Geoff Hall: A,7 vs 9

[Don Schlesinger]

Well, I'm very proud of my wife! She thought about it long and hard. Wasn't a clearcut choice at all.
I was quite shocked, to tell the truth. Finally, she did admit, "That's a lot of money," but she didn't say it as if it would be unthinkable to make the wager.

As for me, after losing about 20-25% of my entire net worth in the stock market these past three years, I think another 5% wouldn't kill me.

I'd make the bet, Karel.

Now, can you show me the math (which I probably won't understand) as to why it's wrong to do so, please.

Don

[Karel]

> Well, I'm very proud of my wife! She thought
> about it long and hard. Wasn't a clearcut
> choice at all.
> I was quite shocked, to tell the truth.
> Finally, she did admit, "That's a lot
> of mooney," but she didn't say it as if
> it would be unthinkable to make the wager.

It is just about risk aversion. Accepting this bet says that you risk aversion is not higher than 30, or 1/30 Kelly.

However, games like that get a little misleading. Behavior finance says that people do not exactly behave according to utility functions. The risk aversion tends to be lower for larger bets. The reason could be that one large bets gets resolved, while with many small bets one has to "suffer" through, etc. Even though the total result is the same, it is better to "get it fast".

I will post the forumulas later tonight on the Math page.

Karel

> As for me, after losing about 20-25% of my
> entire net worth in the stock market these
> past three years, I think another 5%
> wouldn't kill me.

> I'd make the bet, Karel.

> Now, can you show me the math (which I
> probably won't understand) as to why it's
> wrong to do so, please.

> Don