Turambar on May 03, 2010, 09:24:14 pm
I'd never go above $19

But if someone bids $20, you've lost $19 (since you're in second place).  If you then one up them to $21, you only lose $1.



yeah, then i stop, and i've lost nothing, and that moron just paid $20 for a $20.

if i paid $19 for the $20 i could take my $1 earnings and go buy a small bag of chips or a mcDouble.
Title: Re: A brilliant demonstration of human irrationality
Post by: General Battuta on May 03, 2010, 09:28:47 pm
I'd never go above $19

But if someone bids $20, you've lost $19 (since you're in second place).  If you then one up them to $21, you only lose $1.



yeah, then i stop, and i've lost nothing, and that moron just paid $20 for a $20.

if i paid $19 for the $20 i could take my $1 earnings and go buy a small bag of chips or a mcDouble.

No, if you stop, you pay $19 and get nothing. Re-read the rules.
If it was 2 people going at it, they'd probably not get very far. Using that logic, I'd say the scenario is a bunch of people (5+) that are all bidding. So, as the bids start to take off I'd probably stop at $15 or maybe $18 and call it a day. Someone else will take my position as first and then second place, as there will still be value left in the bids. Then, it's all up to the rest. The problem is the winner will pay $19 less than the loser, and nobody wants to the loser and pay more.

Most people set a limit at about $15 and then proceed to break it.
Quote
You are going to play a game for ten seconds. You will be partnered with someone else.

From this moment on, you cannot speak or communicate, and you must close your eyes and keep them shut. Please assume the arm wrestling position!

Now, you're going to arm wrestle, and every time your opponent's hand touches the desk, you will receive $1. You have 10 seconds. Go.

I imagine you can tell what the optimal strategy in this game is, and I also imagine you can guess what pretty much everybody actually does.


Please explain this further. If it means what I think it means, both players would gain most monetary profit by basically moving their hands from one side to another as fast as possible...
My smart-aleck rules-lawyer sense wants to point out that, technically, both peoples' hands touch the desk either way(the back of the 'losing' hand, back fingertips of the 'winning' hand). Therefore, a dollar should be given to both people when either side 'wins'. :P

Therefore, the ideal strategy is for the weaker individual to let his arm go almost limp, and the stronger individual to raise and lower his opponent's hand as fast as possible. Of course, it depends on what specific rules are required to define "arm wrestle". Must both arms return to a roughly 90o vertical position before another 'win' can be counted, for example? Back and forth would then be ideal, to ensure that dollars will always be given for each 'win'(especially since both players have their eyes closed, and may not be able to verify what angle their arms are positioned at, at a given moment, and in trying to perform a repetitive action in quick succession, it's likely people will fail to raise their arms all the way up between 'wins').

(Yes, I understand and see the scenario as it was 'meant' to be; I just enjoy being difficultsilly.)

No, you're not being silly. This is actually the correct strategy.

Title: Re: A brilliant demonstration of human irrationality
Post by: el_magnifico on May 03, 2010, 09:29:21 pm
I'd never go above $16. If someone is stupid enough to say $17, someone is probably going to be stupid enough to say $18. I seriously doubt anyone I hang around with will offer any amount >= $19. But who knows...

However, since I'm so distrustful of easy money, I'd probably just avoid bidding altogether if I'm given the option.

Well, remember that you've just been tossed in to the scenario and don't have time to think about it. In probability a large chunk of 'you and the people you hang around with' would get sucked in.
I'm not given enough time to think about it? In that case, I'm definitely NOT going to bid. At all. Period. There are moments in life when you don't have time to think thoroughly and you just have to risk it. This is not one of those moments. If I'm not given enough time to think, then something definitely smells fishy.

Quote from: popular saying
Cuando la limosna es grande, hasta el santo desconfĂ­a.

