WEBVTT - The Devil You Know, Part 1 0:00:03.040 --> 0:00:06.760 Welcome to Stuff to Blow Your Mind production of iHeartRadio. 0:00:12.920 --> 0:00:15.400 Hey, welcome to Stuff to Blow Your Mind. My name 0:00:15.440 --> 0:00:16.480 is Robert Lamb. 0:00:16.560 --> 0:00:19.279 And I'm Joe McCormick. And in today's episode, we're going 0:00:19.360 --> 0:00:22.000 to begin a series in which we look at a 0:00:22.040 --> 0:00:27.240 phenomenon studied in psychology, economics, and decision theory which is 0:00:27.280 --> 0:00:34.559 called ambiguity aversion. Ambiguity aversion is when we prefer risks 0:00:34.720 --> 0:00:40.320 with known probabilities over risks with unknown probabilities, even if 0:00:40.360 --> 0:00:43.320 you have no reason for thinking that the unknown risks 0:00:43.400 --> 0:00:46.519 will be worse than the known risks. And we'll get 0:00:46.520 --> 0:00:49.960 to some concrete examples and foundational research on this in 0:00:50.000 --> 0:00:52.839 a bit, but to an approximation, a good way to 0:00:52.880 --> 0:00:57.800 think about this is that ambiguity aversion is the sentiment 0:00:58.000 --> 0:01:01.640 expressed in the saying, better the devil you know than 0:01:01.680 --> 0:01:04.840 the devil you don't. This is an aphorism I feel 0:01:04.840 --> 0:01:08.240 like people often quote when they're about to justify making 0:01:08.240 --> 0:01:13.040 a really bad or indefensible decision. And the whole point 0:01:13.200 --> 0:01:15.960 of this saying is that the devil you know is 0:01:16.040 --> 0:01:19.880 already bad. That's usually implied, and there's no indication that 0:01:19.920 --> 0:01:22.600 the devil you don't know will be worse. It could 0:01:22.680 --> 0:01:26.400 well be a kinder, gentler devil with a less pointy pitchfork. 0:01:26.800 --> 0:01:31.520 But still we often find ourselves thinking, I'd just rather 0:01:31.600 --> 0:01:33.720 stick with the one where I know how pointy it 0:01:33.800 --> 0:01:34.440 is upfront. 0:01:35.080 --> 0:01:38.240 Yeah, it's often a form of indecision, like refused to 0:01:38.240 --> 0:01:41.520 do anything about the current devil situation, but you know, 0:01:41.920 --> 0:01:45.480 at least I know this devil. Next devil could be worse. 0:01:45.520 --> 0:01:47.400 I don't want a worst devil, that's right. 0:01:47.960 --> 0:01:50.280 This is another one of those aphorisms. We were talking 0:01:50.280 --> 0:01:53.920 about this just recently in the Saint Swithin episode. It's 0:01:53.960 --> 0:01:57.000 one of these aphorisms that I think is only wisdom 0:01:57.440 --> 0:02:01.360 given certain assumptions or conditions that are not really part 0:02:01.400 --> 0:02:04.480 of the saying, Like as stated, it could be purely 0:02:04.600 --> 0:02:07.560 terrible advice, like what if the devil you know is 0:02:07.640 --> 0:02:10.200 really bad? And what if going with the devil you 0:02:10.240 --> 0:02:12.760 don't know gives you a really good shot at improving 0:02:12.800 --> 0:02:16.679 your stay in hell? But also I think it does 0:02:16.760 --> 0:02:19.360 have a kind of wisdom if you don't think of 0:02:19.400 --> 0:02:23.280 it as advice, but rather as an ironic observation about 0:02:23.400 --> 0:02:25.679 human nature, in which case I think it's sort of 0:02:25.760 --> 0:02:28.680 dead on this This is often how we think, and 0:02:28.720 --> 0:02:33.080 that is the core observation also of the ambiguity aversion literature. 0:02:33.360 --> 0:02:36.160 Yeah yeah, I mean because you can also ask, well, 0:02:36.320 --> 0:02:38.040 what if we just didn't have a devil? Is that 0:02:38.120 --> 0:02:39.919 on the table? Can we just not have a devil? 