toosigma

There once was a boy who went to a great casino. The boy was very, very smart, and quickly created a system where he could make a good living playing the casino games. He played for many days, accumulating a small fortune in winnings, until, one day, his luck ran out and his system proved fatally flawed, and he lost his entire fortune.

This might have been the end of the story, but the boy had a wealthy uncle. With tears in his eyes, he begged his generous uncle for a loan to cover his losses, and allow him to continue making money. The uncle, not wanting his nephew to suffer, happily gave him enough money to cover his losses.

So the boy went back to the casino, and, rather than pay the casino with his savings, he paid them with his uncle’s money. He happily resumed playing his system, this time correcting the tiny flaw. He did so well, and earned so much money that his brother and sister begged him to share his secret. He did so eagerly, and all three quickly applied the system to earn large fortunes. Unfortunately, there was still a hidden flaw in the boy’s system, and they each lost everything when it was finally revealed.

As would be expected, rather than learn from his failure, the boy and his siblings went again to their rich uncle, and he again generously gave them enough money to cover their losses. Realizing that, despite his serious setbacks, he was still quite wealthy, and that his rich generous uncle would continue to cover his losses, the boy decided to change his strategy. Why take carefully considered risks for relatively small gains, when he could take huge risks and greatly increase his profits?

So he and his siblings threw caution to the wind, and pursued a far more aggressive strategy - one that gained them phenomenal wealth, to the degree that many thousands of people came to watch them play, and imitate their system. Others loaned their entire life savings to the boy in the hopes of making a vast fortune. The siblings, as always, happily squirreled away their winnings - and, inevitably, the system eventually failed, and everyone involved lost huge sums.

The siblings of course, ran off to their rich uncle, and once again, he granted them enough money to cover their losses.

There are several possible morals to this story. The first, and most obvious, is that it’s good to have rich uncle who can be counted on to bail you out. Another would be - never trust anyone with a sure-fire get-rich system, unless you’re certain you have the whole system. My personal preference, though, is: if you’re a rich uncle, quit giving your wastrel gambling nieces and nephews money to blow, no matter how much you want them to be happy.

For those who don’t recognize the analogy, see if the boy’s name of Wall Street and the rich Uncle Sam don’t clarify things a bit.

Consider that everyone always complains about government “pork” and all other types of special interests (e.g. tax loopholes, bailouts). The only people who think that all special interests are good are lobbyists - the folks paid to promote special interests. So if nearly everyone thinks that special interests are bad, and we live in a democracy where a simple majority can make them illegal, why do they exist?

The Actors:

Honorable Johnathon J. Smith - Senator (R) of Somewhere
Alexander T. Conqueror - CEO of Uberbusiness Inc.
Joe Random Taxpaxer - and his ~300 million cohorts

The Story

Alex wants to make money. He figures one way to make more money would be to reduce his costs - so he comes up with a tax break idea that will save him $1 million every year. He presents his idea to John, who, being an old frat-buddy, decides to go for it, if Alex will give him $100,000 for his campaign re-election fund. Alex, not one to miss an opportunity for a $900,000 profit, agrees, and John pushes the tax cut onto some big budget bill that is almost guaranteed to pass. After all, $1 million is virtually nothing to the federal government. (By comparison, would you, gentle reader, deign to pick up a penny when you have more than $10,000 in your pocket?).

Now, while $1 million is chump change to the USA, that money has to come from somewhere - namely, good old Joe Random Taxpayer. Unfortunately, because it’s chump to the federal government, it’s also pretty much chump change to Joe. A $1 million expense, spread evenly across the roughly 300 million citizens of the US means only a third of a penny to each of them. It’s really hard to make someone angry over the theft of a third of a penny, even if it is still theft. Heck, the average couch steals more than that.

The Recap

John walks away with $100,000 and some nicely increased job security.
Alex walks away with $900,000/year.
Joe loses $0.003

What makes things even harder is that folks like Alex and John aren’t the only recipients of special interest payoffs. On the contrary, just about everyone is the beneficiary of some special interest payoff - whether they know it or not. The folks that do know, know it very well - to the point that you’d have to pry the payoffs out of their cold, dead hands.