EDIT: I've just found an approximate translation:

Quote from: popular saying
When alms are generous even the saint is distrustful.
Title: Re: A brilliant demonstration of human irrationality
Post by: CP5670 on May 03, 2010, 10:00:50 pm
Interesting topic. I was just grading the final exams for a game theory class earlier today. :p

As Herra said, a coalition that involves everyone would be the optimal strategy here, but your rules don't allow that, so in that case the best thing is not to bid at all.
Title: Re: A brilliant demonstration of human irrationality
Post by: Timerlane on May 03, 2010, 10:01:55 pm
Quote
My smart-aleck rules-lawyer sense wants to point out that, technically, both peoples' hands touch the desk either way(the back of the 'losing' hand, back fingertips of the 'winning' hand). Therefore, a dollar should be given to both people when either side 'wins'. :P

Therefore, the ideal strategy is for the weaker individual to let his arm go almost limp, and the stronger individual to raise and lower his opponent's hand as fast as possible. Of course, it depends on what specific rules are required to define "arm wrestle". Must both arms return to a roughly 90o vertical position before another 'win' can be counted, for example? Back and forth would then be ideal, to ensure that dollars will always be given for each 'win'(especially since both players have their eyes closed, and may not be able to verify what angle their arms are positioned at, at a given moment, and in trying to perform a repetitive action in quick succession, it's likely people will fail to raise their arms all the way up between 'wins').

(Yes, I understand and see the scenario as it was 'meant' to be; I just enjoy being difficultsilly.)

No, you're not being silly. This is actually the correct strategy.
Well, my "two dollars for each tap", and "define the exact parameters of the game" was the obnoxious rules-lawyering(IMO), but I meant that I get the idea that people with "must win!" on their minds, and no time to prepare, will, by default, pull as hard as they can, and if relatively evenly matched, end up with nothing(or at least far less than they 'theoretically' could have).

The only way to 'win'(or rather, "not lose horribly and/or look like a moron in retrospect"), is not to play. Always question(so to speak) the process, and if you aren't allowed to, for whatever reason, walk away, especially if it's not a matter of life and death.
Title: Re: A brilliant demonstration of human irrationality
Post by: Qent on May 03, 2010, 11:25:39 pm
Another thing about the $20 game is that it really makes a difference whether or not the players think they have to pay. Did the executives actually pay $2000 and $1999? Did they think they were going to?

Maybe I would bid up to $25 or $30 and then hold there as the second bidder to deny someone just a little pleasure in posting it on the internet. :P


My smart-aleck rules-lawyer sense wants to point out that...
Who says they have to stay in arm-wrestling position? Will either hand trigger a win, or just the right ones?
Title: Re: A brilliant demonstration of human irrationality
Post by: karajorma on May 04, 2010, 12:03:25 am
No, you're not being silly. This is actually the correct strategy.

Unless you have no knowledge of whether the other person will split with you. In which case the smart thing to do is to immediately go limp and then try to get the other guy to do the same. If you bounce back and forth like a metronome you still win without risking the other guy stabbing you in the back.

It's well worth remembering that there are a large number of tards out there who would simply believe that they won somehow and never split the money.
Title: Re: A brilliant demonstration of human irrationality
Post by: Bob-san on May 04, 2010, 12:22:49 am
And the thing being missed here is that the actual irrationality is likely only in a handful of the bidders; it's a GROUP of people that had the auction going higher and higher, but it only takes 2 people to bid and the person in 3rd place when it passes $20 will probably not bid again (knowing the rules say only the first and second place bidders have to pay). The actions of 1 or 2 in a group does not show the rationality or irrationality of the entire group, just those selection irrational individuals.
Title: Re: A brilliant demonstration of human irrationality
Post by: General Battuta on May 04, 2010, 01:51:50 am
Another thing about the $20 game is that it really makes a difference whether or not the players think they have to pay. Did the executives actually pay $2000 and $1999? Did they think they were going to?

They do, in fact, have to pay, even in the student version.


And the thing being missed here is that the actual irrationality is likely only in a handful of the bidders; it's a GROUP of people that had the auction going higher and higher, but it only takes 2 people to bid and the person in 3rd place when it passes $20 will probably not bid again (knowing the rules say only the first and second place bidders have to pay). The actions of 1 or 2 in a group does not show the rationality or irrationality of the entire group, just those selection irrational individuals.

