SoAMadDeathWish

Is Using Someone's Reason Against Them Fraud?

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We all know that there are garden-variety evils that simply try to destroy your values (life), i.e. thieves, murderers, etc.

There's also the more "refined" kind of evil which appeals to your irrationality to try to get you to act against your own rational-self interest, i.e. the mystics, con-men, etc. But sooner or later, people catch on to their schemes and then they don't work anymore.

And then there's game theory. Some of these strategies could swindle the scales off a snake, all the while leaving the snake believing that it was acting in its own rational self-interest the whole time.

Here's an example:

Let's say Carl has $20, and wants to make some more. Alice and Bob have more money than he does, so he's gonna try and sell them a product. He goes up to them and says, "I propose an all-pay auction (one where everyone who bids, pays whatever their bid, lose or win). The item on sale is this crisp $20 bill, and the bidding starts at $0."

Alice and Bob think to themselves, "Well why not? If I bid as little as possible, I could get more money than I started with. It's even possible that I could get $19."

Alice: Ok. I bid $1.

Bob: $2.

.....

Alice: $19. I get just $1 if I win, but it's still better than nothing.

Bob: $20. Eh. I get nothing, but at least I'm not gonna lose the $18 I already bid.

Alice: $21. Surely, winning the auction and losing just $1 is better than losing the auction and losing $19.

Bob: $22. Betting more than $20 for $20 might seem crazy, but I have to minimize my losses. Alice probably realizes the same thing and will probably give up soon...

Alice: $23.

...

Eventually, someone decides they've lost enough or they run out of money. Carl has made a profit, and Alice and Bob are left wondering why they just paid more than $20 for just $20.

http://ingrimayne.com/econ/info_risk/NastyAuction.html

So is this fraud? To me, it doesn't seem like it. Alice and Bob were never lied to or misdirected in any way. And they were acting in their rational self-interest every step of the way. But on the other hand, I would really hate to be on the receiving end of this kind of maneuver.

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So is this fraud? To me, it doesn't seem like it. Alice and Bob were never lied to or misdirected in any way. And they were acting in their rational self-interest every step of the way. But on the other hand, I would really hate to be on the receiving end of this kind of maneuver.

No, it is certainly not fraud.

As to being on the receiving end of that kind of maneuver, just say no, and know why.

A...

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No, it is certainly not fraud.

As to being on the receiving end of that kind of maneuver, just say no, and know why.

A...

Here's my issue with that line of reasoning. If it is not fraud, then Alice and Bob were being entirely rational. However, they both agree (and I think we can too as is implied by your second sentence) that if they knew the outcome of the auction beforehand, they would not have agreed to it. Hence, they could not have been acting rationally when they agreed to it.

So either, this is a form of fraud, or else you should agree to participate in this kind of auction.

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I'm sure Greg will say they got what they deserved for trying to get something for nothing. But... the other half of the transaction (Carl) got something for nothing didn't he? Or was his product (value added) simply the lesson he gave... Maybe everyone walked away richer in some way. The Carls of the world: the great teachers.

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What definition of fraud are you using? Legally, it cannot be fraud if no misrepresentation is involved.

Alice and Bob are only irrational if you say they are, as they are your inventions. If they were my inventions, I might say that they were rationally investing their own property in a form of entertainment because they enjoy the thrill of it. Either way, still not fraud.

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Agreed with all responses. Entertainment, free choice to refuse, a 'lesson' in reality. Taken further, how about casinos?

Your knowledge going in is that casinos steadily make profits and are out to make profits. Does a gambler really believe he can beat the odds in the long run? Not fraudulent though, legally.

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As long as their is no deceit and no fraud, there is no ethical problem.

Even in an honest world, let the buyer beware.

Ba'al Chatzaf

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As some of you have said, I don't think that Carl did anything fraudulent, in the technical sense. However, I disagree that Alice and Bob's choice to participate was rational because they were entertained.

First of all, they were not entertained. I'd say they were the exact opposite of entertained. We may have been entertained, Carl may have been very very entertained, but Alice and Bob certainly weren't.