The key problem, however, is that no one realizes just how many special interests projects there are. If there were roughly 1000 projects like the one described above, the average taxpayer pays a few dollars a year, the US as a whole pays a billion, and roughly 2000 folks (0.0006% of the population) get a big payoff. If there are a million projects, the taxpayer pays a few thousand a year, the US as a whole pays a trillion, and roughly 2 million folks (0.6% of the population) get a payoff. Still seems pretty unfair, right?

Let’s make a change to the story, switching John from R to D - and instead of giving the payoff to Alex, he’s going to pay $1000 each to people living below the poverty line. John doesn’t get a big cash payoff, but still gets increased job security from 1000 very happy voters. In this case, a million such projects still costs the taxpayer a few thousand, the US as a whole a trillion, and roughly one billion people get $1000. If we assume that the money gets assigned to the poorest folks first, then basically everyone is paying a few thousand dollars to pay everyone else (including themselves) a few thousand dollars. This is a great way to evenly redistribute wealth - the people with lots of money now have less, while the people with little or no money now have more. This certainly seems more “fair” - right? I disagree for two reasons: transaction costs, and efficient resource allocation.

Transaction Costs

In order to transfer $3000 from every taxpayer (assuming they’re all equal) to every taxpayer - the government is going to create a massive bureaucracy to do so. They have to collect the money, process it, count it, and then redistribute it - all of which costs money, which ultimately comes from the taxpayer. Basically, in the ideal situation of perfectly equal taxpayers, each taxpayer would pay $3000 to get $2700 back. Where does the other $300 go? To the folks running the government - so this still isn’t “fair.”

Efficient Resource Allocation

The Liberals in the audience will immediately shout that our current situation is far from the ideal, and thus this system is still fair. I tend to counter with the story of Aesop’s Ant and Grasshopper. The reason our situation is not ideal is that some people do more useful work and provide more net benefit to society than others - those people tend to accumulate more wealth, making society economically unequal. Capitalism, in the absence of any market failures, can be mathematically proven to yield the most efficient and fair allocation of scarce resources. Is it “fair” to take money from those who provide the most benefit, and give it (without requirement) to those who provide the least?

Before the Conservatives applaud too heavily - I do think it is fair, to a point. The problem is not with Capitalism - it’s the assumption of no market failures. Our world is rife with them - many exacerbated by the very special interests programs described above. There’s also the fact that luck plays a huge, mostly ignored, role in who strikes it rich. Moreso than any lottery, the vagaries of birth, prior wealth, and being in the right place at the right time with the right idea is possibly the biggest factor that impacts whether someone gains wealth. Furthermore, it’s positive feedback cycle - having wealth (based on luck) makes it significantly easier to acquire more wealth. Having wealth (and thus power) tends to corrupt - leading some of those with wealth to take unfair advantage of those without. Any of these factors makes at least some transfer of wealth seem a net benefit to society.

There are two possible purposes of government in a capitalist society:

1. To address the potential failures of the capitalist system
2. To enrich certain citizens at the expense of other citizens

If you cannot demonstrate in detail and with extensive supporting evidence how your proposal fulfills #1, then I deem it to fall under #2, and thus be an evil that must be expunged.

I’ll admit that there is some visceral appeal to the idea of winning hundreds of millions of dollars - and not everyone will be able to resist. While the optimal strategy is not to play, you can’t win if you don’t play, so let’s determine the optimal strategy for playing.

For the typical lottery, you can almost guarantee that the game will be “rigged” against you - just like Game #3 - so we’ll take that as a given. The naive assumption is that buying a second ticket will double your chances of winning, and each subsequent ticket likewise increases your chances - which it does. The key point to notice is how the game works when fully staffed with players - my per-game profit goes from $0.50 to $10 - and that profit comes directly from the players. Buying up all the tickets guarantees that you’ll win the payoff - but it also guarantees that you’ll end up losing $10. Each additional ticket you purchase reduces your expected payoff - so the ideal strategy (assuming you must play) is to only purchase one ticket per round.