0:02:39.960 --> 0:02:42.480 Why do we have to worry about the devil we 0:02:42.560 --> 0:02:45.760 have versus the devil we don't have yet it's you know, 0:02:45.800 --> 0:02:48.840 it can be, and I guess it's rather condemning human 0:02:48.919 --> 0:02:51.760 nature in that aspect as well, where the answer is, well, 0:02:51.760 --> 0:02:54.079 you got to have a devil where humans we make 0:02:54.120 --> 0:02:56.280 our own and you've got to have one in play. 0:02:56.400 --> 0:02:58.359 You should have thought of that before you double park Rob. 0:02:58.560 --> 0:02:59.800 Yeah, now you're here in hell with. 0:02:59.800 --> 0:03:00.520 The rest of us. 0:03:00.919 --> 0:03:03.840 There's a rather keen Chinese saying that goes along these 0:03:03.919 --> 0:03:06.840 lines as well. It's a well known idiom that states 0:03:07.200 --> 0:03:10.000 that it's quote easy to dodge the spear in the open, 0:03:10.360 --> 0:03:12.320 hard to avoid a stab in the dark. 0:03:12.639 --> 0:03:16.960 Oh that's interesting, because yeah, that's the same idea. It 0:03:17.120 --> 0:03:21.280 isn't necessarily true in all circumstances, like in the dark, 0:03:21.360 --> 0:03:24.360 the person stabbing at you also can't see you very well, 0:03:24.760 --> 0:03:26.640 so it might be hard to dodge, but it's also 0:03:26.680 --> 0:03:28.880 hard for them to hit you. But in the dark, 0:03:29.280 --> 0:03:31.960 you just don't really know, you don't really know what's 0:03:32.000 --> 0:03:34.000 going on, so it just seems scarier. 0:03:34.600 --> 0:03:37.600 Yeah. Absolutely, And it reminds me a bit of another 0:03:37.720 --> 0:03:40.480 Chinese saying, better to be a dog in times of 0:03:40.480 --> 0:03:44.200 tranquility than a human in times of chaos, And this 0:03:44.280 --> 0:03:47.200 has some of the same sentiments as a fourteenth century 0:03:47.240 --> 0:03:51.920 Islamic saying that is sometimes misattributed as being of Chinese 0:03:51.960 --> 0:03:55.040 origin itself, and that is better a century of tyranny 0:03:55.280 --> 0:03:56.560 than one day of chaos. 0:03:57.560 --> 0:03:59.520 Also, don't know if I actually agree with that. 0:04:00.120 --> 0:04:04.040 Well, I don't know. It's I think about it a 0:04:04.040 --> 0:04:09.920 lot for various reasons, and I do. I do agree 0:04:10.000 --> 0:04:14.520 with the basic sentiment of it. When you find yourself 0:04:14.560 --> 0:04:18.600 dipping into chaos. And I'm not talking about like capital 0:04:18.640 --> 0:04:21.520 C chaos, like absolute chaos, but these little moments of 0:04:21.600 --> 0:04:24.560 chaos and disorder, you can easily line yourself up with 0:04:24.640 --> 0:04:26.719 the idea of like, well, yeah, this is why people, 0:04:27.600 --> 0:04:30.800 you know, fall for tyranny. This is because they have 0:04:30.880 --> 0:04:34.240 these moments of chaos and uncertainty and they're like, well, 0:04:34.279 --> 0:04:37.000 I would just rather have this sort of known top 0:04:37.040 --> 0:04:40.520 down oppression in place rather than some sort of ambiguous 0:04:40.600 --> 0:04:42.000 chaos bubbling up around me. 0:04:42.320 --> 0:04:45.520 Better are something that's definitely bad than something I don't 0:04:45.600 --> 0:04:47.000 understand and can't predict. 0:04:47.480 --> 0:04:51.440 Yeah, Now, ambiguity and chaos, we should note here, are 0:04:51.520 --> 0:04:55.240 not the same thing. Ambiguity is a lack of clarity. Well, 0:04:55.360 --> 0:04:58.400 chaos is a state of disorder, and the former may 0:04:58.440 --> 0:05:01.520 well lead into the other. And chaos may be seen 0:05:01.560 --> 0:05:05.080 as a state of absolute ambiguity and certainty as well. 0:05:05.120 --> 0:05:07.800 So in that respect, it becomes even more difficult when 0:05:07.800 --> 0:05:11.600 we try and weigh chaos and ambiguity in our concerns 0:05:11.640 --> 0:05:12.400 about the future. 0:05:12.640 --> 0:05:15.719 I'm just trying to think of familiar, everyday examples of 0:05:15.800 --> 0:05:21.000 ambiguity aversion, and I think I came across one internally 0:05:21.200 --> 0:05:26.160 in the now commonly acknowledged sentiment of not wanting to 0:05:26.200 --> 0:05:30.400 go out and try anything you know, So, like, do 0:05:30.400 --> 0:05:33.880 you ever find yourself trying to find a way to 0:05:34.080 --> 0:05:38.320 avoid going through an experience that is new and unfamiliar 0:05:38.680 --> 0:05:41.640 and thus unpredictable to you? So it seems like, I 0:05:41.680 --> 0:05:44.040 don't know, it just seems kind of fraught, like a hassle, 0:05:44.560 --> 0:05:47.520 And instead of doing that, choosing to have an experience 0:05:47.600 --> 0:05:50.720 that you pretty much know that you will probably not enjoy. 