Really, people should pause before calling behavior that does not conform to their model or their own preferences "irrational".
The typical argument goes like "Expected monetary payoff is negative, therefore buying a lottery ticket an irrational decision" -- but this ignores, for example, the possibility of winning a life-changing prize, that would provide enjoyment far above and beyond what e.g. investing money spent on lottery would, and there is no reason why this possibility cannot compensate for the expected loss. Technically speaking, claims of irrationality implicitly rely on assumption of concavity of preferences, but there are good reasons to think that it's not always correct.
Most of the complaints about people playing the lottery being irrational are about people spending huge amounts of money, not about playing the lottery at all.
For instance the recent story of someone dumping their rent check into Powerball.
It's not purely chance how well a company will do.
And if you just consider the statistics I wouldn't have thought that the fraction of companies failing is that extreme for it to be negative in the expectation value (especially if you group it into different categories, etc.). Economically it sounds counter-intuitive to me as well.
Comments
Really, people should pause before calling behavior that does not conform to their model or their own preferences "irrational".
The typical argument goes like "Expected monetary payoff is negative, therefore buying a lottery ticket an irrational decision" -- but this ignores, for example, the possibility of winning a life-changing prize, that would provide enjoyment far above and beyond what e.g. investing money spent on lottery would, and there is no reason why this possibility cannot compensate for the expected loss. Technically speaking, claims of irrationality implicitly rely on assumption of concavity of preferences, but there are good reasons to think that it's not always correct.
Most of the complaints about people playing the lottery being irrational are about people spending huge amounts of money, not about playing the lottery at all.
For instance the recent story of someone dumping their rent check into Powerball.
Isn't the "Expected monetary payoff" of starting a company negative?
It's not purely chance how well a company will do.
And if you just consider the statistics I wouldn't have thought that the fraction of companies failing is that extreme for it to be negative in the expectation value (especially if you group it into different categories, etc.). Economically it sounds counter-intuitive to me as well.