That's not being missed at all. Since in any group almost all bidding members are liable to end up in this position, it holds for most members of the group.

Remember, statistical tests are used to determine significance.

The heuristics that cause this kind of irrational behavior are present in anyone and are actually exacerbated by groups. They're a fundamental feature of human cognition that can be overriden by effortful processing but not removed.
Title: Re: A brilliant demonstration of human irrationality
Post by: Dilmah G on May 04, 2010, 03:53:30 am
Oh for ****'s sake, it's a twenty dollar bill! I could get that out of some poor bugger's wallet in the city with less effort. And besides, I'd find it more amusing sitting back and watching the other guys and girls bet money and proceeding to laugh at the wanker who ended up paying in excess of $20 for a $20 bill.

Bunch of wankers.
Title: Re: A brilliant demonstration of human irrationality
Post by: Bob-san on May 04, 2010, 03:54:16 am
Another thing about the $20 game is that it really makes a difference whether or not the players think they have to pay. Did the executives actually pay $2000 and $1999? Did they think they were going to?

They do, in fact, have to pay, even in the student version.


And the thing being missed here is that the actual irrationality is likely only in a handful of the bidders; it's a GROUP of people that had the auction going higher and higher, but it only takes 2 people to bid and the person in 3rd place when it passes $20 will probably not bid again (knowing the rules say only the first and second place bidders have to pay). The actions of 1 or 2 in a group does not show the rationality or irrationality of the entire group, just those selection irrational individuals.

That's not being missed at all. Since in any group almost all bidding members are liable to end up in this position, it holds for most members of the group.

Remember, statistical tests are used to determine significance.

The heuristics that cause this kind of irrational behavior are present in anyone and are actually exacerbated by groups. They're a fundamental feature of human cognition that can be overriden by effortful processing but not removed.
This test isn't displaying any form of group-think after it passes ~$20. Past $20, as I said, it's 2 participants making fools out of themselves.
Title: Re: A brilliant demonstration of human irrationality
Post by: TrashMan on May 04, 2010, 05:03:24 am
MEh...

Either don't play, or cheat as hell.
I always find these arbitrary restrictions funny...so artificial.
Title: Re: A brilliant demonstration of human irrationality
Post by: Herra Tohtori on May 04, 2010, 05:18:18 am
MEh...

Either don't play, or cheat as hell.
I always find these arbitrary restrictions funny...so artificial.


Somehow, this makes your conversational conduct history in the forums so much more understandable.

Thank you for this bit of insight. :rolleyes:
Title: Re: A brilliant demonstration of human irrationality
Post by: TrashMan on May 04, 2010, 06:04:19 am
I have no idea what you're alluding to here, but I don't like it.

I was referring to the test mentioned here - for the most part they operate under restrictions that would never happen in real life (like - no communication of any kind), and IMHO, that cheapens the tests themselves.

And I really don't see what kind of "insight" you think you've gained from this, but I do know it's nothing pertinent.
Title: Re: A brilliant demonstration of human irrationality
Post by: karajorma on May 04, 2010, 07:16:26 am
:rolleyes:

Seriously, lets just ignore him. The thread is far too interesting to be dragged into the usual spiral of Trashman's inability to grasp any complicated notion.

And the thing being missed here is that the actual irrationality is likely only in a handful of the bidders; it's a GROUP of people that had the auction going higher and higher, but it only takes 2 people to bid and the person in 3rd place when it passes $20 will probably not bid again (knowing the rules say only the first and second place bidders have to pay). The actions of 1 or 2 in a group does not show the rationality or irrationality of the entire group, just those selection irrational individuals.

As Battuta points out that is irrationality that ends up being displayed by whoever made the last two bids when it gets near the $20 mark. Which basically could be anybody in the group.
Title: Re: A brilliant demonstration of human irrationality
Post by: headdie on May 04, 2010, 07:31:24 am
also makes you wonder how we all perceive value of something representing a concept
Title: Re: A brilliant demonstration of human irrationality
Post by: Turambar on May 04, 2010, 08:21:18 am
skip this dumb competition.  go buy a half gallon of cheap vodka.  more entertainment value for your money.
Title: Re: A brilliant demonstration of human irrationality
Post by: TrashMan on May 04, 2010, 08:27:36 am
Seriously, lets just ignore him. The thread is far too interesting to be dragged into the usual spiral of Trashman's inability to grasp any complicated notion.

