Money management vs lifetime opportunity ?
November 28th, 2012 at 7:45:53 PM
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Money management say to not bet more than you can afford to lose. Well, I am curious how would you guys treat a opportunity which can not be missed: lets say you have to play a head or tails game 50% win chance for a super 5x return of your stake in case you win!
- The catch is this: your stake MUST BE all of your goods! (house, cars, bank accounts .. basically EVERYTHING or you do not qualify)
Just curious how many would take such an opportunity and what would be the factors to input: your age, income, if children, wife etc.
Personally, I see no reason to take this bet for a person which is happy with his actual life. But for the rest, which are not so happy .. ?
- The catch is this: your stake MUST BE all of your goods! (house, cars, bank accounts .. basically EVERYTHING or you do not qualify)
Just curious how many would take such an opportunity and what would be the factors to input: your age, income, if children, wife etc.
Personally, I see no reason to take this bet for a person which is happy with his actual life. But for the rest, which are not so happy .. ?
November 28th, 2012 at 7:57:23 PM
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So, are you saying that money can buy happiness?
Really?
Really?
"What, me worry?"
November 28th, 2012 at 8:01:38 PM
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Quote: MrVSo, are you saying that money can buy happiness?
Really?
No, not all. But think it is certainly less painfully to live when you do not have to worry about money.
On the other hand, as I said, I see no reason to risk to ruin your happiness for this, if you live happy.
November 28th, 2012 at 8:10:04 PM
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I wouldn't take the bet, unless I could sell stakes in the bet on the side as a hedge. That could become quite profitable.
Wisdom is the quality that keeps you out of situations where you would otherwise need it
November 28th, 2012 at 8:22:03 PM
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Considering the utility of money, that would be a terrible bet. The Kelly Criterion says the optimal wager on that opportunity would be 40% of your wealth. At 80% of your wealth you should be indifferent.
"For with much wisdom comes much sorrow." -- Ecclesiastes 1:18 (NIV)
November 28th, 2012 at 8:36:13 PM
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Did not think about the aspect of applying Kelly Criterion on such a bet, but yes, very useful indeed. - Thank you very much Wizard !
November 28th, 2012 at 8:38:09 PM
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Bad bet to take.
The devastation of losing everything is far, far more significant than the utility of multiplying your worth by 5.
Hell, I'm not even sure I'd take this bet with my gambling bankroll - which is actually quite small. I'd imagine my total bankroll is close to what most people here would take for one trip, just to give you an idea of the fact that I don't consider my bankroll to be that important to me right now, as I don't have time to gamble much.
I would, however, place this bet for up to 10% of my bankroll. (Kelly says 40%, but I usually avoid playing full Kelly - and in cases which I "should" bet such a huge chunk of my roll, I like to limit my bet to some amount much smaller than the Kelly bet.)
I would argue, however, that the Kelly Criterion shouldn't apply to your overall wealth, as the Wizard mentioned, rather what wealth you are willing to part with. (Your bankroll.) If you use all of your wealth as your bankroll, IMO, you're doing it wrong - as a responsible person certainly wouldn't be willing to gamble with all of your wealth if you were on a very long down streak.
I'm sure he'd agree, I just wanted to clarify that just so that nobody may misinterpret his comment and actually bet a huge chunk of their money based on that statement.
The devastation of losing everything is far, far more significant than the utility of multiplying your worth by 5.
Hell, I'm not even sure I'd take this bet with my gambling bankroll - which is actually quite small. I'd imagine my total bankroll is close to what most people here would take for one trip, just to give you an idea of the fact that I don't consider my bankroll to be that important to me right now, as I don't have time to gamble much.
I would, however, place this bet for up to 10% of my bankroll. (Kelly says 40%, but I usually avoid playing full Kelly - and in cases which I "should" bet such a huge chunk of my roll, I like to limit my bet to some amount much smaller than the Kelly bet.)
