tag:blogger.com,1999:blog-17908317.post7166515804900152333..comments2024-03-28T03:15:14.875-07:00Comments on Unenumerated: Proxy measures, sunk costs, and Chesterton's fenceNick Szabohttp://www.blogger.com/profile/16820399856274245684noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-17908317.post-90165062670202261572015-06-01T20:02:09.192-07:002015-06-01T20:02:09.192-07:00Reading between the lines I can't help but thi...Reading between the lines I can't help but think this is a way to suggest we should not yet raise the block size limit. Am I correct? I wish I had a fraction of your brilliance and breadth.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17908317.post-49341206462608474902013-01-03T12:20:43.668-08:002013-01-03T12:20:43.668-08:00I have argued (partially based on your amazing She...I have argued (partially based on your amazing Shelling Out piece) that biases like sunk costs fallacy and labor theory of value are evolutionarily adaptive in that they facilitate survival/reproduction by facilitating commitment to pair bond partners and the group, as well as helping us select what to invest in, in EEA terms. Sister Yhttps://www.blogger.com/profile/01003897317594535536noreply@blogger.comtag:blogger.com,1999:blog-17908317.post-41803610260765742782012-08-14T21:02:02.752-07:002012-08-14T21:02:02.752-07:00A bit more formally the above expression should be...A bit more formally the above expression should be <br /><br />relative value of two institutions/investments/decisions = <br />f(preferences, evidence against - (weight of evidence for + (discount factor)*(sunk cost of state of affairs)))<br /><br />Where evidence maps starting objective states of the world and preferences to objective outcomes (in other words the evidence tells us what outcomes would result and how well those would satisfy our preferences).<br /><br />Of course, one quite likely needs sub-heuristics or further proxy measures to calculate such a thing -- or to the extent you can't calculate it accurately, or are unconfident of your hunches, greater reliance on sunk costs as a proxy measure ef value.nicknoreply@blogger.comtag:blogger.com,1999:blog-17908317.post-16676341929430822762012-08-14T20:51:42.818-07:002012-08-14T20:51:42.818-07:00George, that suggests one of the reasons why my ve...George, that suggests one of the reasons why my version is better as well as being far more general in application. There is usually no one "the reason" that is sufficient to justify or refute the justification of a complicated institution, and this is often even true for personal decisions. One reason, especially just the naive application of a particular ideological theory, is usually woefully insufficient evidence for favoring tearing down the "fence."<br /><br />The following is a better approach than Chesterton's, albeit somewhat more involved. It applies to almost every non-trivial decision we make about either ourselves, our investments, or our institutions. Indeed, it even tells us when we should make decisions and when we should put them off:<br /><br />(1) Presume, in the absence of sufficient evidence to the contrary as described in (2), that the complex institution or investment or prior personal decision is still justified. In other words, maintain stability in your life and in our social lives until a sufficient threshold for change has been met. <br /><br />(2) To the extent one is unsatisfied with the institution/investment/personal decision, fairly gather evidence for and against the utility of said state of affairs.<br /><br />(3) To the same kind of extent, consider alternative states of affairs.<br /><br />(4) When the quality of evidence both for and against becomes sufficiently high, as well as the weight of evidence against - (weight of evidence for + (discount factor)*(sunk cost of state of affairs)) becoming sufficiently greater than zero, abandon the institution or investment or personanl decision in favor of the best alternative state of affairs you or we are comparing it to. The lower the quality of evidence, the higher the discount factor -- lower quality evidence means weight the proxy measure of sunk costs more highly.<br /><br />(4a) One can derive an adjusted net present value calculation from (4) for analyzing investments.<br /><br />You can consider the absurdity of never considering sunk costs, by considering how frantic and pointless your life would be if your were constantly reconsidering every decision you made, and never trusting any decision of anybody else. To the extent you don't want to live such a preposterously hyper-rational lifestyle, we must guide ourselves by procedures similar to the above.<br /><br />This may well be a good approximation of what our subconscious minds do naturally, when we are not brainwashed by superficial hyper-rationality into ignoring our supposed "biases" and "fallacies". Albeit, such high weightings of sunk costs are probably not as suitable for cases, more common now than in our evolutionary environments, but still probably a small minority of cases, where we have better evidence and better capacity to consider that evidence than the original decision makers, or substantially different preferences than they, or both.nicknoreply@blogger.comtag:blogger.com,1999:blog-17908317.post-28846256655101868442012-08-13T08:58:59.213-07:002012-08-13T08:58:59.213-07:00The whole thing strikes me as being too much an ar...The whole thing strikes me as being too much an argument by analogy.<br /><br />I don't think it's true that the radical "social reformer" can see no reason why some law or custom or social structure is in place. Rather, he can imagine one and only one reason: it was put there by the people at the top of the social order, and its purpose is to make sure the people currently on top stay on top.<br /><br />The conservative sees stability as something necessary for the functioning of society, the radical just sees it as a code word for maintaining the power structure.George Weinberghttps://www.blogger.com/profile/05384566536853204992noreply@blogger.comtag:blogger.com,1999:blog-17908317.post-82894858616944206422012-08-08T14:40:10.753-07:002012-08-08T14:40:10.753-07:00It may help to change Chesterton's fence examp...It may help to change Chesterton's fence example around a little, to make it more of a personal economic decision, while maintaining the degree of ignorance about the reasons for the fence:<br /><br />(1) You've inherited a small acreage with a puzzlingly located fence from a relative you never knew.