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Posted on 7/1/16 at 9:22 am to TigerstuckinMS
quote:
Now, you've changed the game. In this example, I have a risk of ruin that has to be factored in. In the prior example, none of the outcomes result in me losing any money.
That is the point. You said expected value is the route to go, but obviously it isn't always the case.
Additionally, you cannot view the coin flip EV in a vacuum - you have to consider the "cost" of the $20k guaranteed. In essence the presenter is telling you:
"Here is $20k. Would you like to spend it on a coin flip for $100k?"
Posted on 7/1/16 at 9:22 am to castorinho
quote:
The percentage of people who should flip decreases as the amount of money increases
No, the percentage of people who WOULD flip decreases as the amount of money increases.
The percentage of people who SHOULD flip stays precisely at 100%.
Posted on 7/1/16 at 9:24 am to shel311
quote:
$20k is a hell of a lot of money for some
his argument is that $100k isn't life changing
Posted on 7/1/16 at 9:24 am to castorinho
quote:
The percentage of people who should flip decreases as the amount of money increases
Correct. The valuation of the risk should be linear, but because of proportional valuation it really isn't. One could count on 1 hand folks who would smartly pass on $1 billion for a 50/50 chance at $5 billion, for example. Even though that prices the risk greater than the principal as well - the proportional value is just so much greater that the risk becomes reckless for most people at that point.
I'll walk back a little on Powerman's point. Folks below the poverty line should, perhaps, take the money. I don't think it's going to do them any good, but at least it is guaranteed at the lower valuation. Middle class folks and up should flip for $100k rather than take the $20k. I stand by that.
This post was edited on 7/1/16 at 9:27 am
Posted on 7/1/16 at 9:25 am to SlowFlowPro
quote:quote:
The percentage of people who should flip decreases as the amount of money increases
agreed 100%
Absolutely.
Posted on 7/1/16 at 9:25 am to TigerstuckinMS
quote:ONLY if you're talking about maximizing EV.
The percentage of people who SHOULD flip stays precisely at 100%
Maximizing EV isn't the end game for everyone, so your statement as it stands is not correct.
Posted on 7/1/16 at 9:25 am to SlowFlowPro
quote:Then that person obviously should flip the coin.
his argument is that $100k isn't life changing
Posted on 7/1/16 at 9:28 am to shel311
quote:
Maximizing EV isn't the end game for everyone, so your statement as it stands is not correct.
Once again, emotion and personal situation, feelings, etc. does NOT change the fundamental underlying math that tells you the flip is the best move.
I think a lot of you are missing the point. Just because you say "but, but, but, that's a lot of money and people have to factor that in!" doesn't mean squat. The mathematics say what the mathematics say. If your goal is to do anything other than maximize EV, you're making the poorer choice out of possible outcomes. Making the poorer choice is fine, but that's where you start bringing in risk aversion, emotion, etc., and that is not rational. A rational actor would flip every time because that's what math tells us is the optimal choice.
We all have a point where we'd take the sure thing and run. I'm not arguing against that. I'm arguing that it's never the right choice, as the game is structured, and we'd be making the choice to cut and run based on personal situation, not what the optimal play is.
This post was edited on 7/1/16 at 9:30 am
Posted on 7/1/16 at 9:28 am to shel311
quote:
Then that person obviously should flip the coin.
Right. If you have enough money where 100K isn't life changing to you then you need to flip the coin.
If you have so little that 20K is life changing to you then you probably should think pretty hard about it.
Posted on 7/1/16 at 9:28 am to Powerman
quote:
Wrong. Most people are financially strapped. The 20K is a guarantee to improve their life situation.
Is it really a guarantee to improve their life though? For some, that might be just a drop in the bucket of their debt. For others, that's just $20K more to make bad decisions with. Like I said earlier, that's a lot of hookers and cocaine.
Posted on 7/1/16 at 9:29 am to TigerstuckinMS
quote:
If emotion hasn't gotten to me, I do. At that value, I probably let emotion get to me and take the $20M. It still doesn't change the fact that I'd be making the poorer choice.