I would argue, however, that the Kelly Criterion shouldn't apply to your overall wealth, as the Wizard mentioned, rather what wealth you are willing to part with. (Your bankroll.) If you use all of your wealth as your bankroll, IMO, you're doing it wrong - as a responsible person certainly wouldn't be willing to gamble with all of your wealth if you were on a very long down streak.
I'm sure he'd agree, I just wanted to clarify that just so that nobody may misinterpret his comment and actually bet a huge chunk of their money based on that statement.
November 28th, 2012 at 9:16:44 PM
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I agree that the devastation of losing everything is far more significant than the utility of multiplying your worth by ANY amount.
Because if we think like that, when you lose you become very poor and homeless and when you win you become very rich anyway even if is 5x or 15 x return. But if we think at Kelly Criterion, then it would become optimal to bet everything for a 12.5x return ?
And no, you can not hit a streak because that will be only a one time bet win or lose. I still believe some people would accept it ?
But OK, maybe I should put this question a bit differently: - For what return one would be willing to bet EVERYTHING he have ?
Because if we think like that, when you lose you become very poor and homeless and when you win you become very rich anyway even if is 5x or 15 x return. But if we think at Kelly Criterion, then it would become optimal to bet everything for a 12.5x return ?
And no, you can not hit a streak because that will be only a one time bet win or lose. I still believe some people would accept it ?
But OK, maybe I should put this question a bit differently: - For what return one would be willing to bet EVERYTHING he have ?
November 28th, 2012 at 11:59:13 PM
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Quote: PlayHunterlets say you have to play a head or tails game 50% win chance for a super 5x return of your stake in case you win!
- The catch is this: your stake MUST BE all of your goods! (house, cars, bank accounts .. basically EVERYTHING or you do not qualify
No problem. First of all, you can always reduce fluctuations at the cost of less EV - by an insurance company.
I would simply buy an insurance for a coin flip - essentially giving the insurance company a "generous" reverse bet (i.e. pay them 6 to 5 if you win).
Then you can bet all your fortune (and your brothers fortune). You either collect from the coin flip (minus costs from the insurance), or you lose everything, but get paid by the insurance.
No problem with the bet ! Go for it, but for any stunt: be prepared and know what you're doing!
November 29th, 2012 at 1:09:18 AM
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Quote: WizardConsidering the utility of money, that would be a terrible bet. The Kelly Criterion says the optimal wager on that opportunity would be 40% of your wealth. At 80% of your wealth you should be indifferent.
Hmm... I have to disagree. At least for some people. If you are a highly-skilled professional, it might be a good bet. Particularly if you are relatively young and near the lower edge of your earning "curve".
For example, suppose you are a software engineer living in silicon valley. You are one year out of school. You've paid off all your debts and have a net worth of $20k. You earn $120k per year. Within 5 years you can expect to make double that, and, within another 5 years, double again (this is actually very conservative if you are good).
In this case, I think that you'd be a fool not to take the bet. Sure, $20k is "all you have" in terms of net worth, but, really, your most valuable asset is your ability to do your job, and you are not risking that. $20k is nothing to you in the grand scheme of things. You make more in a month than you need to live, so if you lose you can still eat and pay your rent. You will only be living "paycheck to paycheck" for a month or so. Maybe you take the bus for a couple of months until you can buy another car. If you win you get an extra $100k, which is a nice head start on saving for your retirement.
I guess, the "trick" here is that $20k isn't a good representation of your "bankroll", because, as I said, your most valuable asset is your ability to do your job. It does bring up an interesting question, though. If you make good money, so your bankroll is easily replenishable, what's a good way to estimate your "bankroll" for opportunities like this? I think that, with a good edge, you should often be willing to be it all.
November 29th, 2012 at 9:02:29 AM
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Well you made up a really, really specific situation.
For 99.9% of people, this is a bad bet.
For 99.9% of people, this is a bad bet.