<br /><br />(2) You have no clue why the fence is there, but the very sparse estate records indicate that it cost Z to build.<br /><br />(3) The property is too remote to visit personally, and the neighbors wouldn't tell you anyway, so you would have to recruit and pay an investigator at cost X to learn why the fence is there. You don't have any other information by which to estimate the probability that the investigator will turn up a evidence that the fence satisfies your preferences (as opposed to your relative's former preferences), or the preferences of somebody you might sell the property to, sufficient to justify maintaining it.<br /><br />(4) It costs Y / year to maintain the fence, such at the net present value of the Ys is slightly greater than X, but substantially less than Z.<br /><br />Should you hire the investigator, or just keep paying the costs of maintaining the fence? I believe you should just keep paying the costs of maintaining the fence, assuming you (or somebody you are selling the property to) find the property generally to be of sufficient value to justify the resulting total of expenditures on that estate you must make including the cost of maintaining the fence. In short, you should use the fact that your relative invested Z as a proxy measure of the value of the fence, discounted by some factor to reflect the degree to which you or your buyer's preferences may not match your relative's, some probability (quite uncertain) that the value of the fence died with the relative, or similar.nicknoreply@blogger.comtag:blogger.com,1999:blog-17908317.post-19186229668015715542012-08-08T12:44:21.942-07:002012-08-08T12:44:21.942-07:00There are two examples in the article, the first b...There are two examples in the article, the first being Chesterton's fence, the second being the Lady Gaga concert after an exhausting week of work that makes you no longer feel like going. If you don't like the Lady Gaga concert, think of it as a game of a team you like, or hearing a highly regarded speaker on the subject of rationality techniques, or anything else that floats your boat that you would have at some point decided to shell out money for. I also welcome suggestions of more examples where measures of value you or others made in the past are not easy to recreate. <br /><br />Indeed one possibility is that one has had a genuine long-term change of preferences, or that there has been a genuine long-term change of evidence, or in the case of the concert a change that will at last at least all night long. And forgetting why one wanted the concert ticket may indeed signal such a change. In the example, you may indeed not enjoy the concert because you are exhausted, or because you bought the ticket on a whim and never really wanted to go that badly, and thus can't remember why now.<br /><br />On the other hand suppose -- and I'd argue this is more common in the real world, as opposed to the experimental labs of behavioral economists -- there's been no substantial and long-term cange of preferences -- just a momentary distraction, such as being exhausted from a hard week's work. After you lose the distraction, and that pink hair or Yankee home runs or visions of the power of rationality make you forget the workweek, chances are you'll be fine, and going to the concert or meeting will recall to you why you wanted to go, and it will be more enjoyable than the pajamas and hot chocolate (or watch the game on TV, or read the book instead of go to the meeting) which you can have on any other evening. <br /><br />Furthermore, the way our brains work is that we often consider substantial amounts of information, come to a decision, and then go on to some other problem that requires some other information, so that we move the old information out of conscious memory -- and it may thereafter be difficult to retrieve most of it. So, except for the trivial situations (e.g. comparing X dollar against Y dollars) encountered in the academic experiments, we need to trust our old selves and not be constantly revisiting old decisions: or to put it economicallhy, we need to put substantial weight on our previous investments, which signal to us, across our lossy and distracted memories, the value we placed in things.<br /><br />In the Lady Gaga concert (or other event you had bought a ticket for) it might also help, besides rembembering the price, to remember how much thought and research, or lack thereof, you put into it, and how often you spent daydreaming about it, just as a quantitative estimate - or if you keep a diary, remembering whether or not you left a note about it in your diary -- rather than the often futile exercise of trying to remember the details behind why you had such preferences. There are things in addition to the sunk cost of the ticket that can be used as proxy measures of value. But the sunk costs are one of them, and if you're really exhausted or distracted it may be the only one you clearly remember.nicknoreply@blogger.comtag:blogger.com,1999:blog-17908317.post-24308681237988727712012-08-08T09:46:52.115-07:002012-08-08T09:46:52.115-07:00> We generally have far more information about ...> We generally have far more information about our past than about our future. Decisions that have already been made, by ourselves and others, are an informative part of that past, especially when their original motivations have been forgotten.<br /><br />If we cannot recall the motivation behind an investment, doesn't this suggest it was either not a good idea ('I don't know *why* I decided to jump off the balcony - it must have seemed like a good idea at the time...') or that whatever made it a quality idea was situational and the situation has since changed ('his quip was really good but I don't remember it exactly; I guess you had to be there')?<br /><br />Some examples might help here.gwernhttps://www.blogger.com/profile/18349479103216755952noreply@blogger.com