5 ms·

How can you make a rational decision when you have incomplete, or false information?

by drone 13y ago

prutschman 13y ago
Who are you to decide whether I have incomplete or false information?
- drone 13y ago
  Prior to the securities Act of 1933, the measure of viability of a particular investment vehicle was on a state-by-state basis where they wouldn't allow investment vehicles that were unlikely to return a positive return to most investors (see Blue Sky Laws). The Act required all securities to be traded to be registered (in a nutshell), but allowed a loophole that effectively said "if the investor can afford to lose all of their investment, you don't need to go through the trouble of registering it, and you can rely on the investor to judge the value of the investment." Who am I? I have no intent to judge, however, as the act was prompted not by fantasy, but by watching many, many investors get sold on bad deals via poor information. In fact, the event which led to this was considered one of the greatest financial disasters in the history of America. So, you may be smart - and you may in fact be smarter than all of the swindlers who may try to take your money. I'd wager most who don't invest as a primary exercise aren't that smart (I only need to look back a couple of years), and I can't imagine how you'd propose to change a -means- test with an -abilities- test. Before you can invest in an oil well, should you be required to prove that you are above average in knowledge about the business of running oil wells?
  - deleted 13y ago
    [deleted]
javert 13y ago
That is a false standard of rationality. Nobody has complete information, ever. Nobody is omniscient. To restate my point without sarcasm: If somebody genuinely wants to risk their money as an investor, it's not in their self-interest for us to forbid them to do so. That is what they want to do. And it's also not in anyone else's self-interest to forbid them from doing it. Investment and entrepreneurship is what drives the economy. More abstractly: There is no valid chain of logic that starts at perceptual reality and ends in the conclusion that we should forbid people from investing as they please. I'm not claiming that this exhausts the topic---there are objections you can raise, but I believe I would always be able to answer them. (I've dedicated much of my life to these kinds of philosophical issues and have achieved a rare level of clarity on them, but I recognize that from your point of view, this is just an arbitrary assertion.)
- drone 13y ago
  > If somebody genuinely to risk their money as an investor, it's not in their self-interest for us to forbid them to do so. That is what they want to do. And it's also not in anyone else's self-interest to forbid them from doing it. Investment and entrepreneurship is what drives the economy. So, you're saying Ponzi schemes should be legal?
  - gojomo 13y ago
    If schemes don't lie about what they are, aren't they similar in their payouts - some win, some lose - to legally-sanctioned (and in some case, state-run) gambling? The potential crime would be fraud - pretending a ponzi is a non-ponzi. With accurate disclosure, it's just an odd form of gambling where some late-entrants are still paying in, when there's no more chance to win.
    - drone 13y ago
      Fraud assumes false disclosure, accurate disclosure assumes complete disclosure, but neither cover intentional omission.
  - javert 13y ago
    Like the other guy said, I am against fraud. If there is no fraud (intentional deception), a Ponzi scheme should be legal, but 99.9% of times, a Ponzi scheme involves fraud. When you engage in trade with someone, you are implicitly or explicitly authorizing them to come after you with the force of the law if you have intentionally deceived them. Note that the government isn't, anyway, necessarily capable of policing Ponzi schemes, because it's not omniscient. Madoff was regulated by the SEC, which gave some of his investors false confidence.
gojomo 13y ago
Gambling in state lotteries and casinos is legal. Leveraging your residence 95% or more to speculate in your local real-estate market is favored by tax policy. Equity investing, day-trading, and option investing are all available to non-accredited investors. In all of these activities, your principal can go to zero very quickly, and will if you're overconfident and misinformed. How is private investment any more irrational or dangerous? Can't 'poor' people sometimes have excellent, inside information on a new business, or are only already-wealthy people informed and rational? In the case of the Bitcoin Investment Trust, the effect of the accreditation-barrier is even more pernicious and counterproductive. There's no block against the poor owning Bitcoins - they can buy them in many ways. There's just a block against those Bitcoins being professionally secured, and getting the tax-advantages available in IRAs. How are poor, irrational people protected by making them self-secure their Bitcoins while paying higher taxes on any gains?
- dustcoin 13y ago
  Minor correction: Trading frequently requires a minimum of $25k https://en.wikipedia.org/wiki/Pattern_day_trader https://en.wikipedia.org/wiki/Pattern_day_trader
  - gojomo 13y ago
    $25K doesn't make someone an accredited investor. Plenty of negative-net-worth people could scrounge up $25k to day-trade.
- drone 13y ago
  shrug It's been the law of the land for what, 80 years? If you want every body and their brother to invest with minimal restrictions: you register the security and create all of the disclosures. If you don't want to go through the effort of creating prospectus and accurately describing the risk, and requiring lots of sign-off from the investor? You limit yourself to the wealthy. Those things the equity investor, day-trader, and optioneer may invest in are all registered securities with all information required by law filed and up-to-date. I'm not arguing that poor people are irrational (that's a straw-man, and nothing in the laws have ever stated that poor people are irrational), and I find it offensive that you jump to this sort of polarizing attack rather than making a more substantive argument, as if to paint me as a person who thinks all poor people are dumb. Now, we ask ourselves, how did this come to be the law of the land? Because people were regularly not disclosing all aspects of their investments to investors, and people, both rational and irrational, were regularly losing money they wouldn't have invested had they been given complete information as was known to the promoter of that investment. However, many investors (quite rightly) balked at the idea that they could only invest in full-registered securities, so some test was created - it happened to be a means test. What would you replace with as a test for securities that do not require complete and accurate disclosure (which is what pretty much every early stage investment is)? We've seen what that looks like: more disclosure. [0] [0] http://boss.blogs.nytimes.com/2013/11/14/what-the-proposed-crowdfunding-rules-could-cost-businesses/?_r=0 http://boss.blogs.nytimes.com/2013/11/14/what-the-proposed-c...

