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This assumes that people operate only on expected value and don't care about variance at all, which is incorrect empirically, theoretically, and intuitively. Th

This assumes that people operate only on expected value and don't care about variance at all, which is incorrect empirically, theoretically, and intuitively. The premium you pay for reducing variance is called a "risk premium", and it follows pretty trivially from the diminishing marginal utility of money (though there are many other ways to derive/explain it). This is the entire reason that insurance exists as a product: it's not designed solely to cover existential risks or to prey on the irrational.

HugThem 7y ago
Well, if you pay me more then $0.05 for the $0.6/-$0.5 coin flip, I will happily sell you some. How much do you want?
- fbreton 7y ago
  I think GP disagreed with your assumption that a $1.1/-$1 coin flip was worth $0.05, so they'd pay more for the $0.6/-$0.5 coin flip than for the $1.1/-$1 flip, but still less than $0.05.
  - HugThem 7y ago
    If that is true, then I will happily buy $1.1/-$1 flips for $0.049 from them!
    - fbreton 7y ago
      They would pay a premium to avoid uncertainty, so they wouldn't accept that offer either. The uncertainty is the same whether you sell or buy the flips. I don't know you, but I guess you wouldn't pay $499K for a $1M/$0 flip, and you wouldn't sell such a flip for $499K either. This is the same phenomenon on a much smaller scale.
      - HugThem 7y ago
        I guess you wouldn't pay $499K for a $1M/$0 flip No. But the discussion here is about shares. And they are not $499k a piece. We are discussing if the share price of a company that publishes numbers in line with expectations should go up.
        kgwgk 7y ago
        What do you mean by “expectations”? If Amazon trades a $2000, is the expectation that it will stay at $2000 forever? Or is the expectation that will go up because it will surpass expectations? If by expectations we mean the numbers published by sell-side analysts they may or may not be close to the actual market expectations.

HugThem 7y ago

Well, if you pay me more then $0.05 for the $0.6/-$0.5 coin flip, I will happily sell you some. How much do you want?

fbreton 7y ago
I think GP disagreed with your assumption that a $1.1/-$1 coin flip was worth $0.05, so they'd pay more for the $0.6/-$0.5 coin flip than for the $1.1/-$1 flip, but still less than $0.05.
- HugThem 7y ago
  If that is true, then I will happily buy $1.1/-$1 flips for $0.049 from them!
  - fbreton 7y ago
    They would pay a premium to avoid uncertainty, so they wouldn't accept that offer either. The uncertainty is the same whether you sell or buy the flips. I don't know you, but I guess you wouldn't pay $499K for a $1M/$0 flip, and you wouldn't sell such a flip for $499K either. This is the same phenomenon on a much smaller scale.
    - HugThem 7y ago
      I guess you wouldn't pay $499K for a $1M/$0 flip No. But the discussion here is about shares. And they are not $499k a piece. We are discussing if the share price of a company that publishes numbers in line with expectations should go up.
      - kgwgk 7y ago
        What do you mean by “expectations”? If Amazon trades a $2000, is the expectation that it will stay at $2000 forever? Or is the expectation that will go up because it will surpass expectations? If by expectations we mean the numbers published by sell-side analysts they may or may not be close to the actual market expectations.