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Thomas Redding's avatar

One explanation is relative status.

Let utility = your-percentile-of-relative-status.

Suppose you know 70% of people will bet red and 30% will bet green.

Your options are

* Bet on red and have a 70% chance of your status rising from 50th percentile to 65th percentile (average of the top 70 percentiles)

* Bet on green and have a 30% chance of your status rising from 50th percentile to 85th percentile (average of the top 30 percentiles)

Note: the EV is the same iff the population is using probability matching. In other words, probability matching is simply the Nash equilibrium.

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Terps's avatar

great read, probability matching seems rational in non-ergodic systems

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