My old friend Ben Hayden is trying to figure that out. He's a professor of Brain and Cognitive Sciences at the University of Rochester and has just launched a new blog at Psychology Today called The Decision Tree. Ben and I were colleagues at Duke University and I can assure readers that if the blog is reflective of his personality, it's sure to be fascinating and fun. He studies self-control, decision-making, and counterfactual reasoning. Here's an excerpt from his post today:
In the early sixties, Nobel-prize winning economist Paul Samuelson sat down in the cafeteria at MIT and had a short conversation that soon became legendary in economic circles. He asked his lunch partner if he would accept the gamble heads you win $100, tails you lose $50. Any economist would call this a great deal - its expected value is $25. But his lunch partner turned it down. So would most people. Humans are generally quite risk-averse. But then his lunch partner (sadly, no one knows who it was) countered that he would take the gamble if Samuelson would let him repeat it 100 times in a row.
That was strange. Samuelson felt the same urge himself, but it sounded deeply wrong. He went back to his office and quickly proved that this pair of preferences is irrational. Irrational doesn't mean the same as risk-aversion. Irrational means having totally inconsistent preferences. And Samuelson elegantly proved that if you are risk-averse enough to reject the single gamble, you must also reject the bundle of 100 gambles.
Go read the full post and join me in welcoming Dr. Hayden to the science blogosphere.
