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EUT can be used descriptively because you can just pick any utility function to fit whatever behaviour you are trying to explain, but that doesn't offer any ins

by mrow84 6y ago

EUT can be used descriptively because you can just pick any utility function to fit whatever behaviour you are trying to explain, but that doesn't offer any insight. If the theory was good you could find a utility function that fit a range of behaviours, but without it being overfit. Again, the EE claim, and one which is demonstrated for at least some simple cases, is that you can recover a range of behaviours without adding in parameters by considering time explicitly. > In the question of whether you take that bet, you get the same answer whether you play once, or ten times, or one million. If you are only playing one round, you should take the bet, if you are playing more than one round, you shouldn't. EUT requires you to change utility function to recover those two different answers, EE gives you the correct answer however many rounds you choose to play (one, or more) without requiring any additional modification.

kgwgk 6y ago
> EUT can be used descriptively because you can just pick any utility function to fit whatever behaviour you are trying to explain, but that doesn't offer any insight. Well, using EUT descriptively is useful when you're objective is to create a model from empirical observations. I agree that this is irrelevant in this discussion. > Again, the EE claim, and one which is demonstrated for at least some simple cases, is that you can recover a range of behaviours without adding in parameters by considering time explicitly. Sure. You can recover the same using EUT in prescriptive mode. Which is not about fitting observations to a general parametric utility function or anything like that. It's about using a model of the problem (p.ex. multiplicative dynamics) to derive the right utility function to use (p.ex. logarithmic) when possible (just like EE does). And using an approximate model that is hopefully not too wrong when the problem is not so easy. > In the question of whether you take that bet, you get the same answer whether you play once, or ten times, or one million. If you are only playing one round, you should take the bet, if you are playing more than one round, you shouldn't. The question in equation (2) is of the form "you are only playing one round". But the answer is not "you should take the bet", because we're told that to answer you need to consider an hypothetical infinite sequence of bets. If I offer you the possibility to win $10000 or lose $9999 on a coin flip, only once, do you play or not? > EE gives you the correct answer however many rounds you choose to play (one, or more) without requiring any additional modification. So there is one answer for "one" and one answer for "more"? When you said that it could depend on "the number of periods" I thought you meant that the answer could be different for two periods than for seven, for example. (Of course EUT with logarithmic utility is equivalent to EE and won't make a difference between playing twice or seven times either.)

by mrow84 6y ago

kgwgk 6y ago

> EUT can be used descriptively because you can just pick any utility function to fit whatever behaviour you are trying to explain, but that doesn't offer any insight. Well, using EUT descriptively is useful when you're objective is to create a model from empirical observations. I agree that this is irrelevant in this discussion. > Again, the EE claim, and one which is demonstrated for at least some simple cases, is that you can recover a range of behaviours without adding in parameters by considering time explicitly. Sure. You can recover the same using EUT in prescriptive mode. Which is not about fitting observations to a general parametric utility function or anything like that. It's about using a model of the problem (p.ex. multiplicative dynamics) to derive the right utility function to use (p.ex. logarithmic) when possible (just like EE does). And using an approximate model that is hopefully not too wrong when the problem is not so easy. > In the question of whether you take that bet, you get the same answer whether you play once, or ten times, or one million. If you are only playing one round, you should take the bet, if you are playing more than one round, you shouldn't. The question in equation (2) is of the form "you are only playing one round". But the answer is not "you should take the bet", because we're told that to answer you need to consider an hypothetical infinite sequence of bets. If I offer you the possibility to win $10000 or lose $9999 on a coin flip, only once, do you play or not? > EE gives you the correct answer however many rounds you choose to play (one, or more) without requiring any additional modification. So there is one answer for "one" and one answer for "more"? When you said that it could depend on "the number of periods" I thought you meant that the answer could be different for two periods than for seven, for example. (Of course EUT with logarithmic utility is equivalent to EE and won't make a difference between playing twice or seven times either.)