How can you make a rational decision when you have incomplete, or false information?

by drone 13y ago

How can you make a rational decision when you have incomplete, or false information?

prutschman 13y ago

Who are you to decide whether I have incomplete or false information?

drone 13y ago
Prior to the securities Act of 1933, the measure of viability of a particular investment vehicle was on a state-by-state basis where they wouldn't allow investment vehicles that were unlikely to return a positive return to most investors (see Blue Sky Laws). The Act required all securities to be traded to be registered (in a nutshell), but allowed a loophole that effectively said "if the investor can afford to lose all of their investment, you don't need to go through the trouble of registering it, and you can rely on the investor to judge the value of the investment." Who am I? I have no intent to judge, however, as the act was prompted not by fantasy, but by watching many, many investors get sold on bad deals via poor information. In fact, the event which led to this was considered one of the greatest financial disasters in the history of America. So, you may be smart - and you may in fact be smarter than all of the swindlers who may try to take your money. I'd wager most who don't invest as a primary exercise aren't that smart (I only need to look back a couple of years), and I can't imagine how you'd propose to change a -means- test with an -abilities- test. Before you can invest in an oil well, should you be required to prove that you are above average in knowledge about the business of running oil wells?
- deleted 13y ago
  [deleted]

javert 13y ago

That is a false standard of rationality. Nobody has complete information, ever. Nobody is omniscient. To restate my point without sarcasm: If somebody genuinely wants to risk their money as an investor, it's not in their self-interest for us to forbid them to do so. That is what they want to do. And it's also not in anyone else's self-interest to forbid them from doing it. Investment and entrepreneurship is what drives the economy. More abstractly: There is no valid chain of logic that starts at perceptual reality and ends in the conclusion that we should forbid people from investing as they please. I'm not claiming that this exhausts the topic---there are objections you can raise, but I believe I would always be able to answer them. (I've dedicated much of my life to these kinds of philosophical issues and have achieved a rare level of clarity on them, but I recognize that from your point of view, this is just an arbitrary assertion.)

