Nobel in economics for bashing homo economicus

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Jennifer
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Nobel in economics for bashing homo economicus

Post by Jennifer » 09 Oct 2017, 19:05

Richard Thaler from the University of Chicago won this year's Nobel in economics for recognizing that people often behave irrationally:

http://www.slate.com/blogs/the_slatest/ ... ional.html


Richard Thaler of the University of Chicago, considered one of the founding fathers of behavioral economics, won the 2017 Nobel prize in economics for his influential work on how human nature affects markets. Thaler won the $1.1-million prize for “understanding the psychology of economics,” Swedish Academy of Sciences secretary Goran Hansson said. Although it may seem like an obvious feat, the truth is economists were once fond of thinking about humans as robots who always made choices that maximized their outcomes. But Thaler showed how very human traits, such as lack of self-control, habits, and fear of losing pushed people toward decisions that were not the most advantageous in the long term.

“In order to do good economics, you have to keep in mind that people are human,” Thaler said of the basic premise of his work. When the New York Times asked him how he would spend the 9-million-kronor prize money, Thaler didn’t miss a beat. “This is quite a funny question,” he said. “I will try to spend it as irrationally as possible.”

Thaler is perhaps best known as one of the main proponents of “nudge theory,” the idea that small interventions on how things are presented in the environment can push people to make certain decisions that would benefit them or their environment. The book he co-authored with professor Cass Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness, pushed that idea to the mainstream when it was published in 2008. That book had a wide-ranging effect on policymakers as it explained things like how you could get people to eat more healthy foods simply by improving their placement on supermarket shelves and get them to save for retirement by automatically enrolling them in 401(k) plans.

Thaler has previously said that his “favorite illustration” of a nudge was how Amsterdam’s Schiphol Airport greatly reduced cleaning costs around its urinals by etching images of flies on the urinals, giving people something to aim at. That strategy has since been copied in urinals around the world.
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Re: Nobel in economics for bashing homo economicus

Post by Aresen » 09 Oct 2017, 20:27

The whole concept of organized gambling depends on people not behaving rationally.
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Re: Nobel in economics for bashing homo economicus

Post by JasonL » 09 Oct 2017, 20:37

I like Thaler. His work is in danger of becoming the quantum mechanics of Econ. It is very robust in some contexts, and very hand wavy in others.

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Re: Nobel in economics for bashing homo economicus

Post by the innominate one » 09 Oct 2017, 20:40

Aresen wrote:
09 Oct 2017, 20:27
The whole concept of organized gambling depends on people not behaving rationally.
Depends on the game. Craps and roulette, yes. Poker, not so much.
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Re: Nobel in economics for bashing homo economicus

Post by Jennifer » 09 Oct 2017, 20:45

Aresen wrote:
09 Oct 2017, 20:27
The whole concept of organized gambling depends on people not behaving rationally.
Arguably, a huge chunk of the "entertainment/just for fun" economy depends on that too. Not that it's inherently irrational to spend money just-for-fun (as opposed to spending it on something you genuinely need), but it is arguably irrational to spend money just-for-fun when, say, you have close to zero savings, or you're worried about your debt load, or something like that. But if everybody did the"rational and financially responsible" thing, I daresay a ig chunk of our economy would collapse. "No more buying coffee at Dunkin Donuts or Starbucks until I have at least the recommended six month's expenses in savings; until them I'll make coffee at home!" If all such people actually quit patronizing coffee shops until they built up their savings, a lot of those shops would likely go under.

Or, it's irrational to go into credit card debt (meaning, making charges you will NOT be able to pay off in full at the end of the month, before paying interest) for non-emergency things: you wanna go on a cruise or any other vacation, save up the money to pay for it first, rather than go into debt for it. The entire freaking "rent to own" industry is similarly irrational-- those low weekly payments end up costing you FAR more than that same appliance or furniture piece would in even a regular retail store, let alone a discount outlet. And so on.
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Re: Nobel in economics for bashing homo economicus

Post by JasonL » 09 Oct 2017, 20:52

See ... some of that yes, some not so much. Part of the thing here is the common story about assumed rationality is a bit unfair to how people actually think about rationality in the market place. It is no part of anyone's economics that cash flow in the present has no rational value.

Good friendly review of Thaler and where he gets abused.

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Re: Nobel in economics for bashing homo economicus

Post by Mo » 09 Oct 2017, 21:52

the innominate one wrote:
09 Oct 2017, 20:40
Aresen wrote:
09 Oct 2017, 20:27
The whole concept of organized gambling depends on people not behaving rationally.
Depends on the game. Craps and roulette, yes. Poker, not so much.
Craps has the best odds in the house. It's the only game where you can get even odds.
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Re: Nobel in economics for bashing homo economicus

Post by the innominate one » 09 Oct 2017, 21:54

But it's still pretty much entirely random, right? No skill can improve your odds.
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Re: Nobel in economics for bashing homo economicus

Post by Jadagul » 09 Oct 2017, 22:03

Mo wrote:
09 Oct 2017, 21:52
the innominate one wrote:
09 Oct 2017, 20:40
Aresen wrote:
09 Oct 2017, 20:27
The whole concept of organized gambling depends on people not behaving rationally.
Depends on the game. Craps and roulette, yes. Poker, not so much.
Craps has the best odds in the house. It's the only game where you can get even odds.
How do you get even odds in craps? I thought you couldn't quite get there.

