4 ms·

The point he makes is good, but the calculation seems wrong. He's using odds interchangeably with percent ownership, when the two are clearly different. 50% o

The point he makes is good, but the calculation seems wrong. He's using odds interchangeably with percent ownership, when the two are clearly different. 50% odds of making $1 million = you have a 50/50 chance of walking away from the company with $1 million at some point -- not that you're guaranteed to walk away with $500K. You could just as easily walk away with $0. So if your two options are: 1) 50% odds of making $1 million 2) 20% odds of making $20 million ...then you're more than twice as likely to make money on the first deal than on the second.

sfamiliar 18y ago
there are two sets of percentages in the article, they just happen to be the same. 50% ownership in a company with a 50% chance of making $1 million, versus 20% ownership in a company with a 20% chance of making $20 million. using the same percentages for both thing is maybe a little confusing, and it's not explained terribly well. the numbers are really immaterial to his point -- going for short money on good odds is better than going for ridiculous money on long odds. keeneland teaches me the same thing every spring and fall at the meets.
- DougBTX 18y ago
  He doesn't talk about ownership, those are "expected value" calculations: basically, how much you would expect to make per deal if you did 100+ of these deals.
rcoder 18y ago
I think his point was that individuals who aren't already wealthy have to make their decisions based on the odds of payout on that deal, while investors can simply engage in more deals, thereby reducing the "odds" to a simple payout multiplier.
danielharan 18y ago
Reading it again, I see where the confusion lies - but I didn't even want to get into the issue of ownership. The $500k is only the "expected value". You have a 50% chance of making $1M, 50% of walking away with $0. "then you're more than twice as likely to make money on the first deal than on the second." And that's why I'd choose the first deal, even though the economically 'rational' thing to do is to go for the second, which has higher expected value.
- hugh 18y ago
  Personally I'd take the second deal, but that's just because I don't consider $1 million to really be "fuck you" money at all -- it'd buy me a nice house and give me a good head start, but it wouldn't let me retire and spend the rest of my life doing whatever-the-hell-I-want the way $20 million would. His point still stands, of course, if you multiply the numbers by something. Make it a 50% chance of $10 million vs a 20% chance of $200 million, and I'd probably take the first deal.

sfamiliar 18y ago

there are two sets of percentages in the article, they just happen to be the same. 50% ownership in a company with a 50% chance of making $1 million, versus 20% ownership in a company with a 20% chance of making $20 million. using the same percentages for both thing is maybe a little confusing, and it's not explained terribly well. the numbers are really immaterial to his point -- going for short money on good odds is better than going for ridiculous money on long odds. keeneland teaches me the same thing every spring and fall at the meets.

DougBTX 18y ago
He doesn't talk about ownership, those are "expected value" calculations: basically, how much you would expect to make per deal if you did 100+ of these deals.

rcoder 18y ago

I think his point was that individuals who aren't already wealthy have to make their decisions based on the odds of payout on that deal, while investors can simply engage in more deals, thereby reducing the "odds" to a simple payout multiplier.

danielharan 18y ago

Reading it again, I see where the confusion lies - but I didn't even want to get into the issue of ownership. The $500k is only the "expected value". You have a 50% chance of making $1M, 50% of walking away with $0. "then you're more than twice as likely to make money on the first deal than on the second." And that's why I'd choose the first deal, even though the economically 'rational' thing to do is to go for the second, which has higher expected value.

hugh 18y ago
Personally I'd take the second deal, but that's just because I don't consider $1 million to really be "fuck you" money at all -- it'd buy me a nice house and give me a good head start, but it wouldn't let me retire and spend the rest of my life doing whatever-the-hell-I-want the way $20 million would. His point still stands, of course, if you multiply the numbers by something. Make it a 50% chance of $10 million vs a 20% chance of $200 million, and I'd probably take the first deal.