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<div>> From: abd@lomaxdesign.com<br>
> At 11:28 AM 11/1/2006, raphfrk@netscape.net wrote:<br>
> >51% chance of gett<span class="correction" id="">ing</span> $200<br>
> >100% chance of gett<span class="correction" id="">ing</span> $100<br>
><br>
> That depends on unstated conditions. However, the second choice must be <span class="correction" id="">consid</span><br>
<span class="correction" id="">ered</span> the baseline, since it is 100%. It is as if we start with $100. Shall we be<br>
t it with an expected average return of $102?<br>
><br>
> How often can we place this bet? How deep are our pockets? How much can we <span class="correction" id="">aff</span><br>
<span class="correction" id="">ord</span> to lose?<br>
<br>
There is 1 election every 4 years :).<br>
<br>
Though, the value is probably more than $100.<br>
<br>
Anyway, I was talk<span class="correction" id="">ing</span> about risk aversion.<br>
In that case, the bet would be a once off yes/no th<span class="correction" id="">ing</span>.<br>
<br>
People do value a known outcome over an outcome that has risk,<br>
even if the risk gives higher expected value.<br>
<br>
This is why insurance companies exist. People pay say 1%<br>
of the value of a th<span class="correction" id="">ing</span> in order to insure against a risk<br>
that is say 1 in 200 of happen<span class="correction" id="">ing</span>. The expected benefit of<br>
the insurance is less than the cost, but it is still worth<br>
gett<span class="correction" id="">ing</span>.<br>
<br>
> If we make this bet a thousand times a day, it is highly likely that we are go<br>
<span class="correction" id="">ing</span> to make a daily profit somewhere in the range of $2,000 per day.<br>
<br>
Right, the more times you make the bet the<br>
less effective risk. This is how stock portfolios<br>
work.<br>
<br>
> If los<span class="correction" id="">ing</span> $100 would be more than mildly painful, or the average cost of <span class="correction" id="">placi</span><br>
<span class="correction" id="">ng</span> the bet would be significant, I'd do this as often as I could, except see <span class="correction" id="">bel</span><br>
ow.<br>
><br>
<br>
Correct, if the loss is minimal, then most people are<br>
risk neutral, you might as well follow the expected<br>
outcome.<br>
<br>
> This is with a constant bet. Doubl<span class="correction" id="">ing</span> the bet each time is practically suicide<br>
.<br>
<br>
Right. The optimal is to increase the bet as you get more<br>
money. In the 5% gain example, it works out at around 2.5%<br>
of what you have to risk. Anymore and the chances of<br>
go<span class="correction" id="">ing</span> bankrupt are <span class="correction" id="">alot</span> higher.<br>
<br>
> Now, would I actually do it? Probably not. In real life, most of the only situ<br>
<span class="correction" id="">ations</span> w<span class="correction" id="">hi</span>ch have such accurately determined, predictable rates of return are ar<br>
<span class="correction" id="">tificially</span> created. Gambl<span class="correction" id="">ing</span>. And I *am* a Muslim, and gambl<span class="correction" id="">ing</span> is forbidden. In<br>
<span class="correction" id="">vestment</span>, tak<span class="correction" id="">ing</span> risk, is not.<br>
<br>
True, but you can still have an estimate, but not<br>
with mathematical precision. However, it does<br>
result in general recommend<span class="correction" id="">ations</span> like spread<span class="correction" id="">ing</span> <br>
out your risk over multiple stocks.<br>
<br>
> I have a friend whose family was putt<span class="correction" id="">ing</span> a *lot* of money into oil leases and<br>
wildcat drill<span class="correction" id="">ing</span> in a place they suspected had oil. H<span class="correction" id="">igh</span> risk. But *extremely* h<br>
<span class="correction" id="">igh</span> return if they struck oil. I assume that this has not yet panned out (this w<br>
as ten years ago), because it would have been very big news. It would have <span class="correction" id="">elimi</span><br>
<span class="correction" id="">nated</span> the dependence of the U.S. on foreign oil for a time. A Muslim, by the way<br>
.<br>
><br>
<br>
In practice <span class="correction" id="">alot</span> of people who do that lose <span class="correction" id="">alot</span><br>
(by definition), however, those that don't make <br>
loads. A more reasonable thi<span class="correction" id="">ng</span> to do is to<br>
is to put a percentage of your money into <span class="correction" id="">alot</span><br>
of different h<span class="correction" id="">igh</span> risk ventures rather than just<br>
1. This works the same as maki<span class="correction" id="">ng</span> lots of bets.<br>
<br>
In any case, on the topic at hand. I think that<br>
there would be people in an election who wouldn't<br>
vote perfect strategic because they are afraid that<br>
their least favorite will win. <br>
</div>
<div> </div>
<div style="clear: both;">Raphfrk<br>
--------------------<br>
Interest<span class="correction" id="">ing</span> site<br>
"what if anyone could modify the laws"<br>
<br>
<span class="correction" id="">www</span>.<span class="correction" id="">wikocracy</span>.com</div>
<div> </div>
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