If your goal in playing the lottery (or any sort of gambling game where the odds are known) is to make money, you will be a long-run loser. You may be one of the lucky few who wins early, but statistically, you’re far more likely be a loser. The morale of this story is to realize that organized gambling is not about making money - but rather entertainment. Taking risks and playing games is enjoyable - you get lots of happy chemicals pumping through your brain. Understanding how to maximize the payoff (in happiness) while minimizing the cost (in money) is the point of this section.

Take the example above where you buy up all the tickets in a given round. You’re guaranteed a win (which eliminates the feeling of risk) and you are guaranteed to pay $10 for that win. You’re paying $10 for a zero-risk, one 36-second period of entertainment. If you instead take that same $20 (that you used to buy all the tickets in round #1) and use it to play the game through twenty rounds - there is a small (vanishingly so) chance you’ll walk away with $180, but a much higher chance you’ll end up with the same $10 loss, and a small (but not insignificant) chance you’ll lose $20. Statistically, your outcome is identical - you’re paying $10 for a high-risk, 12-minute period of entertainment. Play an average of two tickets a round - you’ll still end up paying $10 on average, but for only 6 minutes, with a maximum payoff of only $80.

I personally will never be able to play a gambling game with standardized odds - I don’t understand the appeal of proving to the dealer (or croupier, or whoever) that I’m bad at math. For a game to appeal to me - the odds must be inscrutable or at least intractable, there must be an element of skill or choice with multiple optimal strategies, and above all, it must offer a better monetary value than $60/hour.

Consider a game: I setup the cost, conditions of winning, and the payoff. You have a choice of whether to play or not.

Game #1: The cost to play is $1. The payoff is $10. You have a 50% chance of winning - basically a coin toss. Heads you win, tails you lose.
Analysis: This is a great deal for you, and you’d be a fool not to play as often as you can. If the coin comes up heads, you walk away with $9 ($10 minus the entry cost), while if the coin comes up tails, you’re only out $1. To use a term from probability, you can expect to win $5 ( = 50% * $10 ) every time you play, minus the cost of playing ($1) gives you a long-run average chance of walking away with $4 for every time you play. Of course, by the same token, this is a TERRIBLE game for me to offer - for precisely the same reasons, assuming I have to put up the $10 payoff, and I’m likely to lose $4 every time you play. I’d have to be insane (or just really generous) to let you play even once.

Game #2: The cost to play is $1. The payoff is $10. You have a 10% chance of winning. (Rolling a 10 on a d10)
Analysis: This is a break-even deal. You can expect to win $1 ( = 10% * $10 ) every time you play, which perfectly offsets the cost you’re paying to play. You may get lucky and win on your first play (walking away with $9), but if you keep playing long enough, you’re going to walk away with exactly what you came in with. From my perspective, this is an okay game to offer, since I too break even - you’re not likely to take any of my money. Alternatively, I could offer the game to 10 different people at the same time (or just let you play all 10 spots), and thus avoid putting any of my own money on the table. In the long run, however, this is still not a good deal for me, because I’m spending all my time running this game for you and the other gamblers without anything to show for it.

Game #3: The cost to play is $1. The payoff is $10. You have a 5% chance of winning. (Rolling a 20 on a d20)
Analysis: This isn’t a great deal for you to play. You can only expect to win $0.50 ( = 5% * $10 ) every time you play, which means you’re losing $0.50 every time. Again, you may get lucky on that first run, but if you play long enough, you’re going to lose $0.50 for every time you play. From my perspective, this game is finally starting to make sense. I’m going to make $0.50 any time someone chooses to play. Assuming I can run this game for just you 100 times an hour, I’ll make a respectable $50/hour. Assuming I can find enough takers, I can even avoid risking my own money and increase my profit - I just need 20 people to play on each iteration. Each pays me a dollar (total $20) minus the payout to the single winner ($10) gives me $10 profit. Running this version 100 times an hour yields me a hefty $1000/hour salary.