0:05:54.160 --> 0:05:56.320 Yeah, I think I know what you're saying here. Yeah, 0:05:56.360 --> 0:06:00.960 I mean, I mean life is perpetually a situation where 0:06:01.200 --> 0:06:03.599 it's like, am I going to stick with what's comfortable 0:06:03.720 --> 0:06:05.919 or am I going to say yes to adventure? Am 0:06:05.960 --> 0:06:11.480 I going to try something new? And I often find myself, 0:06:11.720 --> 0:06:14.440 you know, at the crossroads of that moment, because there's 0:06:14.480 --> 0:06:16.479 a huge part of me that doesn't want to try 0:06:16.520 --> 0:06:21.360 new things, and I get anxious about the various experiences 0:06:21.400 --> 0:06:25.200 aligned with those kinds of quests. But on the other hand, 0:06:25.279 --> 0:06:27.599 I have to recognize that like most of the really 0:06:28.400 --> 0:06:31.279 fulfilling things in my life have been because I said 0:06:31.320 --> 0:06:34.000 yes to adventure and because I took a chance on 0:06:34.040 --> 0:06:37.839 something and I went out of my comfort zone. But 0:06:37.880 --> 0:06:40.200 then again, we call it our comfort zone because it 0:06:40.240 --> 0:06:42.400 is comfortable. It is a nice place, it is a 0:06:42.440 --> 0:06:45.360 comforting place. So it's you know, it's given take. 0:06:45.640 --> 0:06:48.359 Yes, I think that's absolutely correct. But I think the 0:06:48.400 --> 0:06:51.200 really weird thing is that sometimes your quote comfort zone 0:06:51.360 --> 0:06:55.280 isn't comfortable. I mean, sometimes we prefer an experience that's 0:06:55.360 --> 0:06:57.920 not even very nice. It's still like something that we 0:06:57.960 --> 0:07:00.240 know we won't like, but it's just it's you know, 0:07:00.279 --> 0:07:02.640 it's familiar. We at least know what we're getting with it, 0:07:03.000 --> 0:07:05.640 over something that is just question marks. 0:07:05.880 --> 0:07:10.760 Right right, will choose a known okayness over a potentially 0:07:11.000 --> 0:07:12.160 amazing experience. 0:07:12.640 --> 0:07:16.880 So one of the most important early writings on ambiguity 0:07:16.920 --> 0:07:20.880 aversion is a classic paper in the Quarterly Journal of 0:07:20.920 --> 0:07:25.920 Economics from nineteen sixty one by the American economist, whistleblower 0:07:26.000 --> 0:07:30.360 and political activist Daniel Ellsberg. The paper was called Risk, 0:07:30.560 --> 0:07:35.240 Ambiguity and the Savage Axioms. That's savage with a capital S. 0:07:35.400 --> 0:07:38.720 That's a person's name. It's not describing the axioms as savage. 0:07:39.920 --> 0:07:42.680 And just to go ahead and mention it now because 0:07:42.720 --> 0:07:45.360 I also use this as a source in writing about 0:07:46.000 --> 0:07:50.320 Elsberg and this paper's impact. It was also reading a 0:07:50.480 --> 0:07:54.920 paper called Ambiguity and Ambiguity Aversion in the Handbook of 0:07:54.960 --> 0:07:58.080 the Economics of Risk and Uncertainty. This is by Mark J. 0:07:58.320 --> 0:08:03.960 Maschina and Marciano Cinneskalchi, published by north Holland in twenty fourteen. 0:08:04.280 --> 0:08:07.120 This is a sort of general overview of the concept 0:08:07.160 --> 0:08:09.960 of ambiguity aversion and a survey of a bunch of 0:08:10.000 --> 0:08:13.000 different models of it. Now, before we get into the 0:08:13.040 --> 0:08:16.400 idea that Elsburg explored in this very important paper, robbed it. 0:08:16.480 --> 0:08:18.280 You had a bit of bio in Elsburg, didn't you. 0:08:18.960 --> 0:08:23.600 Yeah. Yeah. Daniel Ellsberg quite an interesting fellow of nineteen 0:08:23.640 --> 0:08:28.960 thirty one through twenty twenty three. In addition to Elsberg's paradox, 0:08:29.040 --> 0:08:33.120 which we're getting into here, is he's also famous, perhaps 0:08:33.200 --> 0:08:36.440 more so in a general sense, as the Rand Corporation 0:08:36.559 --> 0:08:39.520 employee who photocopied and released what would come to be 0:08:39.600 --> 0:08:43.240 known as the Pentagon Papers. This is a United States 0:08:43.280 --> 0:08:46.960 Department of Defense history of the US's political and military 0:08:47.000 --> 0:08:50.520 involvement in Vietnam from nineteen forty five through nineteen sixty eight. 