psycho-statistical theory of gambling (let's play money making game!)

[inhumandecency]

Another aspect of Kingdom of Loathing I find interesting is the Money Making Game (the name is a shout-out to the original Legend of Zelda, which most players are probably too young to remember... o_O). A player publicly posts a wager of any amount, another player takes it, and the game randomly decides who wins. The winner gets all the meat (money

Comments

[cherdt]

I had no idea that strategy had a name (the Martingale strategy)! I used to play a game on some TAG BBSes in the late 80s that included a casino with 50-50 odds, no cut for the house, and no limits. It didn't take long to realize that unlimited money awaited anyone with patience.

[motive_nuance]

The name I for this idea that I'm familar with is 'the St. Petersburg paradox'.

[inhumandecency]

Thanks! That helps make the point more precisely, and it certainly makes the reducto ad absurdum more clear.

[the_macnab]

In welfare economics, many models only produce a unique equilibrium if you stipulate an average level of relative risk aversion (RRA) in a population, for the reasons discussed in the article on the St. Petersburg paradox. Thus there is often a discussion accompanying the model explication about what the results would look like if, say, the average person was risk-seeking versus risk-averse.

Right now one professor whom I work for has me taking apart the model of the welfare state that Torben Iversen sketched out in his 2005 book Capitalism, Democracy and Welfare. Iversen has a lot of models of the demand for social insurance (i.e., welfare-state things like unemployment compensation and old-age and disability pensions) that only have closed-form solutions under certain assumptions about RRA. It comes up all the damned time

[inhumandecency]

I can't believe I didn't know about the quantitative treatment of RRA before. Thanks for pointing this out.