Risk Aversion, EV (verneer)
Posted by Bond18 on Sunday, June 28th 2009
During my stay in Vegas, Vanessa and I watched Cash Cab and these guys ended up taking over $2,000 during their ride. They decided to go for the video bonus and double up. Vanessa said she would always go for the video bonus but I wouldn't. This started a discussion about money, risk, EV, and such.
Me: "So if I give you $2000 and offer you a 55/45 flip in your favor, you take it, right?"
V: "Oh hell yeah."
Me: "What about if I offer you $1,000,000 and a 55/45 flip in your favor? Do you take it?"
V: "That's a lot closer because $1,000,000 is enough to change your life whereas $2,000 isn't. Also, the amount that $1,000,000 can change my life vs. what I have now is much greater than the amount $2,000,000 will have if I already had $1,000,000."
So then I tweaked some of those numbers ... like - would you take a 70/30 on $2,000,000, but after that it was pretty much messing around. [[ This is a content summary only. Visit my website for full links, other content, and more! ]]
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