drone 13y ago
> If somebody genuinely to risk their money as an investor, it's not in their self-interest for us to forbid them to do so. That is what they want to do. And it's also not in anyone else's self-interest to forbid them from doing it. Investment and entrepreneurship is what drives the economy. So, you're saying Ponzi schemes should be legal?
- gojomo 13y ago
  If schemes don't lie about what they are, aren't they similar in their payouts - some win, some lose - to legally-sanctioned (and in some case, state-run) gambling? The potential crime would be fraud - pretending a ponzi is a non-ponzi. With accurate disclosure, it's just an odd form of gambling where some late-entrants are still paying in, when there's no more chance to win.
  - drone 13y ago
    Fraud assumes false disclosure, accurate disclosure assumes complete disclosure, but neither cover intentional omission.
- javert 13y ago
  Like the other guy said, I am against fraud. If there is no fraud (intentional deception), a Ponzi scheme should be legal, but 99.9% of times, a Ponzi scheme involves fraud. When you engage in trade with someone, you are implicitly or explicitly authorizing them to come after you with the force of the law if you have intentionally deceived them. Note that the government isn't, anyway, necessarily capable of policing Ponzi schemes, because it's not omniscient. Madoff was regulated by the SEC, which gave some of his investors false confidence.

gojomo 13y ago

Gambling in state lotteries and casinos is legal. Leveraging your residence 95% or more to speculate in your local real-estate market is favored by tax policy. Equity investing, day-trading, and option investing are all available to non-accredited investors. In all of these activities, your principal can go to zero very quickly, and will if you're overconfident and misinformed. How is private investment any more irrational or dangerous? Can't 'poor' people sometimes have excellent, inside information on a new business, or are only already-wealthy people informed and rational? In the case of the Bitcoin Investment Trust, the effect of the accreditation-barrier is even more pernicious and counterproductive. There's no block against the poor owning Bitcoins - they can buy them in many ways. There's just a block against those Bitcoins being professionally secured, and getting the tax-advantages available in IRAs. How are poor, irrational people protected by making them self-secure their Bitcoins while paying higher taxes on any gains?

dustcoin 13y ago
Minor correction: Trading frequently requires a minimum of $25k https://en.wikipedia.org/wiki/Pattern_day_trader https://en.wikipedia.org/wiki/Pattern_day_trader
- gojomo 13y ago
  $25K doesn't make someone an accredited investor. Plenty of negative-net-worth people could scrounge up $25k to day-trade.
drone 13y ago
shrug It's been the law of the land for what, 80 years? If you want every body and their brother to invest with minimal restrictions: you register the security and create all of the disclosures. If you don't want to go through the effort of creating prospectus and accurately describing the risk, and requiring lots of sign-off from the investor? You limit yourself to the wealthy. Those things the equity investor, day-trader, and optioneer may invest in are all registered securities with all information required by law filed and up-to-date. I'm not arguing that poor people are irrational (that's a straw-man, and nothing in the laws have ever stated that poor people are irrational), and I find it offensive that you jump to this sort of polarizing attack rather than making a more substantive argument, as if to paint me as a person who thinks all poor people are dumb. Now, we ask ourselves, how did this come to be the law of the land? Because people were regularly not disclosing all aspects of their investments to investors, and people, both rational and irrational, were regularly losing money they wouldn't have invested had they been given complete information as was known to the promoter of that investment. However, many investors (quite rightly) balked at the idea that they could only invest in full-registered securities, so some test was created - it happened to be a means test. What would you replace with as a test for securities that do not require complete and accurate disclosure (which is what pretty much every early stage investment is)? We've seen what that looks like: more disclosure. [0] [0] http://boss.blogs.nytimes.com/2013/11/14/what-the-proposed-crowdfunding-rules-could-cost-businesses/?_r=0 http://boss.blogs.nytimes.com/2013/11/14/what-the-proposed-c...