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The article seems pretty reasonable to me, the theory seems to work. Can you clarify which part of it you find problematic because I don't see it in the article

• notahacker 3y ago
  Because for all his grandiose claims to novelty, he's basically created a completely abstract game theoretical model of the concept of insurance, which suffice to say is not something "mainstream economists" are unaware of.
  • stagas 3y ago
    Ok, I had never seen it simplified like that though, and definitely wasn't aware that from a random coin you can be net positive if you cooperate, that's a surprise to my knowledge and I find that idea very valuable. Edit: also I don't see it very similar to insurance, since insurance is withholding wealth in order to distribute it occasionally when needed because it's zero-sum. But if distributing it all the time everywhere is a net positive gain, that's entirely different than the insurance game.
    • consilient 3y ago
      > also I don't see it very similar to insurance, since insurance is withholding wealth in order to distribute it occasionally when needed because it's zero-sum. But if distributing it all the time everywhere is a net positive gain, that's entirely different than the insurance game. Insurance is zero-sum (negative-sum, actually) when it comes to money. It is not zero-sum overall, because reducing risk is valuable. A 50/50 shot at either 10 million dollars or nothing is significantly less valuable (to anyone who isn't already very rich) than a guaranteed 5 million.
      • wenebego 3y ago
        The expected return on both those examples is the same, 5 million.
        • jabradoodle 3y ago
          Which is completely meaningless if you only have the potential to exercise the option once.
        • consilient 3y ago
          Yes, but even homo Economicus isn't trying to maximize expected income, they're trying to maximize expected utility. Unless you're completely indifferent to risk, the sure thing is better.
          • Cushman 3y ago
            Indifferent to risk, or seeking of risk, or having any other computable utility function on any other measurable that we’d have to accept as equally valid if we want to convince any non-economist that we aren’t just using utility as a weasely word for money :) That’s not even snark, humans preferring both of higher risk and lower payoff is a canonical psycho-economic result. And even the question of whether the concept of a rational utility maximizer is well-founded is the exact subject of this very fine article!
            • consilient 3y ago
              > or seeking of risk Sure. I very much doubt anyone seeks risk because it's risk. They do it for the thrill, or for social reasons, or because calculating risk is hard, etc. > having any other computable utility function on any other measurable that we’d have to accept as equally valid if we want to convince any non-economist that we aren’t just using utility as a weasely word for money Almost anything else will do just as well. If you can buy it (or the means to acquire it) on the market, then there's always some point at which twice as much money buys less than twice as much. Maybe 10 million is not enough to hit that point, or 5 million is too much, but the curve flattens out somewhere. And if you can't, then the money makes no direct difference, but can still buy you food and shelter and free time with which to pursue your other projects. I suppose in principle you could actively want to not have money (and not want to give it away either), in which case getting rid of 10 million is probably not twice as hard as getting rid of 5, but that hardly seems realistic.
  • Cushman 3y ago
    Can you say more about that? I can see the loose analogy to socializing risk, but I’d usually think of the concept of insurance along the lines of “many small winners pay for a few big losers”; this looks to me more like “a few big winners pay for many small losers”.
    • notahacker 3y ago
      The example seems to be in between (it's an illustration based around variance in series of dice rolls). But the principle of insurance is pooling risk rather than the distribution of risk: (and a Lloyd's syndicate bailing out a natural disaster looks a lot like a few big winners paying for many small losers) The principle of a few big winners pay for many small losers is pretty well understood in other areas too: it underpins Sand Hill Road as well as the social insurance of welfare states....
      • Cushman 3y ago
        Hmm, I’m still not following exactly what you’re pointing out. What’s the model you mentioned about variance in dice rolls? I assumed we were talking about the coin flip model where all individual payoffs go to zero with probability 1, so no one has any expected income to pay an insurance premium out of. The article is pretty pointedly about wealth redistribution, i.e. pooling of windfalls rather than of risk, but I don’t think that was lost on anyone... are you talking about a different model where there’s some sort of insurable situation?
        • notahacker 3y ago
          I meant coin flips rather than dice rolls! But no, the payoffs don't go to zero: it's heads you double your wealth, tails you lose 40%. That's insurable risk. (if the payoffs went to zero there would be no benefit to pooling... the only winning move is not to play) The article pretty pointedly is about social insurance, but it doesn't make a particularly good case for it since it's a completely abstract model which bears no relationship to the actual reasons wealth and income disparities exist and feeding unemployed people might be a good idea. Rich people don't need to gamble 40% of their wealth on each economic interaction (they're perfectly capable of diversifying their own portfolios) and very rarely get bailed out with a share of lots of less rich people's earnings when their investments suck. The non-straw man version of "mainstream economics" absolutely understands how risks work and literally invented the type of game theoretic model the author is using to show what he thinks "mainstream economics" is missing