A study in certainty equivalent, risk aversion, and utility

[Dbs6582]

I hesitate to get into this discussion but I'm going to give it a shot. I pretty much agreed with everything Three said. I see this as a math problem, when it comes to risking more than $500,000 with one flip of the coin to win a million. It doesn't make sense to me why anybody - no matter how wealthy they are - would risk more than $500,000 since at this point it'd be a negative EV situation.

I can see where the amount between 0 and $500,000 is dependent on a person's wealth and their need for money. At these levels it has nothing to do with math...it has to do with need. If a person needs the money, then they would obviously take less than $500,000 for the certainty of getting the money. The amount they would take would depend on how much they needed the money.

Just my two cents worth.

[DSchles]

You obviously didn't understand my reasoning. Money doesn't make people bad. Those that would just through money away or wipe their ass with a $100 bill rather than give it to someone needy are bad and make me sick. I know a rare few with money that don't act like it makes them better than everyone else and use it to help people while living a modest life. Most with money wouldn't help anyone unless they would get something out of it or it made them look good to someone they want to impress. Don's quote below illustrates my point perfectly. They never have enough that they will share their good fortune without expecting something back for it.
I would never be able to buy and sell everyone on the forum because I am not greedy enough to accumulate that kind of wealth. Every time I get a huge windfall I use it to help others. I don't add it to my mountain of assets that I will never use. Don's friends attitudes indicate that they have accumulated such an obscene amount of money that helping people less fortunate obviously never crossed their mind. If it did they would both have a different attitude toward the coin toss and less money than the obscene amounts Don proudly describes. Being raised around people like this is why I made the choices in life that I did. I don't want to be someone that would repulse me or who I would view as having no value as a human being.

Your sentiments are foolish. The two richest people in the world, Bill Gates and Warren Buffett, have given away, many times over, more money than they currently have. The fact that one has accumulated large amounts of money says nothing as to whether such a person is charitable or not. They are two completely separate issues. I don't discuss politics, so I'm not going to comment on your feelings, which reflect a socialist attitude. You're entitled to your point of view.

I imagine you also disdain all sports giants, who earn obscene amounts of money, and all movie stars, too. I know lots of people who think it's immoral to earn a lot of money. Again, vote for Bernie Sanders next time. He sounds like your kind of guy. But do me a favor: don't sit in judgment of Wall Street types, who were, are, and always will be among the most charitable people on the face of the earth.

As for your thinking that an entire department of people can't dwarf your knowledge of higher mathematics, Google the likes of Neil Chriss, Peter Carr, Bill Margrave, Steve Heston, Peter Muller, et al. and then don't embarrass yourself any further.

Don

[Freightman]

You obviously didn't understand my reasoning. Money doesn't make people bad. Those that would just through money away or wipe their ass with a $100 bill rather than give it to someone needy are bad and make me sick. I know a rare few with money that don't act like it makes them better than everyone else and use it to help people while living a modest life. Most with money wouldn't help anyone unless they would get something out of it or it made them look good to someone they want to impress. Don's quote below illustrates my point perfectly. They never have enough that they will share their good fortune without expecting something back for it.
I would never be able to buy and sell everyone on the forum because I am not greedy enough to accumulate that kind of wealth. Every time I get a huge windfall I use it to help others. I don't add it to my mountain of assets that I will never use. Don's friends attitudes indicate that they have accumulated such an obscene amount of money that helping people less fortunate obviously never crossed their mind. If it did they would both have a different attitude toward the coin toss and less money than the obscene amounts Don proudly describes. Being raised around people like this is why I made the choices in life that I did. I don't want to be someone that would repulse me or who I would view as having no value as a human being.

Your response to me
If I didn't understand it, then you didn't articulate it well.

My wife takes care of most of the charitable donations. Anyone that knocks at the door (excluding organizations with paid fundraisers) gets a cheque (check for Yankees). There are several organizations, both Jewish and non Jewish, that although the individual donations may not be much, come to a reasonable cumulative sum by year end. The only mail campaign that I respond to, or tell my wife to respond to, are the War Amputations of Canada, a must as far as I'm concerned.

There is one organization that I take care of, on a cash basis from ap generated funds. It is a religious organization and they walk the walk. It's always a $100 bill. Seems like most months, I give them a bill for that expense, and another for the next expense. Though i specify an expense, the fact is i really don't give a shit where they put the money, and they know that. Not even sure I get a receipt, since I don't check them. Brings up the concept that charity does not necessarily generate a tax credit.

