Real-world examples of money-pumping?

[joke]
Toll roads. People pay to drive along them in one direction, and then pay again to drive the other way, back to where they came from!
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Casinos. The habitual gambler would prefer to have money than not, and would prefer to take the negative-value bet than not.

Not what you're looking for, but:

I didn't know him very well personally, but there was somebody in my circle of acquaintances who I heard was in the habit of doing things like buying a new gaming console and then realizing that he didn't have the money to pay his rent because of that. Then he'd sell it to someone for substantially less than the original price, so that he'd get at least some money quickly. Then he'd repeat essentially the same process a few months later.

Apparently his "friends" liked him because they'd get cheap stuff from him. I imagine that he would have been very easy to provoke into buying something (and thus selling it off later), but if anybody I knew was doing that intentionally, they never admitted it to me.

Some of these examples are not examples of "money pumping" but of something called "trade," or possibly even "arbitrage." Arbitrage is not quite the same as money pumping.

Money pumping isn't easy to find because people don't value consistency very highly and will change behavior in iterative games. It's difficult to precompute transitive preferences, but easy to change on the fly if burned.

And another one: If money-pumping is successful enough, the victim goes broke, and no more money pumping. Eventually all potential victims go broke or wise up.

It probably happens more often when the different stages of the pump are in different units. Fictional example: the archetypal Russian swindler used to sell the sandwiches his schoolmates freely shared with him back to them when they were hungry. Both legs of the transaction appear beneficial to the victim: feel-good sharing + hunger-quenching buy-back.

I have a hypothesis: being offered a bet that looks pumpable is generally sufficient evidence that the bet is losing, and the few people who still bet do so due to extraneous beliefs (e.g. a belief they are slightly psychic or can otherwise influence the chances; one can imagine a quantum and anthropic reasoning - confused person believe that by expecting very hard the future where he wins or committing to spending more time sleeping if he loses he can affect his subjective probability. One could also deduce the workings of PRNG in the slot machine, and then win, or lose if they're wrong about the PRNG. One could believe their subconscious can deduce PRNG, then be unlucky to confirm this at some confidence level).

I understand that many people with a regular monthly salary take very-high-interest paycheck loans, every month, over long periods of time.

I.e., they are not just desperate a few times and showing a strong time preference. Rather, every month for decades, they timeshift their salary back two weeks with paycheck loans. They should scrimp a little for a few months, and just shift consumption forward two weeks, but over decades, they never do that.

So, looking at this in the steady state, they can't even be said to have a high discount rate.

And what about people who buy a lottery ticket or gamble repeatedly; and when they win, re-gamble their winnings.

Then, when every last cent
Of their money was spent
The Fix-It-Up Chappie packed up.
And he went.
And he laughed as he drove
In his car up the beach,
“They never will learn. No.
You can’t Teach a Sneetch!”

- The Sneetches by Dr. Seuss.

Nick Beckstead has this to say in his dissertation on decision theory and x-risk:

we never hear about people who get money pumped. Why? One possibility is that people never get offered these trades that would trigger money pumps. A more plausible answer is that people do not act on their preferences in the inexible way this argument assumes. When they get into a situation where they see that their preferences would lead them to get money pumped, they either change their preferences or refuse to continue to act on some of those preferences. Because of this, money pump arguments do not illustrate a practical danger for humans. It is plausible that having preferences which would be theoretically susceptible to a money pump displays a failure of perfect rationality, but, once again, that a certain approach is imperfect does not imply that an improved approach is meaningfully available.

In Australia, a mandatory 9% of your salary is paid into a super-annuation account. This money represents a loan from you to a financial institution, for which they pay you an interest rate X% per annum, once management fees etc are accounted for.

At the same time, almost all Australians take out a large loan from one of the same handful of financial institutions, with a term of much of their working life, for an interest rate of Y% per annum, and invariably Y > X. The only advantage of this arrangement to an individual is that superannuation savings are protected even in the case of bankruptcy, so the risk is attenuated. I don't know the percentage of Australians who go bankrupt, but I suspect it's quite small (we have no medical bankruptcies).

It's also fairly common for people to carry both a credit card balance at high interest, and a savings account at low interest.

I suggest that savings feel safer than debts feel risky, creating the circularity to be pumped.

a tangled hierarchy of preferences, and exploitation of that tangled hierarchy by an agent who cyclically trades the objects in that hierarchy, generating trade surplus on each transaction.