Secondly, they were not expecting to purchase entertainment in any case. They were expecting to buy money. If they knew that they were going to be "entertained" they may have considered the price too high, which would mean that Carl's plan would fail. Think about it this way. Who would go to a store where every item was some unknown price that you couldn't know until you agreed to buy the item? No one, obviously.

As for gambling, gambling is irrational. If you are a rational person, then you would know you can't beat the odds in a casino. If you did have fun there, you could have just as much fun burning your own money at home. Gambling works because people think (irrationally) that they are "lucky", and thus form the inaccurate expectation of winning.

As long as their is no deceit and no fraud, there is no ethical problem.

Even in an honest world, let the buyer beware.

Ba'al Chatzaf

This is kind of the issue I wanna address. It seems like there is an ethical problem, even though no force of fraud was used. What this scenario shows is that there is some third category of misdeed, previously unidentified.

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From: "WILLIAM DWYER" <WSDWYER@prodigy.net>

To: <Atlantis@wetheliving.com>

Subject: ATL: Re: Roll Call (i.e., definition of force)

Date: Wed, 2 May 2001 09:32:38 -0700

Joe Duarte asked,

[D]oes anyone have a good definition of force? The non-initiation of force principle is key to the objectivist ethics and politics. I'd like to know exactly what we mean by force. I heard that Kelley defined it in one of his works - does anyone know which one? I can't find it.

Joe, I don't know about Kelley's definition, but "force" in a libertarian / Objectivist context refers to the negation of a person's will or choice; it means compulsion. In this sense, two people engaged in the sport of boxing or wrestling are not using "force" against either; since their participation is voluntary.

The ~initiation~ of force, for an Objectivist or a libertarian, is gaining a value from its owner without his or her consent, which is why fraud is a form of force. Thus, the initiation of force presupposes the concept of property rights, which is a point that Kelley has made. For example, if I physically remove you from a particular place against your will, I have used "force" against you. But I have not ~initiated~ force against you if the place is my property and you are occupying it against my will. Thus, in order to determine whether or not an act of force qualifies as the ~initiation~ of force, one needs to have a prior understanding of the property relations obtaining between the two parties involved in its exercise.

For whatever it's worth, Peikoff defines "physical force" as "coercion exercised by ~physical~ agency, [e.g.,] by punching a man in the face, incarcerating him, shooting him, or seizing his property." So what, then, do we mean by "coercion"? My dictionary defines "coerce" as "to restrain or dominate by nullifying individual will," which comports with my earlier definition of "force". Peikoff also defines the ~initiation~ of physical force as "~starting~ the use of force against an innocent individual(s), one who has not himself started its use against others." [OPAR, 310]

My dictionary also lists several synonyms of "force" and makes some interesting distinctions, e.g., "compel, coerce, constrain..." "Coerce comes closest to what Objectivism means by "physical force". Accordingly, "coerce suggests overcoming resistance or unwillingness by actual or threatened violence or pressure."

I hope this helps. It is the best I could do off the top.

Bill

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I'm not sure what there is to discuss about your hypothetical if your hypothetical people can be only what you say they are. But whatever. The fact remains that what you described does not fit a legal definition of fraud. It doesn't fit an objectivist definition of fraud, either.

Gambling is only irrational if one can't afford the losses and/or one doesn't gain any value whatsoever from the experience. If one is incapable of assessing one's own financial risk, incapable of acting wisely upon that risk, doesn't know what one values, or doesn't act upon those values, then that is one's own fault.

The third category of misdeed you seem to be suggesting are those that one commits against oneself. I nor you are obligated to protect others from themselves. We are, in fact, obligated to leave them the hell alone.

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How about insider trading, Eva?

From: Allen Weingarten <allen23@optonline.net>

To: OWL <Objectivism@wetheliving.com>

Subject: OWL: Insider Trading

Date: Fri, 06 Jun 2003 10:31:22 -0400

The fundamental question about insider trading is what is wrong with it. When investors find an area that they deem promising, they ought to take advantage of that information. The sooner they act on it, the more advantageous it is for the economy. Insider trading compensates entrepreneurs for their activities and for the risk taken. Nor is there any obligation to inform competitors of what they know. (Their acting on that information informs the public that they believe an area is promising.) It might also be noted that useful information is necessarily insider in nature. That is precisely the information that business should act upon.

