Tag Archives: Value

The Prospect Theory of Kahneman and Tversky

Like it or not, we are all betting individuals. But what interactions are there between the perceived and actual probabilities of things happening and the choices made for or against them? The likelihood of their occurrence, coupled with the size of the gains or losses from anticipating and acting on them, show that people are not entirely the rational agents that we think they are.

Instead of armchair introspection, careful experimental methods were used to give us these (not so) unexpected results. What is demonstrated is that deciding individuals make asymmetric choices based on their poor understanding of relative likelihoods. All sorts of biases and poor thinking on our part contribute to non-rational evaluations of how we end up choosing between alternatives.

The findings are that the near certainty of events happening is undervalued in our estimation, and the merely possible is overvalued. So those things very likely to occur have a diminished weight in our minds, and those things unlikely but possible have an increased weight. These are called the certainty effect and the possibility effect, respectively.

  • Likely Gain (Fear)
  • Likely Loss (Hope)
  • Maybe Gain (Hope)
  • Maybe Loss (Fear)

This asymmetry in valuation leads fearful individuals to accept early settlements and buy too much insurance, or hopeful individuals to buy lottery tickets and play the casino more often then they should if choosing optimally. What factors contribute to this behavior? Emotions, beliefs, and biases, probably all play a role in these perceived payoffs between dread and excitement.

In some “Dirty Harry” movie, the lead character essentially asks “do you feel lucky, punk?”, to goad another into taking a risk. In the movie “War Games”, the supercomputer more or less temptingly asks, “would you like to play a game?”, to encourage the playing of unwinnable matches. Watch out for those that know how to play the odds of hope and fear to manipulate our prospects and decisions.

Further Reading:

https://theoryofself.com/the-four-fold-pattern-decisions-under-risk-e4e634eefc61

https://en.wikipedia.org/wiki/Prospect_theory

View at Medium.com

Daniel Kahneman / Thinking Fast and Slow

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A General Theory of Value, Part 2

What is value?

In his unpublished book “A General Theory of Value”, architect Michael Benedikt argues for a information-theoretic account of value, defining value as follows:

The theory of value offered in this book revolves around three propositions: first, that positive value is attributed to that which preserves or creates more life; second, that “lifefulness” is characterized by a particular quantity and combination of complexity and organization; and third, that in the case of human societies and minds, achieving this optimal quantity and combination of complexity and organization depends on the quality and flow of information among people, and between people and their less-animate environment—plants, animals, buildings, places, things.

It is fascinating that the things that are alive and the products of these lives obtain the highest calculated value of “complexity and organization”.

In order to begin to quantify value, a measurement of the complexity and a measurement of the organization of an entity or system is required. It is worth noting that “not organized” does not mean “complex”, nor does “not complex” mean “organized”. Thus complexity and organization are independent of one another.

Above I have schematized Benedikt’s “Ω Plane”, which consists of two axes, organization and complexity, ranging from disorganized (chaotic) to organized, and simple to complex. “Δ Ω” is simply the measure of the increase in both complexity and organization, and points the way to “value”.

Generously, Benedikt has made his unpublished book available on his web site for all to read.

Further Reading:

Michael Benedikt / A General Theory of Value (unpublished)

https://en.wikipedia.org/wiki/Michael_Benedikt_(urbanist)

http://www.mbenedikt.com/b-o-o-k-s.html

A good resource for reading about information:

http://www.informationphilosopher.com/

Also see Cesar Hidalgo’s excellent “Why Information Grows”.

Cesar Hidalgo / Why Information Grows: The Evolution of Order, from Atoms to Economies

https://paulromer.net/why-information-grows/

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A General Theory of Value

What is value?

In “A General Theory of Value”, philosopher Ralph Barton Perry argued for a naturalistic account of values, defining value as “any object of any interest.”

From 1946 to 1948, Perry gave a Gifford Lecture, which later was enlarged to became his book “Realms of Value”. The Gifford Lectures are purportedly about “natural theology”, but many normative subjects have been addressed in them.

Above I have diagrammed Perry’s eight “realms of value”, although I have changed morality to ethics. I have also paired them up to give a fourfold, which doesn’t seem too erroneous.

  • Custom and Art
  • Economics and Science
  • Politics and Law
  • Religion and Ethics

I’m disappointed that Knowledge is missing from his list, but I could eliminate some of his choices and rearrange a bit to make room for it.

Further Reading:

Ralph Barton Perry / A General Theory of Value: its meaning and basic principles construed in terms of interest

Ralph Barton Perry / Realms of Value (Gifford Lectures)

https://www.giffordlectures.org/

https://en.wikipedia.org/wiki/Ralph_Barton_Perry

http://www.newworldencyclopedia.org/entry/Ralph_Barton_Perry

On this blog: The World Values Survey

Notes:

Another “General Theory of Value” available on the web:

C. L. Sheng / A Utilitarian General Theory Of Value

http://museum.lib.nctu.edu.tw/share/cls01/data/cls04-09.pdf

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The World Values Survey

For a number of years, very interesting research in cultural studies has been produced by the World Values Survey. This survey measures the slippery notion of value as belonging to four types: Survival, Traditional, Self-Expression, and Secular-Rational.

Individual and social values are quantified, resulting in two pairs of value types that are independent, and for each pair, the two types are dependent and inversely proportional:

  • Survival values ⇔ Self-expression values
  • Secular-rational values ⇔ Traditional values

In other words, if survival values are high (say one), self-expression values are low (say zero), and if survival values are low, self-expression values are high. Similarly, secular-rational values are higher if traditional values are lower, etc. So a pair of numbers each between zero and one indicates how an individual or society considers the importance of these values.

These social values are measured and compared in countries around the world, resulting in the Inglehart-Welzel Cultural Map. This map is a scatter plot that clusters similar countries by value pairs, rather than geography. However, countries close in geography are also often fairly close as “value” neighbors on this cultural chart.

One might try to claim that self-expression values and secular-rational values are more “advanced” than survival and traditional values. As a culture obtains more material wealth they are less dependent on using resources for survival, and so can foster more self-expression. Then perhaps as self-expression grows and so independent thought, less dependence on or even tolerance of traditional values encourages increased secular-rational values. But that would be too easy!

Further Reading:

https://en.wikipedia.org/wiki/World_Values_Survey

https://en.wikipedia.org/wiki/Inglehart–Welzel_cultural_map_of_the_world

World Values Survey on Twitter:

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