[extropy-chat] Bayes, betting and derivatives

Eliezer S. Yudkowsky sentience at pobox.com
Mon Jun 5 22:20:28 UTC 2006

Damien Sullivan wrote:
> In light of Bayesian wannabes coming to agree on matters of fact, would
> a pure population of Bayesian wannabes have use for a derivatives
> market, or more generally for making bets?  Seems the point of a bet
> (outside of games of pure chance) is the belief that you know more about
> an outcome than the other guy.  But if a Bayesian offers a bet and
> another Bayesian takes it, seems like both should pause for further
> thought.  Actually, simple knowledge that someone was offering a bet
> should make the second Bayesian pause to reconsider.

Actually, let me rephrase:  A population of Bayesians only uses 
derivatives/futures markets to arbitrage their risks, never to 
speculate.  They buy insurance, but only major medical.  They buy stocks 
during the original IPO if they (and everyone else) believe the company 
can use the inflowing money to make more money.  They only sell the 
stock if it becomes too large a portion of their current assets, or if 
it develops a risk/benefit probability distribution that, given their 
utility curve as a function of money, implies that the stock should be 
sold to someone with a different income profile...

Homo economicus, in short.

Eliezer S. Yudkowsky                          http://singinst.org/
Research Fellow, Singularity Institute for Artificial Intelligence

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