23 January 2007

You, the Oracle

Bryan Caplan presents the following hypothetical dialog:

"I'm sure that a Democrat will win in 2008."

"Sure? OK, let's bet at 100:1."

"Umm, no thanks. But I'll do it for even odds."

Basically the question is why, if we are so sure of ourselves and our opinions, do we act as if we are something less than certain. Bryan has 4 reasons, but his and my favorite is,
A bet instantly raises the marginal private cost of error, which leads to a sharp increase in rationality. Faced with financial consequences, people suddenly - if temporarily - admit to themselves that they know a lot less than they like to believe - and bet accordingly.

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