The question you should always ask yourself before playing any game of chance has nothing to do with the cost, the payoff, or the odds of winning. Ask instead - which of these three types of games is the guy running things going to offer?

(originally part of an email discussion on Jealousy with my friend Josh)

Chemical Bond idea

I had an intriguing idea for an analogy - that of chemical bonds. Most chemical bonds are covalent - resulting from a sharing of electrons between two atoms. In my view, people are like atoms of different materials, and the chemical bonds they form are like relationships. For example, I am like Hydrogen - I have a spare electron I’m willing to share, but I don’t always find someone to share it with, and am thus content to hang around in my unbonded state. Some girls are also like Hydrogen - they too have a spare electron, and they are quite happy to pair up and share the two and form a nice H2 molecule. Other girls are like Fluorine - they’re missing an electron, and are quite desperate to steal one from anywhere they can - especially a nice happy Hydrogen like me. Still others are a little less demanding (like Chlorine or Bromine). Some folks are like Oxygen - they need two spare electrons to be happy, and thus need either a very giving/compatible guy/girl (like Calcium or Magnesium) or they’ll prefer to keep two relationships going at the same time (like H2O). Still others are more like Carbon - they’ve got four electrons to share, and need four more to be totally happy - resulting in some potential unusual combinations (e.g. all of organic chemistry or the polyamory movement). My point - if I have one - is that I know I’m a Hydrogen, and I’m quite happy with a single covalent bond (or nothing at all), but I don’t feel it’s my place to decide what sort of bond my partner prefers. Furthermore, I could argue that I’m a lot like interstellar hydrogen - I’m out on my own most of the time, and while I occasionally look on with envy at all those “normal” hydrogens living it up in stars (bonding, unbonding, rebonding, and even fusing), I don’t often run into potential bonding partners, and I’m okay with that.

Of course it’s possible I’m more like Helium - in that I don’t really form bonds with others - which leads us to…

Attachment Disorder

Given that I’m incapable of assuming that I’m right, I decided to do some more research into monogamy, pair-bonding, and the psychology and biology of relationships. While I was already largely familiar with most of it, the topic of Attachment Theory was relatively unfamiliar. In reading further, it appears (to me at least) that I may have an insecure attachment disorder, which undoubtedly contributes to my unconventional opinions on relationships. In terms of self diagnosis, I’d hazard a guess that I’m 70% likely to have Dismissive-Avoidant Attachment Style, 20% likely to have Secure Attachment Style, and roughly 5% each for either Anxious-Preoccupied or Fearful-Avoidant style. Given that I’m roughly 80% likely to have some sort of disorder, and that addressing that disorder might make me significantly happier in my future relationships, I should probably address it. Unfortunately, I’m not sure that’s terribly likely, for a two reasons:

First, my world view and sense of self is largely divorced from the reliance on emotion to make decisions. There are a large number of decisions to be made, and I’ve found that relying on emotion or intuition typically result in poor decision-making, while supplanting those emotions with a logical substitute based on principle and information tends to yield a much more satisfactory result. I must admit that it’s possible that this decision making policy has reduced my overall happiness, because I tend to suppress my “gut” reactions (which, if followed, might lead to increased happiness), and many of my principles are not necessarily chosen based on my own happiness - e.g. I tend more toward a utilitarianism than ethical egoism - though I also subscribe to Kant’s Arete, and I still wrestle with Hume’s Is-Ought disapproval of normative ethics - all great topics to read up on, but it’ll definitely fuck with your head) This suppression of emotion may (probably?) lead to some forms of psychological damage, but I’ve tried releasing myself from logical rigor from time to time, and each time it tends to turn out badly. My rejection of emotion has also led to a feeling of distance or separation from other people - I can readily witness the level of emotion and affection between others, but I don’t feel it within myself. It’s possible that this emotional dearth is the result of my choice of logic - but it’s also possible that I chose logic as a means of replacing a broken emotional system. As far back as I can recall, I’ve never had what I would consider “normal” (i.e. similar to those other people express) emotional reactions. I’ve also always felt more kinship to Spock and Data, or other mentally or emotionally abnormal characters like Dexter and Monk. From my current perspective, relying on a broken system (whether bipolar, schizoid, or sociopathic) seems like a much more dangerous proposition (for myself and others) than relying on my largely functional logical system. (Of course, there’s probably a happy medium between total logic and total emotion - but I’ve never been good at finding happy mediums in my life)

