risk

Search

gbm
0

New member
Joined
Sep 21, 2004
Messages
196
Tokens
0
If someone offered you $25 in hand or

a 25% chance at $100 --- which would you pick?

What should you pick and why.
 

0

New member
Joined
Sep 21, 2004
Messages
285
Tokens
0
$25 in hand.

If it was $24 in hand or a 25% chance at $100, I'd take the 25% chance.

If you can lower your risk without lowering your EV (expected value), take the money and run.

Revere14
 

gbm
0

New member
Joined
Sep 21, 2004
Messages
196
Tokens
0
Math sez

square root of 25 (5 X 4 = 20)
equals
square root of 400 = 20

then 25 in hand is equal to a 25% shot at 400
 

gbm
0

New member
Joined
Sep 21, 2004
Messages
196
Tokens
0
sorry I lost the url but I printed the article and will retype it if you want. about 100 words long
 

gbm
0

New member
Joined
Sep 21, 2004
Messages
196
Tokens
0
Let x be a payoff amount in dollars. Let U(x) be a continuous,increasing function of x.

The function U(x) gives an individual's level of satisfaction in fictional "utils" from receiving payoff amount x, and is known as a utility function.

If a certain payoff of $25 is preferred to the gamble,(due to risk aversion) then we want a utility function that satisfies:

U($25)> .25 U($100) + .75 U9($0)

The left hand side is the utility of the certain payoff and the right hand side is the expected utility from the gamble.

Any concave function U(x) will work. for example U(x)= SR (x)
(my SR =square root)

SR(25)>.25 SR(100) +.75 SR(0)

5>2.5

End of copy

I figured(probably wrong) that for the left side to equal the right it would be 400.
 

Forum statistics

Threads
1,119,875
Messages
13,574,501
Members
100,879
Latest member
am_sports
The RX is the sports betting industry's leading information portal for bonuses, picks, and sportsbook reviews. Find the best deals offered by a sportsbook in your state and browse our free picks section.FacebookTwitterInstagramContact Usforum@therx.com
TheRX uses cookies to help us provide, protect & improve our services. See our Privacy Policy for more details.
Accept & Close