Comment by thegrimmest
2 years ago
> that the typical person is dumb
The typical person is typical, and from the perspective of an atypically smart person that's dumb(er). I'm not saying I am such a person, only that they inevitably exist.
> is that the typical person receives a poor education
Uneducated, unsophisticated, and dumb are interchangeable for the purposes of this argument. People should navigate the world on their own merits, not have the state intervene on their behalf. That's the point of a free market and society.
Whether or not you're of "above average intelligence", if you use your credit card like a bank account, you deserve every bit of "wealth transfer" to people who know better that entails.
Understanding the difference between borrowing and earning doesn't require any sophisticated mathematics. Neither does understanding compounding interest payments. The only skill required is basic arithmetic. I don't see why folks feel the need to defend plainly bad decisions made by others, or advocate that they be protected from the full extent of their obvious consequences.
If you’re not saying that you’re an atypically smart person, then how would you know what such a person would think about this?
Understanding modern finance at any level of sophistication sufficient to even speculate about the incentives and constraints and therefore the implied utility payoff structure for anyone requires a great deal more than simple arithmetic: even your example of calculating compound interest in the most charitable interpretation of how you could have meant that, which is a stationary risk-free return discounting a zero-coupon bond with neither default nor prepayment risk (because now we’re into IO and PO strips and that’s a TED talk all by itself) is a differential equation.
Its big brother, the Black-Scholes-Merton equation, is wildly more complicated under any faux-realistic “risk neutral expectation”: that’s Ito calculus. And it’s all but useless (arguably worse than useless in times of significant pressure in repo markets among other stresses): it’s basically a security blanket that Mandelbrot had demolished conclusively in the 1970s, it was all but conclusively discredited in “interesting times” in markets the moment it was posed. And we can do VAR, and all that, I’ll make time for this.
> what such a person would think about this?
I'm sure opinions of people in any category vary widely. I'm simply pointing out that the curse of knowledge/competence exists. If you're an unusually capable anything, the average person will be incapable by comparison.
None of the deep understanding of finance you're postulating is required to make decisions adequate to avoid being taken advantage of by a credit card. Pay your bill every month in full and you'll be a net beneficiary.
Trying to optimize your investment strategy is a full time profession. Simple, functional, strategies are readily available for unsophisticated (but not dumb) consumers (eg. buy and hold index funds). Stepping off the beaten path is always done at one's own risk, and over the proverbial corpses of your predecessors who thought they knew better. So much is true in all areas of life.
You've not addressed my main question: Why defend obviously unconsidered, unsound, and plainly bad, decisions made by others?
I have addressed your question: the realities of life in a financially precarious situation have utilitarian payoff structures and attendant mechanism design that consist of a basket of utilities that are often signed if not complex scalars even at course approximation.
A trivial, tinker-toy reductio absurdium is that if someone believes they are likely to die soon (not an uncommon thing for the left behind in the 2020s, my brother drowned himself in a bathtub a few years ago under a level of crushing poverty that I would have subsidized dramatically more had I understood his situation, even being substantially tapped out myself) they have little if any incentive to worry about how a fucking credit card is going to look 20 years down the road.
I speak from a lot of lived experience here: when I got a job in my late teens sufficient to arbitrary calories, I gained 30 pounds. I was 150 at 6’4” prior.
I speak from experience on education: I have what rounds to none, and somehow discuss the nuances of complex derivatives pricing, which is tangential at best to my core expertise.
I’ve addressed your argument: you can’t easily dollarize all of the externalities, and even if you could, compound interest remains a differential equation.
I’ll kindly thank you to address the substantial points regarding mechanism design, semistable Nash equilibria, the role of open market operations in wage manipulation, the recurring socialization of losses and privatization of profits via a long discredited notion that anything in finance is long or even medium-run Gaussian distributed that I’ve raised before saying the word “dumb” again?
I’d really appreciate it.
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