Second, the main reason that I identify with Dismissive-Avoidant style is that I have a strong belief in personal responsibility, self-reliance, and independence. Independence is basically synonymous with freedom/liberty - which is one of my core principles (second only to logic/reason and integrity). I also do not feel comfortable depending on others. From my viewpoint, depending on someone is basically demanding support from them - something which I feel is a violation of their freedom (and thus unacceptable). I am perfectly capable of accepting support freely given, or of asking for support, but demanding it is another story. By reciprocation, I’m perfectly comfortable with other people depending on me - so long as I am capable and willing to provide the support they require. If the required support becomes greater than I am willing to provide, then their depending on me becomes an infringement of my freedom. I believe that support freely given is the best variety and in my ideal utopian world, would be the only kind necessary. Asking for support, while not terrible, still has some potential for infringement on others - mostly because of the variation between “ask cultures” (those in which questions are freely asked, and the respondent can choose to answer yes/no based on his internal preferences) and “yes cultures” (those in which questions typically assume that the respondent will choose “yes”). I am personally “yes culture” conditioned, I prefer not to ask for support unless it is desperately necessary, partly because of my strong belief in self-reliance, and partly because I can’t know how the person I am asking is conditioned. If they are “ask culture” conditioned, they are free to say no, and if they are “yes culture” conditioned, I don’t risk damaging my relationship with them for a trivial (to me) request. I am also highly likely to respond to any request for my support with “yes” for the same reason - a “yes culture” inquirer will be expecting a yes, while an “ask culture” inquirer gives me the opportunity to build my emotional bank account. Only when the request is definitely behind my capacity to give will I say no - usually I’ll give just about anything within reason (where “within reason” is defined in relation to the size of the inquirer’s emotional bank account with me - i.e. the stronger the bond we have, the more I am willing to give)

In a hypothetical case where my needs are unmet, there are three possible courses of action I can take:

1. Seek support from someone else to fulfill the need
2. Find a way to fulfill (or eliminate) the need myself
3. Suffer

My default instinct is to choose #2 in every case, followed by #3 (with the knowledge that the suffering will be attenuated over time). I usually only choose #1 when the suffering becomes unbearable. Needless to say, following this system and coupled with the “that which does not kill you” philosophy, I rarely find it necessary to resort to #1. I also tend to believe that others should default to #2 - though I’m quite willing to let them choose #1 (vs #3) after at least a cursory attempt.

Developing the “emotional bank account” concept further - I think it provides a good mental construct for determining the level of commitment in a given relationship. Making proactive deposits is a great way to make friends - though it requires a default level of implicit trust - I do something “nice” for someone, making them feel better and potentially invoking a little reciprocal altruism. Their return gift increases my level of trust, which encourages me to make further deposits. A good long term relationship consists of very large deposits on the part of both individuals. Being the crazy saver that I am, I strongly prefer keeping my deposits “higher” than those who deposit with me, both because it makes me feel good and because it gives me more security when I have to ask for some desperately needed support. If everyone followed the same philosophy, I contend the world would be a much better place. Of course, there is always a possibility of misunderstanding - i.e. when I try to make a deposit, but actually end up making a withdrawal. Case-in-point would be moving with Stephanie - trying to be helpful in organizing or offering suggestions was instead perceived as decidedly unhelpful to the point of causing emotional distress - something that was entirely my fault, because I don’t know her well enough to know what a good deposit would be.