The arguments against it appear to stem from envy and resentment of the wealthy, coupled with the desire for the government to intervene in the economy. That is why the law has been framed in so vague a manner, that one cannot determine what will be prosecuted, and what will be disregarded.

If we prosecute people for having advantages that others do not share, we might as well prosecute them for intelligence, beauty, and wit. Is someone victimized, if another wins the mate he sought, by dint of superior qualities? (Walter Williams laments the loss for all of those women who cannot have his services, because his wife unfairly took him out of circulation.)

Weingarten

From: Paul Hibbert <phibbert@comcast.net>

To: "objectivism@wetheliving.com" <objectivism@wetheliving.com>

Subject: OWL: Re: Insider Trading

Date: Tue, 10 Jun 2003 17:42:16 -0600

Michael M wrote Mon 06/09/2003 in reply to me:

"Caveat emptor."

to my statement:

"Without insider trading regulations CEOs, for instance, could make negative statements about their company, dump their stock, make positive announcements and buy it back, ad infinitum."

Really! The situation is exactly the same as a lawyer who is supposed to represent you and turns out to be representing your opponent. When your lawyer betrays you are you going to say, "caveat emptor"?

The officers of the company are paid to represent the stockholders. When they act for their own interest instead they are betraying the trust you, as a stockholder, put in them. Whether they do the insider trading for themselves or give privileged information to their friends is irrelevant.

Someone else brought up the question of finding information dropped by someone on the street. Would it be legal or moral to trade on that information? Certainly, but you don't know if it is legitimate or if it is planted by a manipulator spreading false news. In this case I would say, "caveat emptor".

I have observed that the Mises daily email (I am a long time reader) and many Objectivists try to validate every rich person who runs afoul of the law independent of the facts. This is as objectionable as a liberal who tries to condemn every capitalist as a greedy pig.

This discussion is getting absurd and this is my last posting on the subject.

Paul Hibbert

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The third category of misdeed you seem to be suggesting are those that one commits against oneself. I nor you are obligated to protect others from themselves. We are, in fact, obligated to leave them the hell alone.

No, I'm saying that I think Carl was the one doing something wrong, but that he did so without using force or fraud.

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And when you get tired of fraud consider this dilemma from Steve Reed and Bill Dwyer from years ago:

There is a nuclear bomb hidden in Los Angeles. It is set to go off in 30 minutes. Homeland Security has captured Eva, and she knows where it is. Her fingerprints are on an extortion letter. To find out, are they (morally) allowed to torture her? By not revealing its location, Eva becomes an accessory to the murder of thousands. Do you think she has an obligation to reveal its location, and if she doesn't, is she initiating force? And if so, do other Americans (Homeland Security) have the right to defend ourselves by forcing her to reveal its location?

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SoAMadDeathWish over generalized when she stated that:

...gambling is irrational. If you are a rational person, then you would know you can't beat the odds in a casino. If you did have fun there, you could have just as much fun burning your own money at home. Gambling works because people think (irrationally) that they are "lucky", and thus form the inaccurate expectation of winning.


Gambling is only irrational if one can't afford the losses and/or one doesn't gain any value whatsoever from the experience. If one is incapable of assessing one's own financial risk, incapable of acting wisely upon that risk, doesn't know what one values, or doesn't act upon those values, then that is one's own fault.

The third category of misdeed you seem to be suggesting are those that one commits against oneself. I nor you are obligated to protect others from themselves. We are, in fact, obligated to leave them the hell alone.

Hard hearted Deanna "the vamp of Louisiana!"

Of course you are correct about our obligation to leave folks the hell alone.

As to gambling being irrational, I disagree. Certain types of gambling can be irrational when you know that the game is rigged.

Anyone ever been to a county fair? You walk down the arcade area with all the carnies making their pitches...

Win that pretty girl on yer are that big stuffed bear...just knock down those fiver (5) milk bottles with these three balls...that's two bottle with each ball...step right up...