I have two words for you....

Well, you know what they are, don't you?
Title: Re: A brilliant demonstration of human irrationality
Post by: Enigmatic Entity on May 04, 2010, 08:31:22 am
There's another excellent game that illustrates this point.

You are going to play a game for ten seconds. You will be partnered with someone else.

From this moment on, you cannot speak or communicate, and you must close your eyes and keep them shut. Please assume the arm wrestling position!

Now, you're going to arm wrestle, and every time your opponent's hand touches the desk, you will receive $1. You have 10 seconds. Go.

I imagine you can tell what the optimal strategy in this game is, and I also imagine you can guess what pretty much everybody actually does.

I bet they lock in the upright position, if one is much stronger and smart, they will try to jack-hammer their opponent's hand on the table, although the opponent will probably try to keep their hand on the table so the other person can't get any more profit...
Title: Re: A brilliant demonstration of human irrationality
Post by: General Battuta on May 04, 2010, 08:45:44 am
There's another excellent game that illustrates this point.

You are going to play a game for ten seconds. You will be partnered with someone else.

From this moment on, you cannot speak or communicate, and you must close your eyes and keep them shut. Please assume the arm wrestling position!

Now, you're going to arm wrestle, and every time your opponent's hand touches the desk, you will receive $1. You have 10 seconds. Go.

I imagine you can tell what the optimal strategy in this game is, and I also imagine you can guess what pretty much everybody actually does.

I bet they lock in the upright position, if one is much stronger and smart, they will try to jack-hammer their opponent's hand on the table, although the opponent will probably try to keep their hand on the table so the other person can't get any more profit...

Why would you ever do that, though? What possible utility is there in trying to reduce your opponent's profit? It's not a zero-sum game. Both of you can win.

This test isn't displaying any form of group-think after it passes ~$20. Past $20, as I said, it's 2 participants making fools out of themselves.

This test has nothing to do with group think. It's a measure of individual human irrationality. And because any two members of the group are likely to fall into the trap, it holds across the board.

As I've told you twice now, the cognitive heuristics that trigger this behavior are present in everyone.

Oh for ****'s sake, it's a twenty dollar bill! I could get that out of some poor bugger's wallet in the city with less effort. And besides, I'd find it more amusing sitting back and watching the other guys and girls bet money and proceeding to laugh at the wanker who ended up paying in excess of $20 for a $20 bill.

Bunch of wankers.

You're missing the point (as are many others.) The $20 bill is an arbitrary target. It could be any item.

What this demonstrates is the presence of something called the sunk cost effect. People are extremely reluctant to abandon their investment in a goal and cut their losses, even when continued investment means greater losses.

I have no idea what you're alluding to here, but I don't like it.

I was referring to the test mentioned here - for the most part they operate under restrictions that would never happen in real life (like - no communication of any kind), and IMHO, that cheapens the tests themselves.

And I really don't see what kind of "insight" you think you've gained from this, but I do know it's nothing pertinent.

You're missing the point too. The test provides all the necessary information to avoid the death spiral that always occurs towards the end. Yet people consistently do not avoid it. This demonstrates that people are just not always very good at rational outcomes.

If you think this is irrational and contrived, then why does the exact same phenomenon occur in real life, in non-restricted situations?

Examples.

Two major pharmaceutical corporations were both selling a pill that cost $1 to manufacture. Corporation A entered the market selling at $1.60. Corporation B enter at $1.40.

The two corporations both cut prices until they were selling the pill at sixty cents.

These are real corporations!

Another example is the recent Viacom vs. somebody bidding war on Paramount. The bidding war got out of control, and Viacom ended up overpaying by two billion dollars.

It's the exact same situation.

