Sunday, April 25, 2010

Which would you choose?

If you had a 20% chance to win \$5000, winning nothing on the 80%, Or an 80% chance to win \$1000, winning nothing on the 20%, which would you choose?

1. use Expected value anaylsis? EV for first option is 1000, EV for the second one is 800 :)

2. It's not as simple as that. Although the expected value for the first option is greater, so is the variance- only 20% chance of winning something vs 80% chance of winning something. To give a more extreme example, it's like 1% chance of winning \$100000 (EV=1000) vs 80% chance of winning \$1000 (EV=800). Which would u choose?

The choice that one picks reflects how much risk one is normally willing to take.

3. Hi,

Expected value analysis only works for large number of samples. If you're given one chance to choose, it doesn't matter what the expectancy is.

I'll take the 80% chance of winning 1k.

4. I will take 80% of winning 1 k too!! :p I am risk averse ;p and never good with luck :p

-Xer

5. \$1000 is no big deal. \$5000 is not a big deal either but it is more enticing. I would take 20% chance of winning \$5000.

However, if you say it is a 20% chance of winning \$5m and a 80% chance of winning \$1m, I would take the latter. What does this tell you? ;)

6. AK, it tells me that you need 1 mil more than you need 5000 :) 1000 is of course, small change that you can lose on the streets :)

7. LP, hahaha, to me, it simply means that everyone has a price. There is always a tipping point, an amount of money that is considered more attractive. It differs from person to person.

So, the question that Hubert raised here might get different reactions if we tweak the amounts by adding a few zeroes or reducing a couple of zeroes.

So, if I give you a 20% chance of winning \$50 or an 80% chance of winning \$10, which would you choose? Hehehe...

Er... by the way, choi! What \$1000 is loose change that I can ilang on the streets? 8-p

8. Easy for me. 20% for \$5000. The only trick is 'the next question' (when losses are involved) ;D