1. The Milk Bottle Pyramid

Knock them all over and win a prize, promises the barker. The reality: Bottom pins can be filled with lead, making them as heavy as 10 pounds each. The softballs you throw may be filled with cork to make them lighter than regulation balls. And the bottles may be stacked against a backdrop curtain that helps prevent them from falling.

Here are some more from the same article...http://www.aarp.org/money/scams-fraud/info-07-2012/rigged-carnival-games.html

This article has some nice videos that explain how these gambling cons are run at county fairs...http://www.wisebread.com/carnival-of-scams-top-4-fairground-cons

As a final note to Michael's dollhead's incorrect generalization about all gambling being irrational.

This statement is just wrong. If I play someone in a chess game for money, and I know that I am a much better player, it is not gambling because there is absolutely no luck in chess, or, checkers, for example.

A...

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The third category of misdeed you seem to be suggesting are those that one commits against oneself. I nor you are obligated to protect others from themselves. We are, in fact, obligated to leave them the hell alone.

No, I'm saying that I think Carl was the one doing something wrong, but that he did so without using force or fraud.

Yes, I completely understand that is what you think. I phrased my comment in the way that I did because what you think amounts to you suggesting that people need to be protected from themselves. In the rest of my comment which you clipped out, I listed the errors that one might make in regards to gambling. Those are all the same errors that Bob and Alice made. Again, neither you nor I are obligated to protect the Bobs and Alices of the world from themselves.

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Certain types of gambling can be irrational when you know that the game is rigged.

I concede. See, I'm not so hard-hearted, after all.

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"The only moral crime that one man can commit against another is the attempt to create, by his words or actions, an impression of the contradictory, the impossible, the irrational, and thus shake the concept of rationality in his victim."[Rand, unknown source]

May help here.

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Yes, I completely understand that is what you think. I phrased my comment in the way that I did because what you think amounts to you suggesting that people need to be protected from themselves. In the rest of my comment which you clipped out, I listed the errors that one might make in regards to gambling. Those are all the same errors that Bob and Alice made. Again, neither you nor I are obligated to protect the Bobs and Alices of the world from themselves.

See, again, I think, we have a miscommunication.

For some reason, you continue to believe that Alice and Bob were the ones that were making some sort of error. While it is true that they failed to predict the outcome of the auction and that they would not have chosen to participate if they had, it is not reasonable to suppose that they could have predicted it, given the information available to them. We can only blame them with the benefit of hindsight.

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Yes, I completely understand that is what you think. I phrased my comment in the way that I did because what you think amounts to you suggesting that people need to be protected from themselves. In the rest of my comment which you clipped out, I listed the errors that one might make in regards to gambling. Those are all the same errors that Bob and Alice made. Again, neither you nor I are obligated to protect the Bobs and Alices of the world from themselves.

See, again, I think, we have a miscommunication.

For some reason, you continue to believe that Alice and Bob were the ones that were making some sort of error. While it is true that they failed to predict the outcome of the auction and that they would not have chosen to participate if they had, it is not reasonable to suppose that they could have predicted it, given the information available to them. We can only blame them with the benefit of hindsight.

No.

Rational thought would have led them to potential outcomes of the auction paradigm.

You import "rational" into their behavior when you desire too.

I beleve that Deanna was quite clear several times.

Your selective distortion to fit your "story" appears to be the problem to this outside observer.

A,...

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No.

Rational thought would have led them to potential outcomes of the auction paradigm.

You import "rational" into their behavior when you desire too.

I beleve tha Deanna was quite clear several times.

Your selective distortion to fir your "story" appears to be the problem to this outside observer.

A,...

Rational thought does not mean being able to predict every outcome, and in this case (as it is often the case) predicting the outcome with certainty is impossible.

Neither Bob nor Alice can know when the other will choose to drop out of the auction. If they had such information, only then would it be possible for them to evaluate whether the game is worth playing or not. For example, if Alice knew that Bob was not willing to spend more than $10, she could easily win the auction by bidding just $11. If she knew he could spend $20 or more, then she would simply choose not to play as she couldn't win any money anyway. But the fact of the matter is that they don't have that information. And every step of the way it is rational for them to escalate.