So yes, this does work in real life.
Title: Re: A brilliant demonstration of human irrationality
Post by: Timerlane on May 04, 2010, 10:23:39 am

I bet they lock in the upright position, if one is much stronger and smart, they will try to jack-hammer their opponent's hand on the table, although the opponent will probably try to keep their hand on the table so the other person can't get any more profit...

Why would you ever do that, though? What possible utility is there in trying to reduce your opponent's profit? It's not a zero-sum game. Both of you can win.
The problem, I think, is that when people are forced(or encouraged) to react, instead of thinking things through, will think only of the very-immediate here and now. In the scale of the game itself, with no preparation(no time to think of the metagaming), and the "carrot" of money as fuel to the fire, the only choices that really present themselves are: overpower your opponent and 'win', or be overpowered and 'lose'. 'Not losing'(or at least 'losing less'), is preferable in the mind to outright 'losing', so when reacting, people would rather deny any ground to their opponent.

There is also the problem that arm wrestling itself arguably comes with the baggage of "schoolyard/barroom demonstration of physical superiority", so I'd imagine male participants, even moreso, when 'reacting', will tend to turn the whole thing into a full-on tug of war rather than look "weak" in front of the group/opponent, regardless of the consequences at the end.

The 'fix', I guess, is to become detached, stoic "Vulcans"(well, what the canonical Vulcans wanted everyone else to think they were) who never allow themselves to 'react' to situations in the heat of the moment, don't really care what others think of them(as far as 'status' is concerned), and choose not to make shameless, self-centric personal gain as the driving force in their lives. But that's probably a little too much to ask from humanity. :p
Title: Re: A brilliant demonstration of human irrationality
Post by: Qent on May 04, 2010, 05:10:18 pm
Another thing about the $20 game is that it really makes a difference whether or not the players think they have to pay. Did the executives actually pay $2000 and $1999? Did they think they were going to?

They do, in fact, have to pay, even in the student version.
I would so love to be the guy who shows people that game. :D
Title: Re: A brilliant demonstration of human irrationality
Post by: Aardwolf on May 04, 2010, 05:43:29 pm
Another thing about the $20 game is that it really makes a difference whether or not the players think they have to pay. Did the executives actually pay $2000 and $1999? Did they think they were going to?

They do, in fact, have to pay, even in the student version.
I would so love to be the guy who shows people that game. :D

Sounds like easy money to me.
Title: Re: A brilliant demonstration of human irrationality
Post by: redsniper on May 04, 2010, 09:09:32 pm
I think most of you are forgetting that it's easy to say what you would do when you can sit back and think about this in advance. It's harder on the spur of the moment when you don't have time to prepare.

In b4 indignant forumites saying "Oh no, I would never..."
Title: Re: A brilliant demonstration of human irrationality
Post by: Qent on May 04, 2010, 09:21:11 pm
I would never stop bidding.

At first I thought this was supposed to demonstrate how many individuals making perfectly rational decisions are irrational when taken as a group. Now I understand it was a demonstration of the common fallacy that spending something to get something else somehow makes something else cheaper when you have to spend more.
Title: Re: A brilliant demonstration of human irrationality
Post by: iamzack on May 04, 2010, 09:28:06 pm
I would never start bidding because I would think "oh, it's only $20 and someone else will outbid me anyway, what's the point."

The arm wrestling thing I would totally fail at though.
Title: Re: A brilliant demonstration of human irrationality
Post by: Lukeskywalkie on May 04, 2010, 09:51:30 pm
I know this game - it's Martin Shubik's 'Dollar Auction', adjusted for inflation since the 50's.  A group of mathematicians, including John Nash and Von Neumann, came up with the game as a way to demonstrate irrational behavior within the bounds of a simple game (for the purposes of 'game theory', natch).  the strangely unprofitable behavior  usually results from competitive addiction, and the urge to 'throw good money after bad' in an attempt to save face.  Aparently it was a riot at dinner parties.  according to Shubik, 'a payment of between 3 and 5 dollars was not uncommon'.

