gilbert

1. How To Do Exactly the Right
Thing at All Possible Times
or
The Idea That Changed the World

2. E(u | p, X) = x X p(x)u(x)

3. Expected Value =
(Odds of Gain) X (Value of Gain)
E(u | p, X) = x X p(x)u(x)

4. 1/2 X $10
If it comes up heads I’ll
give you $10. Should you
pay $4 to play?
= $5
Expected Value =
(Odds of Gain) X (Value of Gain)

5. Errors in Odds Errors in Value
Expected Value =
(Odds of Gain) X (Value of Gain)

6. Expected Value =
(Odds of Gain) X (Value of Gain)
Errors in Value
Errors in Odds
Errors in Odds

7. Are there more dogs or pigs on
leashes in Oxford?
Errors in Odds

8. _ _ R _ R _ _ _
BARE, FORT, PARK...
Are there more 4-letter English
words with R in the 3rd or 1st place?
Errors in Odds
Errors in Odds
RING, RANG, RUNG...

9. Cause Estimate Actual
Tornado 564 90
Fireworks 160 6
Asthma 506 1886
Drowning 1684 7380
Per 200 million US residents per year
Errors in Odds
Errors in Odds

10. Cause Estimate Actual
Tornado 564 90
Fireworks 160 6
Asthma 506 1886
Drowning 1684 7380
Per 200 million US residents per year
Errors in Odds
Errors in Odds
>
>
>
>

11. Errors in Odds
Errors in Odds

12. Errors in Odds
Errors in Odds

13. Errors in Odds
Errors in Odds

14. Errors in Odds
Errors in Odds

15. Errors in Odds
Errors in Odds
• 10 tickets
• $1 to play
• $20 if you win

16. Errors in Odds
Errors in Odds
1/10 X $20 = $2

17. Errors in Odds
Errors in Odds
1/10 X $20 = $2

18. Expected Value =
(Odds of Gain) X (Value of Gain)
Errors in Odds Errors in Value
Errors in Value
Is this Big Mac
worth $25?

19. Errors in Value: Comparing with the Past
COMPARING WITH
the Past instead of the Possible

20. $60K
in Year 1
$50K
in Year 2
$40K
in Year 3
$35K
in Year 1
$45K
in Year 2
$55K
in Year 3
Errors in Value: Comparing with the Past

21. A $2000 Hawaiian vacation
package is on sale for $1600.
Would you buy it?
Errors in Value: Comparing with the Past

22. A $2000 Hawaiian vacation
package is on sale for $700.
You think it over for a week,
and by the time you get to the
ticket agency, the best fares
are gone and the package will
now cost you $1500. Would
you buy it?
Errors in Value: Comparing with the Past

23. $2000 $1600
Errors in Value: Comparing with the Past
$2000 $700 $1500

24. You are on your way to the
theatre. In your wallet you
have a ticket for which you
paid $20, and a $20 bill. When
you arrive at the theatre you
discover that you’ve somehow
lost the ticket.
Would you spend your
remaining $20 on a ticket?
Errors in Value: Comparing with the Past

25. You are on your way to the
theatre. In your wallet you
have two $20 bills. When you
arrive at the theatre you
discover that you’ve somehow
lost one of the bills.
Would you spend your
remaining $20 on a ticket?
Errors in Value: Comparing with the Past

26. The Lost Money
The Lost Ticket
Errors in Value: Comparing with the Past

27. Errors in Value
COMPARING WITH
the Possible instead of the Past
COMPARING WITH
the Past instead of the Possible

28. Errors in Value: Comparing with the Possible

29. $8.00 $27.00 $33.00
Errors in Value: Comparing with the Possible

30. $8.00 $27.00 $33.00 $51.00
Errors in Value: Comparing with the Possible

31. Errors in Value: Comparing with the Possible
1
2
3
4
5
6
7
Prediction Experience
Chocolate
Spam
Liking of
Chips

32. You want to buy a car stereo. The dealer near your house sells it for
$200, but if you drive across town, you can get it for $100. Would
you drive to get 50% off (saving $100)?
Errors in Value: Comparing with the Possible

33. You want to buy a car with a stereo. The dealer near your house
sells it for $31,000, but if you drive across town, you can get it for
$30,900. Would you drive to get .003% off (saving $100)?
Errors in Value: Comparing with the Possible

34. Errors in Value: Comparing with the Possible

35. A B C D
Errors in Value: Comparing with the Possible

36. TODAY TOMORROW NEXT WEEK NEXT YEAR
Errors in Value: Comparing with the Possible

37. $60
NOW
$50
NOW
Errors in Value: Comparing with the Possible
OR
Problem #1

38. • More is better than less
Errors in Value: Comparing with the Possible
$60
NOW
$50
NOW
Problem #1

39. $60
NOW
Errors in Value: Comparing with the Possible
OR
Problem #2
$60
In 1
month

40. $60
NOW
Errors in Value: Comparing with the Possible
• Now is better than later
Problem #2
$60
In 1
month

41. $50
NOW
Errors in Value: Comparing with the Possible
Now is better
than later
More is better
than less
OR
BUT
Problem #3
$60
In 1
month

42. $50
NOW
Impatience
Errors in Value: Comparing with the Possible
Now is better
than later
More is better
than less
Problem #3
$60
In 1
month

43. $50
NOW
Impatience
Errors in Value: Comparing with the Possible
Now is better
than later
More is better
than less
OR
$50
In 12
months
$60
In 13
months
$60
In 1
month

44. $50
NOW
$50
In 12
months
$60
In 13
months
Impatience
Patience
Errors in Value: Comparing with the Possible
Now is better
than later
More is better
than less
$60
In 1
month

45. $60
$60
$60
$60
$60
$50
$50
$50
$50 $50
NOW 1 MONTH 12 MONTHS 13 MONTHS
SUBJECTIVE
VALUE
30 Days 30 Days
Errors in Value: Comparing with the Possible
Impatience
Patience

46. Errors in Value: Comparing with the Possible

47. Illusions of Spatial Perspective
Errors in Value: Comparing with the Possible
1 ft 21 ft 2000 ft 2021 ft
As seen from 

48. Illusions of Spatial Perspective
Errors in Value: Comparing with the Possible
1 ft 21 ft 2000 ft 2021 ft
20 Feet 20 Feet
As seen from 

49. $60
$60
$60
$60
$60
$50
$50
$50
$50
$50
NOW 1 MONTH 12 MONTHS 13 MONTHS 2O YEARS
SUBJECTIVE
VALUE
Illusions of Temporal Perspective
Errors in Value: Comparing with the Possible
As
seen 
from

50. $60
$60
$60
$60
$60
$50
$50
$50
$50 $50
NOW 1 MONTH 12 MONTHS 13 MONTHS
SUBJECTIVE
VALUE
Illusions of Temporal Perspective
30 Days 30 Days
Errors in Value: Comparing with the Possible
As
seen 
from

51. If we’re so stupid, then how did
we get to the moon?
Conclusion