Your math is correct, of course, but these aren't the two strategies to choose between and there is a set of behaviors for which your parent is correct. The is

Your math is correct, of course, but these aren't the two strategies to choose between and there is a set of behaviors for which your parent is correct. The issue (using your analogy) is that Bob is exposed to profound, unseen risks that are deeply discounted in the marketplace - he is "picking up nickels in front of a steamroller" as Taleb puts it. At the same time, you have the Alice strategy wrong: Alice makes regular, extremely leveraged hedge purchases - perhaps even 500:1 or more - and just ignores the steady outflow of her premia. Eventually, Bob gets hit by a black swan event and loses 80 or 90 percent of his principal and Alice has a 500:1 return on her hedge. These are the two strategies that are interesting to compare. It may interest you to know that Taleb performed this in real life with his own money at risk[1]: "A tail-risk hedge fund advised by Nassim Taleb, author of “The Black Swan,” returned 3,612% in March, paying off massively for clients who invested in it as protection against a plunge in stock prices." [1] https://www.bloomberg.com/news/articles/2020-04-08/taleb-advised-universa-tail-risk-fund-returned-3-600-in-march#xj4y7vzkg https://www.bloomberg.com/news/articles/2020-04-08/taleb-adv...