This 'fix' for economic theory changes everything from gambles to Ponzi schemes

8 months ago
Anonymous $4bURcB5AtU


According to author Ole Peters (London Mathematical Laboratory, Santa Fe Institute), people's real-world behavior often "deviates starkly" from what standard economic theory would recommend. Take the example of a simple coin toss: Most people would not gamble on a repeated coin toss where a heads would increase their net worth by 50%, but a tails would decrease it by 40%.

"Would you accept the gamble and risk losing at the toss of a coin 40% of your house, car and life savings?" Peters asks, echoing a similar objection raised by Nicholas Bernoulli in 1713.