Courtesy of a biography on Von Neumann, that I read a few months ago.  If discussion of this game amuses you, I highly recommend it: Prisoner's Dilemma, by William Poundstone.  It covers some of the strange behavior that this bizarre group of mathematicians engaged in while exploring game theory.  Reading it = logic +1 :P
Title: Re: A brilliant demonstration of human irrationality
Post by: Mongoose on May 04, 2010, 10:05:38 pm
I would never start bidding because I would think "oh, it's only $20 and someone else will outbid me anyway, what's the point."
Seriously.  I've never won any significant games or contests involving luck, even board games, so I tend to avoid them...especially if they involve money. :p
Title: Re: A brilliant demonstration of human irrationality
Post by: BloodEagle on May 04, 2010, 10:19:46 pm
I would never start bidding because I would think "oh, it's only $20 and someone else will outbid me anyway, what's the point."
Seriously.  I've never won any significant games or contests involving luck, even board games, so I tend to avoid them...especially if they involve money. :p

That's why you roll the ones out of your dice. Sheesh!  :P
Title: Re: A brilliant demonstration of human irrationality
Post by: TrashMan on May 05, 2010, 05:36:24 am
You're missing the point too. The test provides all the necessary information to avoid the death spiral that always occurs towards the end. Yet people consistently do not avoid it. This demonstrates that people are just not always very good at rational outcomes.

Well duh.
I could have told you that without any test. :lol:

After all, people are morons most of the time... :nervous:



Quote
If you think this is irrational and contrived, then why does the exact same phenomenon occur in real life, in non-restricted situations?

I just do not like restrictions. Weather hypothetical scenarios or what not. That is all I was saying. Nothing more.
Title: Re: A brilliant demonstration of human irrationality
Post by: Dilmah G on May 05, 2010, 05:41:07 am
Dude, how are you supposed to effectively 'test' something without any restrictions?
Title: Re: A brilliant demonstration of human irrationality
Post by: watsisname on May 05, 2010, 02:41:25 pm
Well duh.
I could have told you that without any test. :lol:

But you didn't, and your prior posts strongly suggested that you didn't grasp the underlying concept.
Title: Re: A brilliant demonstration of human irrationality
Post by: Sushi on May 05, 2010, 02:58:12 pm
Courtesy of a biography on Von Neumann, that I read a few months ago.  If discussion of this game amuses you, I highly recommend it: Prisoner's Dilemma, by William Poundstone.  It covers some of the strange behavior that this bizarre group of mathematicians engaged in while exploring game theory.  Reading it = logic +1 :P

While we're recommending game theory books, gotta mention Axelrod's "The evolution of cooperation" (http://www.amazon.com/Evolution-Cooperation-Revised-Robert-Axelrod/dp/0465005640). Of all of the classes I took during my academic career, the game theory class was one of my favorites. Absolutely fascinating stuff.
Title: Re: A brilliant demonstration of human irrationality
Post by: Lukeskywalkie on May 05, 2010, 11:46:28 pm
Nice redirect, that's definitely up my alley.  sounds like an interesting counterpoint to Rand's objectivism, in addition to exploring a few ideas that game theory points out, but doesn't explain. Thanks!
Title: Re: A brilliant demonstration of human irrationality
Post by: CP5670 on May 06, 2010, 01:15:05 am
Courtesy of a biography on Von Neumann, that I read a few months ago.  If discussion of this game amuses you, I highly recommend it: Prisoner's Dilemma, by William Poundstone.  It covers some of the strange behavior that this bizarre group of mathematicians engaged in while exploring game theory.  Reading it = logic +1 :P

While we're recommending game theory books, gotta mention Axelrod's "The evolution of cooperation" (http://www.amazon.com/Evolution-Cooperation-Revised-Robert-Axelrod/dp/0465005640). Of all of the classes I took during my academic career, the game theory class was one of my favorites. Absolutely fascinating stuff.

We used this book (http://www.amazon.com/Strategy-Mathematical-Association-America-Textbooks/dp/0883856379/ref=sr_1_1?ie=UTF8&s=books&qid=1273124586&sr=8-1) in the game theory classes I've been a TA for. It's easy to read and contains numerous real world case studies.