Your response to Don
We are a capitalist society. They're cheap mother fucking assholes in all income categories. They're also very generous people in all income categories.

I knew this prick who was worth about 30 million (20 years ago). You could drive by this dickheads office at 10:00 pm, and numb nuts would still be there, worried that someone might steal a nickle from them. I also know guys who's philanthropies total millions of dollars. They understand, among other things, that at the end of the day, the money really means nothing, and they will be remembered for good deeds.

I had a friend who died about 12-14 years ago - got bit by the cancer bug. He was quite successful, though not loaded loaded. Two weeks before he died, his wife organized, for a week later, a birthday party for him. It was really a goodbye party. As a testament to this guys character, give or take 100 local friends were invited. About 100 people also showed up, with one weeks notice, from several provincial jurisdictions, as well as several US states. Like Michael Corleone, he always made money for his partners.

Our legacy, once we are gone, is dependant on what we do when we're alive. We can't judge Dons acquaintances by their apparently huge successes, within a capitalist society. They will be judged in due course, hopefully for good deeds.

[Freightman]

They got judged by Don when he bragged they wipe they asses with $100 bills. I don't know about anyone else but that is all I needed to hear to understand just the kind of person he was talking about. And I knew why throwing meaningful money away on a lark was okay for them rather than thinking about how much good they could do with the money that meant nothing to them. I grew up with them all around me and most were more to be pitied than envied but those exceptions really knew how life was supposed to be lived.

Don was making an analogy, and it should not be perceived as anything but an analogy.

I was plenty self conscious myself as a kid in elementary school. We were a poor family by any standard, and by far the poorest in a school which comprised many wealthy families. It takes all kinds to make this world, and granted, even without a head start, we still have the opportunity to make something of ourselves.

Now, unless dons acquaintances do something really neaveau disgusting, like advertise for someone to clean their ass wipe, why don't we call it a day on this one.

[BoSox]

In a response to Three Don wrote:

If you can't understand this line of thinking, which has nothing to do with mathematics, then I really can't help you any further, but please stop your condescending tone and your burning desire to explain the math to me by quoting the material in my own book! Do you realize that all the risk of ruin formulas, including all the double barrier, goal, etc., ones that are now so widely used by you and other players come from these Wall Street "idiots"??

Don, in your latest book three- page Acknowledgments did you include any Wall Street people? You did mention two former colleagues Chris Cummings and Bill Margrabe, were they also Wall Street guys?

[DSchles]

"Don, in your latest book three- page Acknowledgments did you include any Wall Street people? You did mention two former colleagues Chris Cummings and Bill Margrabe, were they also Wall Street guys?"

Yes, absolutely. You can Google Bill Margrave, one of the savviest quants alive. Others (p. xxi) are "Kim Lee" (Steve Heston, of the Heston model fame) and Peter Carr, one of the most brilliant Wall Street theoreticians on the planet (Google his incredibly impressive body of work).

Don

[BoSox]

"Don, in your latest book three- page Acknowledgments did you include any Wall Street people? You did mention two former colleagues Chris Cummings and Bill Margrabe, were they also Wall Street guys?"

Yes, absolutely. You can Google Bill Margrave, one of the savviest quants alive. Others (p. xxi) are "Kim Lee" (Steve Heston, of the Heston model fame) and Peter Carr, one of the most brilliant Wall Street theoreticians on the planet (Google his incredibly impressive body of work).

Don

Don thank you. Evidently, the spelling of Bill Margrave is wrong in the book.

[DSchles]

Don thank you. Evidently, the spelling of Bill Margrave is wrong in the book.

Ha! Fat chance! NOTHING is spelled wrong in the book. :-) I remembered his name incorrectly in my post. It's MargraBe.

Don

[Freightman]

Ha! Fat chance! NOTHING is spelled wrong in the book. :-) I remembered his name incorrectly in my post. It's MargraBe.

Don

You screw up again?

[21forme]

Ha! Fat chance! NOTHING is spelled wrong in the book. :-) I remembered his name incorrectly in my post. It's MargraBe.
Don

This cracked me up, Is that a capital B as in the German double s, eg., StraBe? :-)

[AndretheGiant]

Kim Lee there's a name from the past.
He was one of BJ21's best posters.

[BoSox]

Kim Lee there's a name from the past.
He was one of BJ21's best posters.

Yes, he was a really good poster. I did not realize you were around that long Andre.

[DSchles]

This cracked me up, Is that a capital B as in the German double s, eg., StraBe? :-)

No it's a capital B to indicate that the v should have been a b.

Don