I used to be a used and rare bookseller. I knew what was desired and who desired it. Knowing one or both of those things I could go into one bookstore, buy a book at the price that store set, then sell it at another bookstore at a profit. I could even sell a book for credit, get a book and sell it at a third store for more profit. When I added the resources of the Internet I did even better. Then thousands of other booksellers added the Internet, then millions of casual book sellers, and I got out of the trade. There has never in human history been a better time to buy books. Not so much for the selling.

Back when I was playing Everquest, at the point where my character gained the dual wielding ability, I got my hands on a so-so second weapon, but I decided I wanted a better one, so I set out on a trading expedition to get one.

I traded away my secondary weapon, along with some money, in a chain of deals, intending each one to bring me closer to my intended goal of a better weapon. Sometimes I realized after making a deal that I had lost ground on it, and would try to trade up the chain to gain more value.

Eventually, I realized that I had fallen far enough from my original goal that I traded back for the same weapon I'd started with, leaving me with considerably less money than I'd had to begin with.

I think life insurance could be one of these examples. I heard that when people buy life insurance, they typically cancel it a few years later. And then they buy a new one, more expensive than the previous one, because they are older.

Then there are "financial advisors" who advise people to cancel all their existing insurance and buy new ones. I don't know how often people are willing to go through that cycle, though.

I suspect the cycles of the directed cyclic graph take a bit longer to run through than an obvious and quick cycle as this seems to imply.

I have a vague hypothesis that the cyclic nature of human preferences is something evolution hit upon to keep us working, working, working on enhancing our descendants' chances - that that's what the money pump actually is. Remember that a common failure mode in real-world AIs is them getting stuck. So if this is the case, then something won't capture human value until it captures the cyclic, pumpable nature of it. This has obvious and annoying implications for coherently extrapolating it, of course.

Do payday loans qualify as intransitive preference money pumps? I think some use cases might qualify under 7-time preference and discounting; there exists a time preference for each use case such that the use case is rational, but I don't think every embodied use case has an embodied time preference.

Fashion. Every time someone updates their wardrobe to stay in style, they are happy they're doing it. And it's not uncommon for some styles to come back into fashion years later.

Here's a version of hypothesis #3 that sounds plausible to me: Humans have a preference for being consistent, and for other people to be so as well. If someone points out their inconsistency they often get upset, or try to rationalize it away. Many times a person caught being inconsistent will change their behavior to avoid future embarrassment. A common way to stir up anger against politicians is to point out times when they have behaved inconsistently.

Now, the obvious armchair ev-psych explanation for this consistency preference evolving is that consistent people are more predictable and stable, and hence make better allies and trade partners. But it occurs to me that this preference for being consistent in one's behavior, especially in front of others, might also serve to protect us from money pumps to some extent.

On one occasion, gamblers in Las Vegas played these kinds of bets for real money, using a roulette wheel. And afterward, one of the researchers tried to explain the problem with the incoherence between their pricing and their choices. From the transcript:

Experimenter: Well, how about the bid for Bet A? Do you have any further feelings about it now that you know you are choosing one but bidding more for the other one?

Subject: It's kind of strange, but no, I don't have any feelings at all whatsoever really about it. It's just one of those things. It shows my reasoning process isn't so good, but, other than that, I... no qualms.

...

E: Can I persuade you that it is an irrational pattern?

S: No, I don't think you probably could, but you could try.

...

E: Well, now let me suggest what has been called a money-pump game and try this out on you and see how you like it. If you think Bet A is worth 550 points [points were converted to dollars after the game, though not on a one-to-one basis] then you ought to be willing to give me 550 points if I give you the bet...

...

E: So you have Bet A, and I say, "Oh, you'd rather have Bet B wouldn't you?"

...

S: I'm losing money.

E: I'll buy Bet B from you. I'll be generous; I'll pay you more than 400 points. I'll pay you 401 points. Are you willing to sell me Bet B for 401 points?

S: Well, certainly.

...

E: I'm now ahead 149 points.

S: That's good reasoning on my part. (laughs) How many times are we going to go through this?

...

E: Well, I think I've pushed you as far as I know how to push you short of actually insulting you.

S: That's right.

-Zut Allais

Financial arbitrage is nothing but this, essentially...

a combination of 2 and 3 seems most plausible to me. If the loop gets at all obvious people will become indignant and this will change their preferences.

Those who know, won't tell. They just do it. Trevor_Blake told us now, when it is all over.