November 29th, 2012 at 9:33:15 AM
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Quote: Boney526Well you made up a really, really specific situation.
For 99.9% of people, this is a bad bet.
There are a few million folks living on public assistance. Losing this wager would not make this go away. I think many of them would take the chance. However, the payoff for them would probably only be in the four figure range.
It would be pretty embarassing to sell the shirt off your back to cover a loss.
Simplicity is the ultimate sophistication - Leonardo da Vinci
November 29th, 2012 at 10:04:12 AM
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I think the better question is: "What are the least odds given that you would accept this bet?". It will be different for everyone, but almost everybody would accept it at some ridiculous number.
At my age, a "Life In Prison" sentence is not much of a deterrent.
November 29th, 2012 at 10:09:17 AM
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It's still a bad bet, IMO, for them. If all you have is a couple thousand dollars, than you should really be using that money to fulfill your immediate needs, rather than taking even a significantly +EV bet that would leave them at risk of having nothing for a while. (Unless, of course, you can choose the amount of the wager)
That's my opinion. I'm sure some of them would disagree. Maybe that's part of the reason many of them are in that scenario. Bad money management. Are there rare scenarios you can come up with where it'd be preferable to take the bet? Maybe. But for the vast majority of people, this is a bad bet.
That's my opinion. I'm sure some of them would disagree. Maybe that's part of the reason many of them are in that scenario. Bad money management. Are there rare scenarios you can come up with where it'd be preferable to take the bet? Maybe. But for the vast majority of people, this is a bad bet.
November 29th, 2012 at 10:34:10 AM
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I think the "early in the earning curve" argument is pretty important here. I have software that tracks my finances, spending, etc. It has a net-worth figure. When I got married shortly out of school our net-worth as a couple was negative. Now it is not... At some point early in my earning career I would gladly take this bet (if was not able to negotiate better terms).
At some point in your life, if you have a good job and are just starting out, you can risk everything knowing you will be back on your feet in a month or two.
At some point in your life, if you have a good job and are just starting out, you can risk everything knowing you will be back on your feet in a month or two.
Wisdom is the quality that keeps you out of situations where you would otherwise need it
November 29th, 2012 at 11:47:01 AM
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My father told me at a very young age....Money cannot by happiness, but there is a lot of it out there for rent.
November 29th, 2012 at 11:54:31 AM
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Quote: Boney526Are there rare scenarios you can come up with where it'd be preferable to take the bet? Maybe. But for the vast majority of people, this is a bad bet.
Every prisoner doing more than a few years would probably be happy for the opportunity. If they don't have much waiting for them on the outside (or even if they did), losing everything they have would not impact their current standard of living (a place to live, clothing, meals, medical care, "gym" membership, education; all paid for by the State). But the potential gain could be helpful paying for lawyers and appeals that would shorten a sentence.
Simplicity is the ultimate sophistication - Leonardo da Vinci
November 29th, 2012 at 12:07:47 PM
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Quote: AyecarumbaEvery prisoner doing more than a few years would probably be happy for the opportunity.
Every "white-collar" criminal already played that opportunity. The criminal act commited had to be appealing to the degree, that they would wan't to risk their future life on that very "opportunity".
They got caught and "lost" the bet. They knew the price....
November 29th, 2012 at 12:34:09 PM
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Quote: Boney526Well you made up a really, really specific situation.
For 99.9% of people, this is a bad bet.
The really specific situation was just to illustrate a more general scenario.
What about: Anyone who makes more money than they need to live on, but hasn't been working for so long that their current savings are a large percentage of the amount that they will make over their career?
In other words, just about anyone with a good job who is under 30 or so,
November 29th, 2012 at 2:23:54 PM
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I suppose. But I guess for their sake, you could count future earnings as part of his bankroll or wealth in order to make it an acceptable bet. That's not the way I would do it. so IMO, this is a bad bet. I would basically not take it at any point of my life. There may be extreme exceptions, and my "99.9%" is definitely not an accurate number. I should have just said "for most people" because there are many specific situations where it may be marginal and therefore a personal opinion, but if the question is whether to choose money management vs a lifetime opportunity, I think in most cases, I'd say money management.
