Wednesday, January 19, 2011

Education is bad for you!

John Quinn pointed me to a blog post by Jason Collins about the effect of mathematical education on risk tolerance. Collins was musing about the consequences of a psychology paper from 2008 that demonstrated how one's innate concept of the number line shifts from a logarithmic scale to a linear scale as one is educated in mathematics. They went further, and conducted the same tests with people from Amazonia who had little contact with the outside world - sure enough, adults there also used a logarithmic scale for their concept of number.
Collin's contribution was to connect this to the use of logarithmic utility as a mechanism to model risk aversion in economics - the tendency to avoid a gamble even if the expected outcome is the same. If learning math makes you think linearly, maybe it also reduces risk avoidance! At least if you regularly make decisions by mapping out risk curves ...

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