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They obviously did not predict the outcome though it was predictable. Therefore they did benefit from the experience and are better off because of it. Better a few bucks than a worse outcome from a similar situation with more dire consequences. We only learn from our mistakes. Not that I'm any admirer of Carl...

An analogy: Our immune system only works if it is stimulated by small insults at a young age. If you were exposed to no foreign objects as a child, your first exposure would kill you.

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Take your knocks, in effect. But anticipate the worst that can happen.

"Fraud" in Objectivism relates only to promises involving goods and services btw.

I was taken by a mail order con a few months ago. My risk, I knew the camera and lens was priced too temptingly low...now, no camera, money lost.

Still hurts though.

:smile:

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Yes, I completely understand that is what you think. I phrased my comment in the way that I did because what you think amounts to you suggesting that people need to be protected from themselves. In the rest of my comment which you clipped out, I listed the errors that one might make in regards to gambling. Those are all the same errors that Bob and Alice made. Again, neither you nor I are obligated to protect the Bobs and Alices of the world from themselves.

See, again, I think, we have a miscommunication.

For some reason, you continue to believe that Alice and Bob were the ones that were making some sort of error. While it is true that they failed to predict the outcome of the auction and that they would not have chosen to participate if they had, it is not reasonable to suppose that they could have predicted it, given the information available to them. We can only blame them with the benefit of hindsight.

Why isn't it reasonable to suppose that they could have predicted it? My 9-year-old son could have predicted it, and he's only just now learning long division. If a third grader's basic math skills could work that out, I don't see why I couldn't expect the same of Bob and Alice. I think you don't give poor Bob and Alice nearly enough credit for being thinking folks.

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Deanna's Hypothetical Bob and Alice

{Carl gives his spiel yada yada yada.}

Alice: Hey, Carl, how much money are you willing to blow on this?

Bob: Oh, I don't know. 20 bucks?

Alice: Yeah, me too. That's $40 between us. Let's go to Mardi Gras!

Carl: Can I come?

Sorry, Naomi, I'm over medicated today due to a severe sinus infection, and it really is Mardi Gras in my neck of the woods, so I'm both medicated and tipsy. I apologize for poking fun.

Thing is, you are buying into the notion that people should be treated as beings that require protection both from things that they cannot predict and from things that they can predict but don't. Objectivism treats people as 1) beings that are entirely capable of protecting themselves, and 2) beings that can survive (learn, recover, thrive) even when they have failed to protect themselves.

For the sake of argument, go ahead and tell us what specifically it is that you think Carl has done wrong and what you would suggest to do about it.

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Why isn't it reasonable to suppose that they could have predicted it? My 9-year-old son could have predicted it, and he's only just now learning long division. If a third grader's basic math skills could work that out, I don't see why I couldn't expect the same of Bob and Alice. I think you don't give poor Bob and Alice nearly enough credit for being thinking folks.

I explained why in my response to selene. But I'll explain why in more detail here:

At the beginning of the auction, Alice bids $1, because she thinks that there is a 50% chance that Bob will drop out and she will get $19. There is also a 50% chance that Bob will bid $2 and win the auction, in which case she loses $1. Her expected gains for bidding on the first round is 0.5*19 - 0.5*1 = $9, while her expected gains for not bidding at all is $0. Thus, she should bid $1 on the first round. Similarly for Bob. Since Alice has already bid $1, he needs to bid $2 to win. If he does, his expected gains are 0.5*18 - 0.5*2 = $8, which is more than if he doesn't, i.e. $0.

This goes on and on until the bid is at $10. At this point, Alice reasons, well if Bob bids more than $10, then his expected gains would be negative, so he won't bid more than $10, and Alice can certainly win the auction by betting $11 and getting $9. Bob, of course, is thinking the same thing and so he tries to bet more than $10.

Once the bid reaches $20, the same reasoning applies as in the first paragraph, except in this case each player is trying to minimize his losses. But by that point, Carl has already won.

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