In the case that the 30 year old you're talking about, then perhaps it's a good bet, if he's certain about his future earning prospects. I'm not so sure I would advise that he take that bet - since I basically consider cash on hand that's set aside for gambling as my bankroll and am far too risk averse for that. My current earnings would have to be ridiculous, and my savings tiny, to get me to wager everything on this.
You do make a good point though. I concede that this is at least a bet that more people (than I originally thought) should consider.
In the case that the 30 year old you're talking about, then perhaps it's a good bet, if he's certain about his future earning prospects. I'm not so sure I would advise that he take that bet - since I basically consider cash on hand that's set aside for gambling as my bankroll and am far too risk averse for that. My current earnings would have to be ridiculous, and my savings tiny, to get me to wager everything on this.
You do make a good point though. I concede that this is at least a bet that more people (than I originally thought) should consider.
November 29th, 2012 at 2:50:03 PM
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I'm 25 and my net worth is equal to about 60% of my annual take home and very limited retirement fund. I would take this bet in a heart beat.
If I were in my 50's and had a seven figure retirement account, there's no way in hell.
If I were in my 50's and had a seven figure retirement account, there's no way in hell.
Its - Possessive; It's - "It is" / "It has"; There - Location; Their - Possessive; They're - "They are"
November 29th, 2012 at 3:49:47 PM
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The day I finished residency I may have been worth 20k. I had probably 100k in student loans. I was about to start a secure 6 figure job. I DEFINITELY would have risked the 20k at 5 -1 on a coin toss. Not even a close decision. Now with lots in the bank, there is no way at 5-1 I would consider it. I think I would need 50 -1 or so to consider it, because to go back to zero would mean working many more years. But becoming super wealthy would allow me to retire immediately, and spend more time in Vegas.....
November 29th, 2012 at 4:08:22 PM
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Right, this is my point.
November 29th, 2012 at 4:21:14 PM
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So you both are saying that even if you have it 'made' now, you would still consider it, if the stakes were sufficiently raised?
I find this interesting, and unexpected, I guess.
I cannot imagine any scenario where I would risk EVERYTHING on a bet, even if I had a 99% chance of a win.
I don't mind gambling an amount that moves me from comfortable to tight living, but I would never imagine risking so much that it was going to ruin my chance at retirement. I just don't like my job enough for that.
I find this interesting, and unexpected, I guess.
I cannot imagine any scenario where I would risk EVERYTHING on a bet, even if I had a 99% chance of a win.
I don't mind gambling an amount that moves me from comfortable to tight living, but I would never imagine risking so much that it was going to ruin my chance at retirement. I just don't like my job enough for that.
Always borrow money from a pessimist; They don't expect to get paid back !
Be yourself and speak your thoughts. Those who matter won't mind, and those that mind, don't matter!
November 29th, 2012 at 4:34:21 PM
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Quote: RaleighCrapsSo you both are saying that even if you have it 'made' now, you would still consider it, if the stakes were sufficiently raised?
I find this interesting, and unexpected, I guess.
I cannot imagine any scenario where I would risk EVERYTHING on a bet, even if I had a 99% chance of a win.
I don't mind gambling an amount that moves me from comfortable to tight living, but I would never imagine risking so much that it was going to ruin my chance at retirement. I just don't like my job enough for that.
Again, it depends on how old you are and how much you have saved. If you don't have much (as compared to your future earnings) then it won't set you back very far.
As far as not liking your job that much -- remember that if you win, it pushes your retirement date CLOSER, so that works both ways. My goal is also to retire as soon as possible, so I think we are using the same criteria here.