Need vs. Want - Emotional Baseline

To better understand why I consider monogamy a “want” instead of a “need” - a little linguistic definition seems in order. Both wants and needs are things that provide happiness. Having more “wants” increases your overall happiness, and the same is true of needs. The difference, I believe, is where the emotional baseline is drawn. The emotional baseline is the minimum level of “happiness” - if you are below the baseline, you are unhappy, and if you’re above, you’re happy. You can be way above the line and be very happy, or way below the line and be very unhappy. Based on this definition, I contend that a “need” is something that lives below the line, while a “want” is something that lives above the line. If you are deprived of a need, you immediately fall to a level of unhappiness, and no amount of wants will console you. If you are deprived of a want, you are somewhat less happy than before, but still happy. While there are definitely some needs that everyone has in common (air, water, food, sleep), there is also a large degree of variation. For some people, a relationship is a need - they need a relationship to feel happy. I personally believe that all relationships should be “wants” - they can definitely make you happier, but they should not be required for happiness. By the same token - I consider sexual monogamy by my partner to be a want, not a need.

I also strive to avoid moving the emotional baseline up - i.e. converting “wants” into “needs”. In doing so, I would increase the likelihood that I would be unhappy in the future, since it’s possible for me to lose the newly minted “needs” (say, a nice TV, or a new relationship) and thus become unhappy. I often find myself striving to push the emotional baseline down - i.e. converting “needs” into “wants” - which (theoretically at least) increases the likelihood that I’ll be happy in the future.

Pair Bonding Logic

In doing some more thought on pair-bonding, I came to realize that both time and energy are scare resources. Accepting the premise that devoting time and/or energy to a pair-bond increases the strength of that bond - if you devote all of your time and energy to a single pair-bond with another individual, in theory that bond will be stronger than any combination of pair-bonds you could form with more than one individual. In reality, I think you’ll find that very few people devote all of their time and energy to a pair-bond with another individual - they spend a majority on other personal pursuits (work, play, friendship, etc). I also believe that the premise (that time/energy always increases the strength of a bond) is incorrect - I’m sure you’ve been in relationships where you could spend all the time in the world together and still not be any closer, and there are counter-examples, where spending too much time/energy in a pair bond serves to weaken it (think clingy girls). This all seems to indicate that there is some maximum amount of time/energy you can commit to increasing the strength of a pair bond. Any surplus can be directed towards other pursuits (work/play/friends), including other relationships.

From my utilitarian ethics, I prefer to maximize happiness, including that of people other than myself. The most common thought example I come up with is that I find a great girl, and we are very happy together. Her sex drive is greater than mine - i.e. she wants to have sex more often than I’m willing/able to. I would be perfectly okay with her going out one night a week (maybe more?) to hook up. By my math, the resulting case of “my needs are met, her needs are met, and some lucky schmuck gets laid” entails more happiness than “my needs are met, her needs aren’t met, and some poor shmoe goes home alone to whack off”. In your suggested scenario where my great girl decides to commit to her booty call instead of me, there are two possibilities:

1. She takes into account the knowledge that I’d be less happy without her, but she thinks she’d be happier with the booty call (the increase in her happiness is greater than the decrease in my happiness) - i.e. I’m a little less happy, but she and booty call are both more happy, and thus happiness is maximized
2. She doesn’t take into account my unhappiness - in which case she’s not a worthy relationship partner to me, and I’d be glad she’s gone - i.e. I’m happier, she’s happier, and the booty call is happy - and thus happiness is maximized

It’s definitely a counter-intuitive result - but it makes sense to me. It’s certainly possible that she might have a “grass is greener” effect due to optimism bias or wishful thinking, but if she hasn’t fully eliminated bias from her decision-making, I’ve got status-quo, loss-aversion, endowment, and irrational escalation in my favor.