

The necktie paradox - strategy
http://mindyourdecisions.com/blog/2009/12/15/the-necktie-paradox/

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CWuestefeld
The explanation confuses _Price_ and _Value_. The scenario that's laid out for
us is that initially the men are unsure which tie is more expensive. If
neither of them believes that one tie is more expensive, then neither of them
value their own tie above the other.

Thus, each man has two outcomes: either he will acquire a second tie of the
same value to him, or he will be left with no ties. Ignoring the diminished
marginal utility of the second tie over the first, it really is 50/50 -- but
to an economist, it's not for the reasons explained.

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emmett
No, the reasons explained are perfectly valid.

Another way to think about it is: you are risking losing the more expensive
tie (50%) and your potential gain is a more expensive tie (50%). Those are
obviously of equal and opposite value.

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CWuestefeld
The prices of the ties are irrelevant. The only thing that matters is how much
each party to the transaction _values_ those ties.

Imagine that instead of ties, the other guy has a share of GM stock that he
bought two years ago for $40. And I've got my wedding ring, which cost roughly
the same. By your logic, getting the GM stock would double my aggregate value,
and I should be able to shrug off the loss of my ring.

But in the real world, the GM stock has little to no value (due to its
depreciation), while the ring has huge value to me (sentimental or not, it's
still value).

The same things that make that true, also make things that had widely
differing purchase prices provide equal value (what economists call utility)
to someone.

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roundsquare
Wow, you are really nitpicking here.

For the paradox, its assumed that value = price. Yes, in reality, thats not
true, but thats not the point. If you don't like ties as an example, feel free
to use the original envelope with money or think of some other item where
value = price (or is directly proportional to it). In fact, as long as I can
say each person might value the other person's tie more than his own, the
paradox holds.

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kwamenum86
How is misapplied probability theory a paradox?

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jerf
As much as I hate to wave the dictionary around in a comment, a paradox is an
_apparent_ contradiction that may not actually be one, and usually isn't. You
don't need an _actual_ contradiction to have a "paradox". (I'd argue an
_actual_ contradiction is simply a contradiction and not a paradox at all, but
the dictionary I consulted disagrees.)

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jpwagner
not really a paradox. learn to play poker.

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forinti
If they really enjoy ties or collect them, they would probably be able to tell
if their wives gave them cheap ones. If they don't, their wives probably don't
really love them.

So, given their suspicion, I'd say the most likely outcome is divorce.

