February 2, 2006--I'll Take the $1,000
It takes five machines five minutes to make five widgets. How long would it take for 100 machines to make 100 widgets?
If this kind of question makes you crazy, then you are like me. When I saw it the other day in the NY Times (link below), I flashed back to that time when I took the SATs and how I got a migraine the night before and the kind of stomach the next morning that caused me to spend more time in the Boys Room than filling in my answers with a Number 2 pencil.
The widget question was imbedded in an article about the economics of risk taking. About differences in individual’s willingness to defer an immediate, certain benefit in the hope that being patient might bring them a higher yield. The kicker—a potential higher yield that is considerably less certain, riskier.
Would you, for example, rather have $1,000 for certain or a 90 percent chance of getting $5,000? What about a 75 percent chance at that $5,000? Get the picture?
Economists who fret about these matters are called “decision researchers,” and they don’t all work for Las Vegas casinos. They do their research both out of curiosity (that is at the essence of all good research) but also at the behest of the insurance and investment industries, both of which are every much in the risk-reward business as those running Crap Tables.
Here are some of the things they have been finding—those who do well on questions such as the one I posed actually like taking risks more than being certain about outcomes. And at the risk of being politically incorrect, there are apparently also gendered differences—for example, 80 percent of high scoring men would chose a 15 percent chance of getting $1.0 million over a sure $500, compared with 38 percent of high-scoring women. Maybe that’s why one finds so many more women playing the slots and so many men going broke betting $50 a hand at Blackjack.
OK, let’s see how you did with the widget question—I of course did as miserably with it as I did on the SATs. I came up with the answer that it would take the hundred machines one minute to make the 100 widgets. I assume you got the right answer—five minutes. And I also assume that you went to a better college than I.
Look for me next time you’re in Atlantic City—I’m the guy at the nickel slots.
If this kind of question makes you crazy, then you are like me. When I saw it the other day in the NY Times (link below), I flashed back to that time when I took the SATs and how I got a migraine the night before and the kind of stomach the next morning that caused me to spend more time in the Boys Room than filling in my answers with a Number 2 pencil.
The widget question was imbedded in an article about the economics of risk taking. About differences in individual’s willingness to defer an immediate, certain benefit in the hope that being patient might bring them a higher yield. The kicker—a potential higher yield that is considerably less certain, riskier.
Would you, for example, rather have $1,000 for certain or a 90 percent chance of getting $5,000? What about a 75 percent chance at that $5,000? Get the picture?
Economists who fret about these matters are called “decision researchers,” and they don’t all work for Las Vegas casinos. They do their research both out of curiosity (that is at the essence of all good research) but also at the behest of the insurance and investment industries, both of which are every much in the risk-reward business as those running Crap Tables.
Here are some of the things they have been finding—those who do well on questions such as the one I posed actually like taking risks more than being certain about outcomes. And at the risk of being politically incorrect, there are apparently also gendered differences—for example, 80 percent of high scoring men would chose a 15 percent chance of getting $1.0 million over a sure $500, compared with 38 percent of high-scoring women. Maybe that’s why one finds so many more women playing the slots and so many men going broke betting $50 a hand at Blackjack.
OK, let’s see how you did with the widget question—I of course did as miserably with it as I did on the SATs. I came up with the answer that it would take the hundred machines one minute to make the 100 widgets. I assume you got the right answer—five minutes. And I also assume that you went to a better college than I.
Look for me next time you’re in Atlantic City—I’m the guy at the nickel slots.
posted by Steven Zwerling at
2:19 PM
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