I assume TIO is talking about table poker, not like video poker or something. You're not playing against the house, so it's possible for you and the house to both be rational and still play.

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Re: Nobel in economics for bashing homo economicus

Post by Kolohe » 09 Oct 2017, 22:10

All money played behind the line is pure odds, (so the more multiple allowed, the better) but the house advantage is baked into the pass/don't pass lines
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Re: Nobel in economics for bashing homo economicus

Post by the innominate one » 09 Oct 2017, 22:12

The J-man is correct, I was thinking about table poker, although from what I read of the Vegas shooter, with familiarity with individual video poker machines, it's possible to improve one's odds.
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Re: Nobel in economics for bashing homo economicus

Post by Mo » 09 Oct 2017, 22:14

the innominate one wrote:
09 Oct 2017, 21:54
But it's still pretty much entirely random, right? No skill can improve your odds.
Right. But it's fun.
Kolohe wrote:
09 Oct 2017, 22:10
All money played behind the line is pure odds, (so the more multiple allowed, the better) but the house advantage is baked into the pass/don't pass lines
Right. House advantage on pass is ~1%. The real house money in craps is on the sucker bets, like the yo.
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Re: Nobel in economics for bashing homo economicus

Post by dbcooper » 09 Oct 2017, 22:17

IIRC, there are even odds bets in Craps, but there's a house commission if you just bet on those?
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Re: Nobel in economics for bashing homo economicus

Post by Mo » 09 Oct 2017, 22:37

dbcooper wrote:
09 Oct 2017, 22:17
IIRC, there are even odds bets in Craps, but there's a house commission if you just bet on those?
Nope, no commission on the odds bets. The way it works is this.

You place a bet on the pass line. You roll a 4-6 or 8-10. Let's say you roll a 4. You can then place a bet with odds on that bet. Standard is 3/4/5 odds (i.e. 4/10 you can bet 3x @ 2:1, 5/9 4x @ 3:2 and 6/8 5x @ 6:5). The house edge is on the bet you place prior to that before you lay odds.
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Re: Nobel in economics for bashing homo economicus

Post by Kolohe » 09 Oct 2017, 22:48

There is iirc a commission if you "buy" a number after the come out roll (which ex-commsion, gives you those same balanced odds. But again iirc)
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Re: Nobel in economics for bashing homo economicus

Post by dbcooper » 09 Oct 2017, 22:49

Thanks dudes.
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Re: Nobel in economics for bashing homo economicus

Post by Mo » 09 Oct 2017, 22:54

Kolohe wrote:
09 Oct 2017, 22:48
There is iirc a commission if you "buy" a number after the come out roll (which ex-commsion, gives you those same balanced odds. But again iirc)
That's correct, but even that commission ranges from 0.4% to 1.5% per bet, which is still much better odds than you'll find anywhere in the house excluding counting cards in blackjack, having a massive sports betting database feeding you states or being a well above average poker player (you need to outperform the rake and other players).
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Re: Nobel in economics for bashing homo economicus

Post by Warren » 09 Oct 2017, 23:49

You can put the odds in your favor if you work at it.
It's really hard to calculate odds of winning at table poker since it depends so much on the play of your opponents. Even if you're better than everyone else at the table, you're still have the house rake headwind.
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And my idol Claude Shannon beat the casino at roulette.
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Re: Nobel in economics for bashing homo economicus

Post by JD » 10 Oct 2017, 12:25

Re: video poker, it's all about the specific game for a particular machine (e.g. is it standard "Jacks or better", Deuces Wild, Joker Poker, etc.) and the "pay table", which determines how each kind of hand pays out (i.e, a pair of Jacks pays 2, a full house pays 5, etc.)

Those factors being fixed, there is nothing you can do to improve your odds per se when playing. What you can do is play properly. Certain video poker machines are actually perfectly fair (no house edge) or even give a slight player advantage if you play perfectly, which is to say if you play so as to maximize your average return on each and every hand. This is why they can be so "generous" - most humans play far from perfectly. And even if you do play perfectly, it doesn't matter that much if your edge is infinitesimal; very few humans are going to grind away at a machine for hours in the hope of a 0.0005% return on their investment.

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Re: Nobel in economics for bashing homo economicus

Post by Andrew » 10 Oct 2017, 13:14

JD wrote:
10 Oct 2017, 12:25
Re: video poker, it's all about the specific game for a particular machine (e.g. is it standard "Jacks or better", Deuces Wild, Joker Poker, etc.) and the "pay table", which determines how each kind of hand pays out (i.e, a pair of Jacks pays 2, a full house pays 5, etc.)

