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Re: [bookclub-792] Books (math about utility and free, re Predictably Irrational)

From: Ruchira
Sent on: Monday, November 9, 2009 5:44 PM
I see--you (and presumably Ariely's version of the rational consumer) are looking at it in terms of the decrement to one's current wealth, whereas I'm looking at it in terms of a price in dollars and how I would convert that into a price in utils.


On Mon, Nov 9, 2009 at 4:29 PM, Stephen Cataldo <[address removed]> wrote:
Hi Ruchira --

There's no real mapping between a single good being FREE, and having 0 WEALTH.? If you have a logarithmic utility function for wealth, and someone has $100,010, then it's going to be a nearly-linear section when they consider possibilities of starting with $100,010 and ending with a toy and $100,000, $100,009, or $100,010.?? "Predictably Irrational" argues that if you have a nice smooth logarithmic utility of wealth function and then stick the possibility of a free good in front of us, our utility functions start to turn into funny and irrational shapes, not near zero wealth but near our present wealth (in this example, there is a discontinuity in the curve not at wealth = $0 but at wealth = $100,010, and steeper slopes in that general area... Predictably Irrational claims that we'd care more about a toy costing $9 vs $10 rather than a car costing $30,000 vs $30,001, even though the logarithmic/concave utility function says it should be the other way around)


Ruchira wrote:

On Mon, Nov 9, 2009 at 12:23 AM, Ruchira <[address removed]> wrote:
Hi all,

I got started reading _Predictably Irrational_, it looks really interesting. ?

I've read through to the end of the appendix to Chapter 3, and I'm puzzled. ?Assuming a logarithmic utility of wealth is not at all unconventional in economics (more generally, utility functions are assumed to be concave). ?As far as I understand, it does not fall within the purview of what an orthodox economist (as opposed to a behavioral one like Ariely) would call irrational. ?But with logarithmic utility of wealth, FREE does have a special place, as the log of zero is negative infinity.

Here are some other books that I had mentioned today or last time:

_The Symbolic Species_ by Deacon--good to read after _Mothers and Others_ (or before, as I did). ?About the uniqueness of symbolic language to humans and its coevolution with infant brains. ?Deacon is a biological anthropologist at Berkeley.

_Rationality for Mortals_ by Gigerenzer--might be good to read after _Predictably Irrational (I haven't read this one). ?About how what seems irrational may not be, when looking at the bigger picture of humans in their evolutionary context. ?Gigerenzer is a psychologist.

_Phantoms in the Brain_ by Ramachandran and Blakeslee--about people's integration of their bodies (and extensions thereof) with their brains. ?I've read this one, as I think some others have as well. ? It's quite good, and has been suggested for this reading group several times. ?Ramachandran is a neuroscientist.

Ant?nio Dam?sio: I read and was stimulated by his first book, _Descartes' Error: Emotion, Reason, and the Human Brain_--relating to the question of motivation that Scott and Dana are interested in. ?However, this may not be the best book of his to read. ?A speaker at a technical talk I went to a few years ago said the somatic marker hypothesis had been falsified, although when I looked it up later it seemed that what had been falsified was an interpretation that was not what I had thought Dam?sio meant, when I read his book. ?Anyway, Dam?sio's later books might reflect the subsequent development of his thinking. ?Dam?sio is a neuroscientist.

_The Body Has A Mind Of Its Own_ by Blakeslee--similar to _Phantoms in the Brain_, but is less of a scientific memoir and more of a popular exposition (and also includes newer material, having come out nine years later). I'm currently reading this. ?Blakeslee is a science writer.



Stephen Cataldo
6420 Colby St.
Oakland, CA 94618

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