I don't really think taking the 20M is the poorer choice. It has the lower EV, but the marginal value of each million after 20 isn't near as high as the first few million.
Posted on 7/1/16 at 9:30 am to DrownEmTide
20k would finish off my student loan and all I'd have left is my house note. Give me the 20.
This post was edited on 7/1/16 at 9:31 am
Posted on 7/1/16 at 9:30 am to TigerstuckinMS
quote:Again, maximizing EV isn't the end game, so no, it doesn't make 1 the best move and the other the worst move.
Once again, emotion and personal situation, feelings, etc. does NOT change the fundamental underlying math that tells you the flip is the best move.
quote:Funny, I think your completely missing the point as well.
I think a lot of you are missing the point
quote:And the point you're missing is that the math isn't the end game for everyone, therefore your blanket statement is not correct.
Just because you say "but, but, but, that's a lot of money and people have to factor that in!" doesn't mean squat. The mathematics say what the mathematics say.
quote:That's silly. It's only so based on math, math is obviously not the only factor here.
If your goal is to do anything other than maximize EV, you're making the poorer choice out of possible outcomes
This post was edited on 7/1/16 at 9:32 am
Posted on 7/1/16 at 9:31 am to LSUBoo
quote:
Is it really a guarantee to improve their life though?
Well it's a good opportunity for them to improve their life. Certainly they could make terrible decisions with what to do with the money.
But if you were about to be foreclosed upon or something like that you would definitely take the 20K.
Posted on 7/1/16 at 9:33 am to shel311
quote:
That's silly. It's only so based on math, math is obviously not the only factor here.
Correct
For someone with financial stress it might be worth it to just take the 20K for their own health benefit.
Posted on 7/1/16 at 9:36 am to shel311
quote:
quote:
If your goal is to do anything other than maximize EV, you're making the poorer choice out of possible outcomes
That's silly. It's only so based on math, math is obviously not the only factor here.
Yeah, I misspoke a bit there. There are other factors. What I was getting at was that based on the math that should drive a rational choice, it's the poorer choice. The point is that when we start factoring in things other than the math of the situation, we start to limit how good our outcome can be. At some point, we're all okay with taking a limited outcome over what the math tells us we should be doing.
At some point, we all become comfortable with knowingly making the wrong move. We've made a decision that is not the best logical choice we could make because the outcome of the poorer choice is good enough. Our choice, however, at that point has definitely limited our outcome. Cold logic and rationality would have us always want to attempt to maximize the outcome, but we've all got that point where we'll ignore logic and reason.
This post was edited on 7/1/16 at 9:41 am
Posted on 7/1/16 at 9:39 am to TigerstuckinMS
quote:No.its not like you'll get that opportunity multiple times over the course of your life.
No, the percentage of people who WOULD flip decreases as the amount of money increases.
The percentage of people who SHOULD flip stays precisely at 100%.
If it's so smart, why wouldn't you do it of you were in that scenario. And no, don't BS, no way you're turning down $20M for a chance at $100M unless you're Buffet
Posted on 7/1/16 at 9:41 am to TigerstuckinMS
quote:Right, agreed.
Yeah, I misspoke a bit there. There are other factors. What I was getting at was that based on the math that should drive a rational choice, it's the poorer choice. The point is that when we start factoring in things other than the math of the situation, we start to limit how good our outcome can be. At some point, we're all okay with taking a limited outcome over what the math tells us we should be doing
quote:Probably just arguing semantics and word choice at this point, but if I made it $20billion and $100billion, I do think taking $20billion is absolutely the smart and logical choice. It's just not the correct choice by the math.
It still doesn't mean that it's a smart move. We've made a decision that is not the best logical choice we could make because the poorer choice is good enough.
Posted on 7/1/16 at 9:43 am to castorinho
quote:
If it's so smart, why wouldn't you do it of you were in that scenario. And no, don't BS, no way you're turning down $20M for a chance at $100M unless you're Buffet
I'm pretty sure I've said elsewhere that I'd ignore reason and logic and take the money and run at $20M.
Just because I freely admit I'd act against logic and reason in that situation doesn't make the choice to take the money the logical or rational choice.
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