0:08:51.040 --> 0:08:53.360 The key point being that Ellsberg believed that getting these 0:08:53.360 --> 0:08:57.200 papers out there was important in informing the public about 0:08:57.559 --> 0:08:59.840 things that they didn't know about how the Vietnam War 0:09:00.160 --> 0:09:02.640 being prosecuted and represented right right. 0:09:02.720 --> 0:09:06.840 It was very much a whistle blowing act on Ellsberg's part, 0:09:07.320 --> 0:09:10.000 and these papers were published by the New York Times 0:09:10.000 --> 0:09:12.680 in nineteen seventy one. This would be a decade after 0:09:13.080 --> 0:09:17.280 the publication regarding the Elsberg paradox. And yeah, they detailed 0:09:17.400 --> 0:09:20.679 secret developments about the scope of the US military efforts 0:09:20.679 --> 0:09:25.280 in Vietnam, the real sticking points being the deception involving 0:09:25.320 --> 0:09:28.680 the Gulf of Tonkin incident, unreported expansion of the war, 0:09:28.800 --> 0:09:31.640 the true objective of the war post nineteen sixty five, 0:09:31.800 --> 0:09:36.040 which basically was more about containing China and preventing a 0:09:36.120 --> 0:09:41.640 humiliating US defeat rather than any specific objectives to help 0:09:41.679 --> 0:09:44.280 the people of Vietnam, and the lack of a clear 0:09:44.320 --> 0:09:47.320 plan for victory as well. So I mentioned a lot 0:09:47.360 --> 0:09:49.400 of you have at least heard of the Pentagon papers, 0:09:49.400 --> 0:09:52.000 even if you're not familiar with the full story, because 0:09:52.480 --> 0:09:56.760 this incident this led to conspiracy and espionage charges against 0:09:56.760 --> 0:10:02.400 Ellsberg that were then later dismissed, greatly fueled the anti 0:10:02.440 --> 0:10:04.920 war movement as well as distrust in the government at 0:10:04.920 --> 0:10:08.120 the time, and led to the Nixon Whitehouse's use of 0:10:08.120 --> 0:10:11.600 the infamous White House Plumbers to discredit Elsberg. And of course, 0:10:11.679 --> 0:10:14.000 all of this ends up feeding into the Watergate scandal, 0:10:14.040 --> 0:10:17.559 which is another one of those major historical touchstones from 0:10:17.720 --> 0:10:20.880 the time period that again, if you're not super familiar 0:10:20.880 --> 0:10:24.000 with Watergate, you've at least heard of Watergate, and you've 0:10:24.000 --> 0:10:28.640 heard about the other different gates out there that allude 0:10:28.679 --> 0:10:30.360 back to what a scandal it was. 0:10:31.440 --> 0:10:33.680 Now everything gets a gate, suffix. 0:10:33.520 --> 0:10:37.880 Right, no matter how deserve, any or undeserved now. Elsberg 0:10:37.960 --> 0:10:42.040 remained an outspoken activist and whistleblower throughout his life, particularly 0:10:42.720 --> 0:10:47.240 regarding the US's military actions under multiple presidents, including the 0:10:47.679 --> 0:10:50.960 current one, the Russian invasion of Ukraine, and also in 0:10:51.000 --> 0:10:54.240 support of various other whistle blowers. He was a vocal 0:10:54.240 --> 0:10:58.160 opponent of the use and the threat of nuclear weapons 0:10:58.520 --> 0:11:01.960 and the rhetoric around their use, and he is sometimes 0:11:02.000 --> 0:11:06.040 described as a nuclear war planner turned nuclear war activists, 0:11:06.480 --> 0:11:11.080 and his work at the Rand Corporation did involve such contemplations. Yeah. 0:11:11.120 --> 0:11:13.400 I think a big part of his pitch in his 0:11:13.760 --> 0:11:17.280 anti war and anti nuclear weapons activism was like, look, 0:11:17.320 --> 0:11:21.120 I've been there where the power players are executing you know, 0:11:21.200 --> 0:11:24.719 global military and nuclear strategy. You should be worried. This 0:11:24.840 --> 0:11:26.320 is things are not okay. 0:11:27.320 --> 0:11:31.199 Yeah. One of his major overarching criticisms of nuclear weapons, 0:11:31.280 --> 0:11:33.439 and I feel like we're probably preaching to the choir 0:11:33.600 --> 0:11:35.240 on this one. I can't imagine we have any big 0:11:35.480 --> 0:11:39.199 nuclear war fans out there, was that their use is 0:11:39.240 --> 0:11:42.720 a deterrent one of the major positive spins that are 0:11:42.760 --> 0:11:47.360 often given about having a vast nuclear arsenal. This idea 0:11:47.440 --> 0:11:51.120 of the nuclear deterrent was itself highly unreliable and unstable. 