After my first lecture, Binmore offered a version of the “low stakes” critique. He said that if he were running a supermarket, he would want to consult my research because, for inexpensive purchases, the things I studied might possibly matter. But if he were running an automobile dealership, my research would be of little relevance. At high stakes people would get stuff right.
The next day I presented what I now call the “Binmore continuum” in his honor. I wrote a list of products on the blackboard that varied from left to right based on frequency of purchase. On the left I started with cafeteria lunch (daily), then milk and bread (twice a week), and so forth up to sweaters, cars, and homes, career choices, and spouses (no more than two or three per lifetime for most of us). Notice the trend. We do small stuff often enough to learn to get it right, but when it comes to choosing a home, a mortgage , or a job, we don’t get much practise or opportunities to learn. And when it comes to saving for retirement, barring reincarnations we do that exactly once. So Binmore had it backward. Because learning takes practice, we are more likely to get things right at small stakes than at large stakes. This means critics have to decide which argument they want to apply. If learning is crucial, then as the stakes go up, decision-making quality is likely to go down.