Examined Rationality

urnsAs illustrated (left), you are faced with three urns, each containing 2000 balls. A has 2 reds and the rest black; B has 20 blues and the rest black; C contains 1 red, 10 blues and the rest black. You may reach into the urn of your choice and remove a ball at random. If you draw red, you get $1000; if you draw blue, you get $100; if you draw black, you get nothing. 

Which urn do you pick and why?

Source: The Big Questions (from a paper by Armen Alchian, with the exercise attributed to Harry Markowitz)  Continue reading

Choice

InvestmentABCs1Calvin Miller says that choice is both the gift and the burden of each day.  In his words, it “dams the future.”  I first heard those words spoken and I assumed I had heard “damns the future,” implying that we make poor choices or are faced with impossible options, “damning” us with dreadful consequences.

How choice can damn the future is illustrated by Sophie’s Choice, a novel by William Styron (and a film by Alan J. Pakula) that considers Sophie Zawistowska, a survivor of Auschwitz whose two children, a daughter and a son, perish there.  Near the end of the book, Sophie reveals that upon entering Auschwitz, she was forced to choose which of her children would continue to live and which would immediately be gassed.  Sophie chose her daughter to die, a decision that would forever haunt and torment her, damning her to ultimate destruction.  A “Sophie’s Choice” is thus now an idiom for the necessity of choosing between two unbearable options.  Our choices can indeed damn us.

But Miller’s point was a more subtle (if less dramatic) one.  Continue reading