0:11:51.440 --> 0:11:55.960 There were simply too many variables human, technological, situational that 0:11:56.040 --> 0:12:01.880 could lead to not only catastrophic but existential unintended consequences. 0:12:02.280 --> 0:12:04.280 Yeah, too many ways for it to go wrong, and 0:12:04.360 --> 0:12:06.880 if it does go wrong, the consequences are too great. 0:12:07.320 --> 0:12:09.800 By the way Elsberg has been portrayed, I believe twice 0:12:09.960 --> 0:12:12.800 in major motion pictures, once by James Spader and once 0:12:12.840 --> 0:12:22.240 by Matthew Reese. 0:12:24.080 --> 0:12:27.960 So coming back to the Elsberg paper from nineteen sixty one, again, 0:12:27.960 --> 0:12:30.600 that's risk ambiguity in the Savage axioms. This is the 0:12:30.640 --> 0:12:32.960 really important one. I'd look it up. I think it 0:12:33.040 --> 0:12:36.959 had like, I don't know, like tens of thousands of citations. 0:12:37.000 --> 0:12:41.280 It's like a very, very famous and influential economics paper. 0:12:41.920 --> 0:12:45.240 In this paper he illustrates the idea of ambiguity a 0:12:45.320 --> 0:12:49.000 version with a number of thought experiments, and this is 0:12:49.040 --> 0:12:52.320 one of them. So this is the three color urn. 0:12:53.559 --> 0:12:56.840 Imagine that there's an urn like a jar that is 0:12:56.920 --> 0:13:00.600 filled with ninety little ping pong balls that are a 0:13:00.760 --> 0:13:04.400 mix of different colors. You cannot see inside the urn, 0:13:04.440 --> 0:13:06.840 it's opaque, But you're going to play a game where 0:13:06.880 --> 0:13:09.360 you reach into the urn and you pull out one 0:13:09.440 --> 0:13:12.720 ball at a time, and you can win prizes based 0:13:12.760 --> 0:13:14.880 on the color of the ball that you pull out. 0:13:15.559 --> 0:13:18.880 You know that thirty of the balls inside the urn 0:13:19.080 --> 0:13:22.000 are red, So since thirty out of ninety are red, 0:13:22.040 --> 0:13:24.760 there's a one in three chance that a random ball 0:13:24.840 --> 0:13:27.000 is going to be red. The odds there are pretty clear. 0:13:27.360 --> 0:13:31.120 The other sixty balls, however, are a mix of yellow 0:13:31.240 --> 0:13:34.640 and black. And here's the really important part. You don't 0:13:34.720 --> 0:13:39.000 know the composition of that group. So those sixty balls 0:13:39.040 --> 0:13:41.839 could be thirty yellow and thirty black. It could be 0:13:41.960 --> 0:13:45.199 sixty yellow and zero black. It could be sixty black 0:13:45.200 --> 0:13:49.160 and zero yellow, or any mix in between. Since you 0:13:49.240 --> 0:13:52.520 don't know the mix, you don't know the probability of 0:13:52.600 --> 0:13:55.559 drawing a yellow ball or a black ball ahead of time. 0:13:55.800 --> 0:13:59.040 For red, it's one in three. For either yellow or black, 0:13:59.240 --> 0:14:03.719 it's anywhere between zero and two out of three. Now, 0:14:03.760 --> 0:14:06.320 imagine it is your turn to draw a ball out 0:14:06.320 --> 0:14:09.280 of the urn, and you can take one of two bets. 0:14:09.840 --> 0:14:13.400 Bet a you get one hundred dollars if your ball 0:14:13.520 --> 0:14:16.080 is red, So if you pick this option, your chance 0:14:16.120 --> 0:14:19.560 of winning one hundred dollars is one in three. In 0:14:19.640 --> 0:14:22.320 bet B you get one hundred dollars if your ball 0:14:22.440 --> 0:14:25.960 is black. Since you don't know the mix of yellow 0:14:26.040 --> 0:14:29.000 and black, you don't know your odds of winning, but 0:14:29.080 --> 0:14:32.680 they are somewhere between zero and two out of three, 0:14:33.080 --> 0:14:35.400 with the midpoint being one out of three, which is 0:14:35.440 --> 0:14:38.240 the same as the odds on red. Which one do 0:14:38.280 --> 0:14:38.680 you pick? 0:14:39.360 --> 0:14:42.960 Well, it sounds like bet A is the suer thing, right. 