3 ms·
For the record, the correct way of doing the first math, centered such that 0 represents no change to your wages, is as follows: 0.1 * 6 - 0.5 * 0.9 = 0.15. T
by Tomminn 6y ago
For the record, the correct way of doing the first math, centered such that 0 represents no change to your wages, is as follows:
0.1 * 6 - 0.5 * 0.9 = 0.15.
That is, a 10% chance of a 6 fold gain, and a 90% chance of a 50% loss (-50% gain), gives an expected value of a 15% gain.
Your math is correct also, and has 1 represent no change to your wages instead.
- vijayr02 6y agoActually, it's a bit more involved than that... The gain is a one time amount Wages are recurring income. So when wages fall by 50% you need to value an annuity with half the cashflows as before. The PV of your wage income stream over some time horizon can then be compared with the one time gain. Otherwise you are comparing a stock concept (wealth) with a flow concept (income)