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Yes, absolutely you should try to improve the odds. I hope it doesn't seem like I'm suggesting that we should be completely random. My point is more that new th
by paul 20y ago
Yes, absolutely you should try to improve the odds. I hope it doesn't seem like I'm suggesting that we should be completely random. My point is more that new things are all inherently risky -- I had very legitimate reasons for thinking that Google would fail, for example.
As you say, this is about taking calculated risks. In my example, I tried to show how just a 20% chance of success could be very profitable (vs no profit from the 10% chance of success that you might get from being more random with your investments).
Let me know if you have a suggestion for how this should be made clearer.
- rfrey 20y agoAnother way of looking at this (actually just a rephrasing of what you've said) is that the mathematical expectation of a strategy is the sum of (the profit of each event multiplied by the probability of it happening.) That is expec = sum(prob(x)x) For an $ investment, $expect = sum(prob(x)x - invest(x)) Say we have two strategies: One invests nothing and is right 90% of the time, but pays 0 when it's right; the other invests $50,000 and is right 10% of the time. When it is right it pays 10x, or $500,000. exp(strategy 1) = prob(x)x - 0x = (0.9)0 - 0 = 0 exp(strategy 2) = prob(x)x - x = (0.1)10 -1 = 0 So if we only have a 10% success rate and a 10x payoff, we might as well be sipping tequila on the beach. But if we are smart, or hard working, and increase our probability to 20%: exp(strategy 2) = prob(x)x - x = (0.2)10 -1 = 1 which is a positive expectation, which is a good thing. Increasing the probability OR increasing the payoff increases the expectation.