0:14:43.360 --> 0:14:45.760 If somebody offered me this game, I would probably pick 0:14:45.840 --> 0:14:48.360 bet A. Yeah, it just seems safer. It's like, okay, 0:14:48.560 --> 0:14:50.520 I know what I'm dealing with. There one in three 0:14:51.200 --> 0:14:53.680 the other option. Your odds could be better than one 0:14:53.680 --> 0:14:55.400 in three, but you you just don't know. 0:14:56.000 --> 0:14:56.720 They could be worse. 0:14:56.760 --> 0:14:59.600 It could be zero, They could be worse, could be better. 0:14:59.680 --> 0:15:03.480 You have no way of knowing either way, Ellsberg suggested, 0:15:03.640 --> 0:15:08.600 and later experiments would empirically demonstrate that most people would 0:15:08.600 --> 0:15:11.760 bet on red instead of black, even though there is 0:15:11.840 --> 0:15:15.680 no objective reason to think that red is a better bet. 0:15:16.080 --> 0:15:19.880 Following the pick red strategy will not necessarily earn you 0:15:19.960 --> 0:15:22.960 more money in this game, But people really do, in fact, 0:15:23.240 --> 0:15:26.840 just like it better to pick red. It feels right, 0:15:26.960 --> 0:15:29.600 that's just what we think we should do. That in 0:15:29.680 --> 0:15:32.600 itself is kind of weird and interesting, like why do 0:15:32.640 --> 0:15:36.440 we prefer to avoid ambiguity even when there is no 0:15:36.680 --> 0:15:40.800 clear advantage in doing so. Then there's a really interesting wrinkle. 0:15:41.120 --> 0:15:43.800 Imagine you're playing the same game. You are drawing a 0:15:43.840 --> 0:15:47.960 ball out of an urn, and this time you're given 0:15:47.960 --> 0:15:50.760 assurance that the mix of the balls is the same 0:15:50.800 --> 0:15:53.040 as it was the first time. So whatever was the 0:15:53.080 --> 0:15:55.640 case with the mix of yellow and black in there, 0:15:56.200 --> 0:15:57.720 it's going to be the same as it was with 0:15:57.760 --> 0:15:59.800 your last draw. And you get a chance to make 0:15:59.800 --> 0:16:03.560 a second bet. You can take either bet C, where 0:16:03.600 --> 0:16:06.080 you get one hundred dollars if the ball drawn out 0:16:06.200 --> 0:16:11.240 is either yellow or red, and this one has an 0:16:11.400 --> 0:16:14.080 unknown chance of winning, because of course you don't know 0:16:14.120 --> 0:16:16.680 how many yellow or black balls there are. You know 0:16:16.800 --> 0:16:19.480 that your chance of winning is somewhere between one and 0:16:19.560 --> 0:16:22.240 three if there are you know, the thirty red balls 0:16:22.240 --> 0:16:25.160 and zero yellow balls, or one hundred percent if there 0:16:25.160 --> 0:16:28.000 are sixty yellow balls, Or you can take bet D 0:16:28.600 --> 0:16:30.920 where you get one hundred dollars. If the ball is 0:16:31.000 --> 0:16:35.160 either yellow or black, this one has a guaranteed two 0:16:35.280 --> 0:16:38.480 thirds chance to win, because we know that together yellow 0:16:38.560 --> 0:16:40.800 and black make sixty of the ninety balls that we 0:16:40.840 --> 0:16:44.160 don't know what the mix is. In this second trial, 0:16:44.640 --> 0:16:48.560 people will tend to pick bet D once again, because 0:16:48.600 --> 0:16:51.680 the probabilities are known. With D, it's a guaranteed two 0:16:51.680 --> 0:16:55.240 thirds chance to win. With bets C, it's somewhere between 0:16:55.360 --> 0:16:59.080 one one in three and one hundred percent. Picking bet 0:16:59.160 --> 0:17:03.000 D allows them to avoid placing bets C, which, again, 0:17:03.080 --> 0:17:07.399 which has ambiguous chances. Here's the really interesting thing that 0:17:08.119 --> 0:17:13.560 Elsberg pointed out. There's actually a contradiction in people's behavior 0:17:13.960 --> 0:17:17.680 between the first and second round of this game. Assuming 0:17:17.720 --> 0:17:19.879 you are actually doing your best to win the money. 