Taking expected utility theory seriously, or, A story about Tyler
In the post immediately below, Tyler writes that Robert Rubin sounds like a brilliant person whom he would like to meet. He especially likes the description of how Rubin thinks probabilistically. Readers may like this story:
I once had to choose between two different career paths and I was torn about what to do. I asked Tyler for his advice and he turned to me and said “calculate the expected utility of both choices.” At first, I was flabbergasted. Was he joking? I’d always thought of expected utility theory as a descriptive theory of how people behave not as a normative theory of how they should behave. Certainly, I’d never tried to use the theory to guide my own choices. Tyler remarked that even most economists don’t take expected utility theory seriously but most people could nevertheless benefit by quantifying their choices. So I took his advice and sat down to think hard about the probabilities and utilities. Surprisingly, I found this very helpful. Once I had some numbers on paper it became clear which was the better choice and I made that choice confidently and without feeling conflicted. As it turned out, the choice was good ex-post as well as ex-ante. Thanks Tyler!
Addendum: As you may recall, I now take sunk costs seriously too.