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Then why didn't you answer according to what you think you would actually do? The idea of the test was to gain insight into your personality with regard to risk

Then why didn't you answer according to what you think you would actually do? The idea of the test was to gain insight into your personality with regard to risk and reward. If you can't honestly see yourself accepting a (.4 * $1000) loss over a $50 loss, then you answered incorrectly according to what the question was actually asking. Personally I had the same dilemma, but I found it revelatory to really look inside myself and see if I could do what expected utilities would dictate. It was especially difficult on the loss questions, as I have very little capital to my name.

cheald 16y ago
I think the problem is that risk always has to be calculated against reward, and in this test, it was always reward-against-reward or risk-against-risk. For example, let's take one of the loss scenarios and pretend that it's some wacky hosting cost. * $50 guaranteed loss - paying $50 for 100GB of bandwidth * 0.04% of chance of $1,000 loss - paying $2.50 for 100GB of bandwidth, but an extra $997.50 for unlimited bandwidth if you go over 100GB. If I don't expect to do much traffic, I'll take the 4% chance; I project I might do 20GB of traffic during the term of the contract, so I will save 20x as much money. My product has a 4% chance of going viral. If I lose the contract lottery, it's because I've won the product lottery, and that 4% means I've got a rapidly-growing product that is going to make me a lot of money. The risk of that extra $1000 is well worth knowing that I'm not going to have to move my product between hosting providers when the blogosphere in in a mad frenzy about my internet tortilla delivery service. That's completely different than a scenario wherein the hosting provider says "This is a variable contract; you owe us $2.50 for 50 GB of bandwidth, but each month we pick one of our 25 customers and they pay $1,000." There's no way in hell I'd sign on for that. There is no indicator of success correlated to the risk there. Without context, I'm not sure that these questions are all that useful. You point this out yourself - the risk questions will be interpreted variably depending on the individual's resources and perspective. I can absorb a $50 loss trivially, so if the reward is equivalent, I'll choose that.

cheald 16y ago

I think the problem is that risk always has to be calculated against reward, and in this test, it was always reward-against-reward or risk-against-risk. For example, let's take one of the loss scenarios and pretend that it's some wacky hosting cost. * $50 guaranteed loss - paying $50 for 100GB of bandwidth * 0.04% of chance of $1,000 loss - paying $2.50 for 100GB of bandwidth, but an extra $997.50 for unlimited bandwidth if you go over 100GB. If I don't expect to do much traffic, I'll take the 4% chance; I project I might do 20GB of traffic during the term of the contract, so I will save 20x as much money. My product has a 4% chance of going viral. If I lose the contract lottery, it's because I've won the product lottery, and that 4% means I've got a rapidly-growing product that is going to make me a lot of money. The risk of that extra $1000 is well worth knowing that I'm not going to have to move my product between hosting providers when the blogosphere in in a mad frenzy about my internet tortilla delivery service. That's completely different than a scenario wherein the hosting provider says "This is a variable contract; you owe us $2.50 for 50 GB of bandwidth, but each month we pick one of our 25 customers and they pay $1,000." There's no way in hell I'd sign on for that. There is no indicator of success correlated to the risk there. Without context, I'm not sure that these questions are all that useful. You point this out yourself - the risk questions will be interpreted variably depending on the individual's resources and perspective. I can absorb a $50 loss trivially, so if the reward is equivalent, I'll choose that.