0:17:20.359 --> 0:17:23.679 In round one, if you bet on red instead of black, 0:17:24.119 --> 0:17:27.639 that implies you believe that less than thirty of the 0:17:27.760 --> 0:17:31.239 unknown sixty balls are black. Right, That makes you it 0:17:31.280 --> 0:17:33.840 implies that red has a better chance of winning, so 0:17:34.400 --> 0:17:36.960 less than half of them have to be black. However, 0:17:37.000 --> 0:17:39.560 in the second round, if you take the second option 0:17:39.920 --> 0:17:42.879 picking yellow and black, it implies that you think that 0:17:43.359 --> 0:17:46.840 more than thirty of the unknown balls are black. Otherwise 0:17:46.880 --> 0:17:50.119 the red and yellow combination option would have the better 0:17:50.240 --> 0:17:56.120 chance of winning. Right, These two bets in combination make 0:17:56.280 --> 0:18:02.000 no sense because they imply self contradictory beliefs. It says 0:18:02.040 --> 0:18:05.200 that I believe that more balls are black and less 0:18:05.200 --> 0:18:08.919 balls are black at the same time. Obviously that can't 0:18:08.960 --> 0:18:12.760 really be the case. But there could be another issue 0:18:12.880 --> 0:18:18.280 driving this behavior, which is simply that people don't like ambiguity, 0:18:18.600 --> 0:18:22.000 and they will pay up for known odds, even if 0:18:22.040 --> 0:18:27.640 doing so implies mutually exclusive assumptions. I was trying to think, 0:18:27.800 --> 0:18:29.400 you know, as I said a minute ago, I think 0:18:29.440 --> 0:18:32.280 I would probably pick red if given the option to 0:18:32.320 --> 0:18:35.920 play this game. Obviously, I sort of already knew the 0:18:35.960 --> 0:18:37.879 deal here, so I can't know what I would do 0:18:38.080 --> 0:18:41.120 going into it blind like most people, but I think 0:18:41.160 --> 0:18:46.480 I would, for no rational reason, prefer the uncertainty reducing options. 0:18:47.359 --> 0:18:50.480 I think the most likely reason for that is even 0:18:50.520 --> 0:18:52.960 if I were given assurances that this game was on 0:18:53.000 --> 0:18:56.320 the up and up, I would suspect some kind of trick, 0:18:56.520 --> 0:18:59.760 Like if I'm being asked to bet on uncertainty, There's 0:18:59.800 --> 0:19:02.719 some part of me that just kind of rises up 0:19:02.760 --> 0:19:05.239 and says, uh, there's a scam here that you are 0:19:05.280 --> 0:19:05.840 not seeing. 0:19:06.040 --> 0:19:08.280 Yeah, yeah, I mean you kind of expect that within 0:19:08.359 --> 0:19:12.880 the constraints of a testing environment, and you definitely expect 0:19:12.880 --> 0:19:16.399 that out of the world. You know, whatever form this 0:19:16.600 --> 0:19:19.200 was taking, you'd assume that somebody had a vested interest 0:19:19.800 --> 0:19:22.520 in manipulating how you were going to behave to the 0:19:22.960 --> 0:19:24.920 how you're going to respond to the two possibilities. 0:19:25.160 --> 0:19:27.760 Yeah. Elsberg also in this paper, by the way, he 0:19:27.760 --> 0:19:30.000 came up with a second illustration of the same principle. 0:19:30.040 --> 0:19:32.680 So if you go reading about this, you'll read about 0:19:32.680 --> 0:19:35.400 the three color urn and then the two urn experiment. 0:19:35.440 --> 0:19:38.720 The second illustration used two eurns instead of one, because 0:19:38.720 --> 0:19:42.000 it made the contradiction between the different bets even clearer. 0:19:42.840 --> 0:19:47.760 And this contradictory self contradictory behavior is now called the 0:19:47.880 --> 0:19:51.679 Elsberg paradox. Elsberg himself didn't call it that, that's what 0:19:51.840 --> 0:19:56.119 other people they put his name on it. Anyway, Elsberg's 0:19:56.119 --> 0:20:01.520 paper about ambiguity aversion was not just about observing a 0:20:01.560 --> 0:20:05.760 weird little quirk of human behavior. It was especially of 0:20:05.800 --> 0:20:10.600 interest to the fields of economics and decision theory modeling 0:20:10.640 --> 0:20:14.919 how people make decisions, because it sought to undermine