Those factors being fixed, there is nothing you can do to improve your odds per se when playing. What you can do is play properly. Certain video poker machines are actually perfectly fair (no house edge) or even give a slight player advantage if you play perfectly, which is to say if you play so as to maximize your average return on each and every hand. This is why they can be so "generous" - most humans play far from perfectly. And even if you do play perfectly, it doesn't matter that much if your edge is infinitesimal; very few humans are going to grind away at a machine for hours in the hope of a 0.0005% return on their investment.
I used to work with a guy who did video poker on the weekends. The payouts on some of the big hands are ridiculous, so you don't bother with lower hands that might win in real poker. It's a grind to get full houses, four of a kind, flushes, etc. He showed us his casino tax forms. He was making over 50-100k a year doing that, and the job was for the benefits (and to get out of the house and away from his wife during the week).
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Re: Nobel in economics for bashing homo economicus

Post by the innominate one » 10 Oct 2017, 15:41

JD wrote:
10 Oct 2017, 12:25
Re: video poker, it's all about the specific game for a particular machine (e.g. is it standard "Jacks or better", Deuces Wild, Joker Poker, etc.) and the "pay table", which determines how each kind of hand pays out (i.e, a pair of Jacks pays 2, a full house pays 5, etc.)

Those factors being fixed, there is nothing you can do to improve your odds per se when playing. What you can do is play properly. Certain video poker machines are actually perfectly fair (no house edge) or even give a slight player advantage if you play perfectly, which is to say if you play so as to maximize your average return on each and every hand. This is why they can be so "generous" - most humans play far from perfectly. And even if you do play perfectly, it doesn't matter that much if your edge is infinitesimal; very few humans are going to grind away at a machine for hours in the hope of a 0.0005% return on their investment.
Reportedly, that's exactly what the Vegas shooter made a habit of doing. Choosing particular machines he knew, reserving them and spending hours on them.
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Re: Nobel in economics for bashing homo economicus

Post by dead_elvis » 10 Oct 2017, 16:12

When the New York Times asked him how he would spend the 9-million-kronor prize money, Thaler didn’t miss a beat. “This is quite a funny question,” he said. “I will try to spend it as irrationally as possible.”
This works out perfectly for me, because giving all the money to me would be the single most irrational thing possible.
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Re: Nobel in economics for bashing homo economicus

Post by Jennifer » 10 Oct 2017, 17:50

When I first moved to Connecticut, before I'd had the chance to make any friends yet, I lived near the Indian casino (IIRC that was when there was still only one in the state), and once in a great while I'd take a $10 roll of quarters there to play the 25-cent poker machines. I went there with the attitude "I AM going to lose the entire $10, but at least I'll have a couple hours of fun and also get out of my depressing basement apartment." The way the machines were set up, if you play, say, four hands, you were pretty much certain to win at least one (even if you only "won" back the quarter you'd originally put in), so walking in with 40 quarters would result in far more than 40 games.

That said, I didn't always lose; a couple times I actually walked out with a bit more than I came in with, and one amazing time, I got a few pre-1965 silver quarters landing in my winnings tray; those quarters went straight into the front pocket of my jeans, rather than re-played into the machine. (Though I did feel a bit bummed, to think of someone who maybe found Grandma's old mayonnaise jar of silver quarters, had no idea what they were and played them at the casino.)

The last time I went to that casino was maybe 2009 or so, when Jeff and I went there to see a concert. I'd brought another $10 in quarters, only to discover that the casino had changed its machines from "coins" to "electronic pre-paid cards." So I didn't bother playing, because merely seeing your electronic balance go up or down isn't the same as seeing and hearing actual physical quarters landing in your tray and besides, with electronic credits there wasn't even the hypothetical chance I'd score some more silver quarters.)
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Re: Nobel in economics for bashing homo economicus

Post by JD » 11 Oct 2017, 07:54

Jennifer wrote:
10 Oct 2017, 17:50
The last time I went to that casino was maybe 2009 or so, when Jeff and I went there to see a concert. I'd brought another $10 in quarters, only to discover that the casino had changed its machines from "coins" to "electronic pre-paid cards." So I didn't bother playing, because merely seeing your electronic balance go up or down isn't the same as seeing and hearing actual physical quarters landing in your tray and besides, with electronic credits there wasn't even the hypothetical chance I'd score some more silver quarters.)
I was a bit bummed to discover that most slot machines don't even have physical arms you pull anymore, just buttons to press. Even the ones that do have arms have completely electronic ones, which makes sense - electronics are a bit harder to gaff than the old mechanical machines were. But electronic cards and button-pressing does seem to reduce the experience to its absolute lowest possible involvement. (The general foolishness of slot machines aside.)

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Re: Nobel in economics for bashing homo economicus

Post by JD » 11 Oct 2017, 08:11

BTW, if anybody wants to try out the video poker thing, https://www.freeslots.com/poker.htm is a pretty accurate representation of the whole experience and not crapped up with ads, although that pay table is a "9/6", i.e. pays 6x for a flush and 9x for a full house, i.e. very generous.

Which reminds me, another way the casinos get you is by having multiple seemingly identical machines around with differing pay tables. One machine might have an 8/5 pay table, but the one right next to it is an 8/6, and one across the casino floor is a 9/5. People who aren't aware or aren't paying attention will get tripped up by this.

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