4 ms·
"Expected Value is complicated because a 50% chance for $100 is the same as a 10% chance at $1000" Is it though?
by calahad 4y ago
"Expected Value is complicated because a 50% chance for $100 is the same as a 10% chance at $1000"
Is it though?
- jdmoreira 4y agoThe payout is exactly the same but what op means is that you need less "50% of 100%" bets than "10% chance at $1000" to reach the same payout. 1 in 2 for the first one will pay out. and 1 in 10 for the second one will pay out. Variance is higher for second than for first.
- westward 4y agoI think the questioner is asking if "50% chance for $100 is the same as a 10% chance at $1000" should be "50% chance for $100 is the same as a 10% chance at $500"
- jdmoreira 4y agoah yes, of course. You are correct
- deleted 4y ago[deleted]
- kqr 4y agoAt first I was confused because of my mental rule of thumb that in a Bernoulli choice, p=0.5 is highest variance. But that is when the payoff is 1, of course! When it's not, we're really looking at payoff² * p * (1-p) and indeed the second situation has much higher variance.
- calahad 4y ago"The payout is exactly the same" Again I ask, is it really?
- nightpool 4y agoOP messed up their numbers—they probably meant 5% chance for $1000 ($50 EV to match .5*$100) or similar. But I think their point is still clear