some 0:20:15.000 --> 0:20:20.720 of the major underpinnings of the fields, specifically providing evidence 0:20:20.800 --> 0:20:24.800 against some of the tenets of a framework called subjective 0:20:24.960 --> 0:20:29.359 expected utility theory or savage as axioms, named after the 0:20:29.400 --> 0:20:35.640 American mathematician Leonard Savage who formulated them. Subjective expected utility 0:20:35.680 --> 0:20:39.520 theory or SEU theory is a way of modeling how 0:20:39.720 --> 0:20:45.840 people make decisions when we don't have perfect or complete information, which, 0:20:45.880 --> 0:20:48.800 of course in life we rarely do. Right, So, you 0:20:48.840 --> 0:20:50.959 know this is going to be relevant in understanding how 0:20:51.000 --> 0:20:55.240 people behave in most real world situations. Most situations in 0:20:55.280 --> 0:20:57.879 life are not a casino table game where you have 0:20:58.040 --> 0:20:59.520 no odds of winning. 0:21:00.400 --> 0:21:02.600 Or you know, or you know, you can easily imagine 0:21:02.600 --> 0:21:05.280 to a situation where you're playing some sort of a game, 0:21:05.359 --> 0:21:07.520 be it a tabletop role playing game or some sort 0:21:07.520 --> 0:21:10.000 of like, you know, video game, and you're given a 0:21:10.080 --> 0:21:13.399 choice between two items for your character. Right, you have 0:21:13.440 --> 0:21:15.600 the stats of those items right there. Yeah, you know 0:21:15.640 --> 0:21:17.720 what kind of enemies you go up against in the game. 0:21:17.760 --> 0:21:20.399 Maybe you've played through the game before. You have something 0:21:20.440 --> 0:21:25.440 at least approaching perfect knowledge of the simplified world, and 0:21:25.640 --> 0:21:28.399 our real world is not so simplified and there's so 0:21:28.440 --> 0:21:29.480 many variables to it. 0:21:29.640 --> 0:21:32.640 That's exactly right. So the real world, we're constantly dealing 0:21:32.720 --> 0:21:36.199 with uncertainty ambiguous situations where we don't have all the 0:21:36.240 --> 0:21:39.280 information to judge what outcomes are most likely, and yet 0:21:39.320 --> 0:21:42.760 somehow we navigate this world making decisions all the time. 0:21:43.520 --> 0:21:47.040 The question being addressed here is how do people make 0:21:47.160 --> 0:21:50.560 those decisions when they don't actually know what the relative 0:21:50.680 --> 0:21:55.680 likelihood of different outcomes are. Subjective expected utility theory has 0:21:55.720 --> 0:21:59.080 several rules, but a simplified version is that it says, 0:22:00.000 --> 0:22:03.840 and then when people don't know the objective likelihood of 0:22:03.880 --> 0:22:08.760 an outcome, they form beliefs about how likely that outcome is, 0:22:09.280 --> 0:22:12.720 and then they act consistently with those beliefs in order 0:22:12.760 --> 0:22:17.080 to maximize their personal benefit. I came across a passage 0:22:17.119 --> 0:22:20.480 by the American economist Frank Knight which I think summarizes 0:22:20.480 --> 0:22:24.719 this idea well. Night writes, quote, we must observe at 0:22:24.760 --> 0:22:27.760 the outset that when an individual instance i e. A 0:22:27.840 --> 0:22:31.680 one time event only is at issue, there is no 0:22:31.760 --> 0:22:36.360 difference for conduct between a measurable risk and an unmeasurable uncertainty. 0:22:36.800 --> 0:22:40.200 The individual, as already observed, throws his estimate of the 0:22:40.320 --> 0:22:43.760 value of an opinion into the probability form of a 0:22:44.000 --> 0:22:48.240 successes in B trials a slash B being a proper fraction, 0:22:48.720 --> 0:22:53.240 and feels toward it as toward any other probability situation. 0:22:53.880 --> 0:22:57.880 So we essentially we form a belief for a feeling 0:22:58.160 --> 0:23:01.560 about how likely something is, and then we act as 0:23:01.560 --> 0:23:04.160 if that was like you know that we know the 0:23:04.200 --> 0:23:06.720 odds of a coin flip coming up heads are one 0:23:06.760 --> 0:23:09.400 in two, whether or not we're actually right about those 0:23:09.400 --> 0:23:14.960