Poor People Should Probably Gamble More • Hacker News Board

Re: Poor People Should Probably Gamble More

#51

Post by jrockway » Wed, Oct 13, 2010, 3:24 AM UTC

gojomo wrote: post #49

jrockway wrote: post #29

Earlier quoted context omitted.

As in: seconds before BofA or some other institution is about to pillage someone for $30, the 'angel' swoops in with a just-in-time loan, charging the person (in fees and interest) any amount less than $30 -- and lower with more competition. It's called a credit card or savings account. If you have a credit card, you can't overdraw it. Or you can link your checking account to it, avoiding the "we're loaning you money…

Yes -- that's what someone who's on the ball does, using a short-term/reasonably-priced source of extra funds to avoid late fees. The theory of the 'guardian angel' service is that it handles things even when you forget. It presupposes that there's some way to give the service total visibility into your imminent payment deadlines -- of course right now that doesn't exist, and the businesses that rely on late fees for…

So this service is for someone who can't sign up for a credit card, but can sign up for a service that reads their bank account, anticipates future purchases, and tries to keep the balance up?

Yeah.

But this might be an appropriate area for an industry consortium or even regulation to create a clearinghouse. If you're about to fine someone $X for an amount due up to $Y, you have to broadcast it on some confidential national clearinghouse an hour before assessment, allowing a contracted representative of the target to settle it on their behalf. If you do this, your fine is considered reasonable and customary; if you don't, it's presumed to be trickery and held to a higher standard.

Who pays for this? What's the penalty for "trickery"?

Re: Poor People Should Probably Gamble More

#52

Post by ewjordan » Wed, Oct 13, 2010, 3:31 AM UTC

mattmaroon wrote: post #36

ewjordan wrote: post #14

Earlier quoted context omitted.

1. Money has a declining marginal utility. Winning that $130 isn't nearly as positive as losing it would have been negative. I question this because you're already in the red: do nothing, and you'll be left with $130 in the bank but $250+$100=$350 in liabilities that eventually have to be paid, so you're at -$220 by default (even if you've still got $130 in your pocket, that's not really your money; as I commented el…

No, I'm pretty sure declining marginal utility applies more when you're in debt, not less, because interest rates on loans compound. Someone who owes credit cards $150 is going to be FAR more in debt, as a percentage of earnings, after a year than someone who owes $50.

By that same interest rate argument, the marginal utility of money should increase on both ends the further you get from zero, since interest earned on the money you have compounds, too. That said, the interest rate is much larger when you're in debt than when you have money (actually, in this case that's not 100% true, because DMV suspension fees don't accrue interest, nor do tickets or court costs after the late fees max out, but in general, you're right), so this could be a real concern.

Even in the face of marginal utility differences, though, if you were to accept (unreasonably, of course; thought experiment disclaimer goes here) that you only had the two options given (do nothing and owe another $100 to the state, or take the bet, coming out $130 ahead or $230 behind), would you really suggest that doing nothing is the better option? How good would the odds need to be (and how little variance) for you to take the bet, if so?

If I laid out this payoff structure without placing it in a real world context where there are many other obvious potential solutions, I think you'd probably argue in favor of taking the bet - the expected loss is so much lower that I think it's difficult to make a marginal utility argument against it. I suspect that what's really making you argue against it in this example is that there are so many better ways to deal with the situation in real life that it's hard to even imagine having to make a choice between the two alternatives on the table.

Re: Poor People Should Probably Gamble More

#53

Post by ewjordan » Wed, Oct 13, 2010, 3:45 AM UTC

mattmaroon wrote: post #43

ewjordan wrote: post #31

Earlier quoted context omitted.

Tangent: Not at all. In fact, I wrote this up because of a conversation I had a while back with a man buying a lottery ticket at the gas station. I was talking with him about how bad the odds were, and he fully admitted that he was getting terrible odds on that dollar. But he figured that on the one in a million chance that he hit the jackpot, even if he only saw a quarter of that amount he could actually get out of…

This is exactly why the lottery is called a tax on the poor. For one, it's hard to think about expected value when you can't pay your bills. Also people greatly overestimate their odds of winning big prizes like that. If the odds of winning the lottery were 1 in a million I'd be buying tickets by the truckload.

Fully in agreement here. And actually, I agree with the moral of what you've said almost elsewhere else on this thread; I meant this post to be a bit more tongue-in-cheek than I suspect it came across, I definitely should have made it more clear that I don't really think poor people should be heading to the casino every time they come up short when rent's due. :)

Re: Poor People Should Probably Gamble More

#54

Post by gojomo » Wed, Oct 13, 2010, 8:11 AM UTC

jrockway wrote: post #51

gojomo wrote: post #49

Earlier quoted context omitted.

Yes -- that's what someone who's on the ball does, using a short-term/reasonably-priced source of extra funds to avoid late fees. The theory of the 'guardian angel' service is that it handles things even when you forget. It presupposes that there's some way to give the service total visibility into your imminent payment deadlines -- of course right now that doesn't exist, and the businesses that rely on late fees for…

So this service is for someone who can't sign up for a credit card, but can sign up for a service that reads their bank account, anticipates future purchases, and tries to keep the balance up? Yeah. But this might be an appropriate area for an industry consortium or even regulation to create a clearinghouse. If you're about to fine someone $X for an amount due up to $Y, you have to broadcast it on some confidential n…

The penalty? You're more likely to lose class action lawsuits like the ones that have recently stung some banks, or you're fined by regulators directly.

Compared to electronic stock markets, or check/charge clearing, or even the Twitter firehose, this "identity M is about to be fined $N" live book is pretty simple. The 'angels' or regulators could pay for the system, but those who wish to assess late fines would be responsible for their own prompt reporting.

For example, the law might be: "To charge a late fee that represents an effective interest rate more than 10 times the prime rate, electronic notices of intent-to-charge must be filed both 1 day and 1 hour before assessment, and electronic payment from third parties must be accepted."

Re: Poor People Should Probably Gamble More

#55

Post by mattmaroon » Wed, Oct 13, 2010, 5:44 PM UTC

Dn_Ab wrote: post #47

mattmaroon wrote: post #45

Earlier quoted context omitted.

Actually EV "makes sense" even when applied only once. You should take any positive EV gamble you can at any time you can, and avoid the opposite. Life is a series of one time decisions. You might not get the same exact gamble again, but you'll get many others, and if you keep taking ones with positive expectation you'll end up ahead in the long run.

I see your point. But I would say maximize your utility but even that is questionable. As Daniel Bernoulli (St. Petersburg Paradox) showed, the concept of expected value to the real world is not straightforward. Short of it is: I don't agree. Those other situations are not the same event as this and even often completely unrelated. You cant lump them into the same space and claim positive expectation on their value.

Let me put this another way. If you take every suitable gamble you can, even if they're one time deals, you'll end up further ahead in the long run than the guy who only takes suitable gambles that are repeatable. Thus whether or not the gamble is repeatable should have no bearing on your decision.

(I'm using the term suitable somewhat vaguely here, since even +EV gambles can be bad ideas in the long run due to bankroll considerations. But for what we're talking about, we're assuming all the gambles are the same in all other respects.)