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How many of you are risk-adverse?
I had a discussion with some friends and couldn't believe their answers to the following question. While I thought the answer was easy, multiple people disagreed with me. What are your thoughts?
Would you choose... 1) $200 guaranteed? 2) 10% chance of getting $2500? |
If the numbers where higher, I bet the answer would change.
Personally, for me, $200 isn't that big of a deal, but $2500 would put a smile on my face. So yeah, I'd probably go with the 10% chance. Now if it were $20,000 vs 10% chance at $250,000, then I'd pick the $20K in a heartbeat. |
Risking nothing gains you nothing.
Betting the farm puts you in hock. To whom is the question. The answer would change if we knew who it was. |
I'm also of the camp that "I could live without the $200 so I'll take the choice with the higher expected value." I assumed everyone had the same rationale as me but this is clearly not the case.
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Clarity is much slipperier as the higher numbers have obscene appeal.
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on the day before payday...I'll take the $200
day after payday...I'll take the risk |
You should change it up. If you don't get the $2500, you still walk away with no less than what you started with. If you have to choose a 10% chance with the added risk of a 90% chance of losing the same amount, that's a real risk.
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I would take $200 because I only have $25 a month, so $200 would be lots of money. The risk to get nothing with a 90% chance is way to high. But I agree with your opinions, it just depends on how much you have anyway. If it was $20 vs 10% chance to get $250 or if I had more money (eg $250 a month) I would take the 10% chance.
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Statistics says take the chance: the "expected value" of the gamble is $250 versus the guaranteed $200. However, I'd still go with the guaranteed money. I'm extraordinarily risk-adverse.
Quasi: Your proposed bet would have an expected value of -$2,000; I don't think anyone would take that bet. |
200 bucks vs. a 90% chance of getting nothing? Give me the 200.
Even if there were only a 30% chance of getting nothing, I'd still go with the sure-thing 200. |
How about if it was 50-50?
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