November 29th, 2012 at 4:40:25 PM
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Quote: AxiomOfChoiceAgain, it depends on how old you are and how much you have saved. If you don't have much (as compared to your future earnings) then it won't set you back very far.
As far as not liking your job that much -- remember that if you win, it pushes your retirement date CLOSER, so that works both ways. My goal is also to retire as soon as possible, so I think we are using the same criteria here.
My initial take on this was anyone under 25 who was not really established would be likely to consider the offer, and anyone who was over 30 would not be likely to consider the wager. But I guess it really has more to do with how much you stand to lose, versus how much you stand to gain.
At 50+, I am in the area where I would not want to start over, no matter what the possible gain would be. I'll have to stick to pouring my $10/week down the lottery toilet.
Always borrow money from a pessimist; They don't expect to get paid back !
Be yourself and speak your thoughts. Those who matter won't mind, and those that mind, don't matter!
November 29th, 2012 at 4:55:20 PM
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Quote: RaleighCrapsSo you both are saying that even if you have it 'made' now, you would still consider it, if the stakes were sufficiently raised?
I find this interesting, and unexpected, I guess.
I cannot imagine any scenario where I would risk EVERYTHING on a bet, even if I had a 99% chance of a win.
I don't mind gambling an amount that moves me from comfortable to tight living, but I would never imagine risking so much that it was going to ruin my chance at retirement. I just don't like my job enough for that.
lets say I have 3 million saved in retirement assets. I stated 50 -1. So Id be risking starting at zero, versus having 150 million. At 150 million I of course could retire immediately, and be able to help all offspring, friends, etc, to quite a significant degree. I still can work and bring in a good buck if I have to. Yes, I'd be nervous seeing the coin flipping in the air.....
November 29th, 2012 at 5:06:06 PM
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Quote: SOOPOOlets say I have 3 million saved in retirement assets. I stated 50 -1. So Id be risking starting at zero, versus having 150 million. At 150 million I of course could retire immediately, and be able to help all offspring, friends, etc, to quite a significant degree. I still can work and bring in a good buck if I have to. Yes, I'd be nervous seeing the coin flipping in the air.....
I consider myself to be a gambler, and at times not very smart about it, but I just could not pull the trigger on this bet. While I always manage to see the up side of a bet (see any of my craps threads), on this bet, all I can see is the downside, and that does me in.
Always borrow money from a pessimist; They don't expect to get paid back !
Be yourself and speak your thoughts. Those who matter won't mind, and those that mind, don't matter!
November 29th, 2012 at 5:07:57 PM
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Quote: SOOPOOlets say I have 3 million saved in retirement assets. I stated 50 -1. So Id be risking starting at zero, versus having 150 million. At 150 million I of course could retire immediately, and be able to help all offspring, friends, etc, to quite a significant degree. I still can work and bring in a good buck if I have to. Yes, I'd be nervous seeing the coin flipping in the air.....
I think it really depends on your age. If you are 30 and have 3 million saved, sure, why not? You have plenty of time to start over.
If you are 55 and have 3 million saved, almost certainly no, unless you make a million or two per year (in which case, why do you only have 3 million saved?)
November 29th, 2012 at 5:14:44 PM
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Quote: AxiomOfChoiceI think it really depends on your age. If you are 30 and have 3 million saved, sure, why not? You have plenty of time to start over.
If you are 55 and have 3 million saved, almost certainly no, unless you make a million or two per year (in which case, why do you only have 3 million saved?)
Because you're Leon Spinx or Nicholas Cage?
Simplicity is the ultimate sophistication - Leonardo da Vinci
November 30th, 2012 at 7:35:14 AM
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Thank you all ladies and gentlemans, guys and gals for contributing to an enjoyable reading thread ! - Very nice for me to read it :-)
The idea to ask this was from a movie I watched last year called "The ultimate winner" which I would recommend to everyone here.
The idea to ask this was from a movie I watched last year called "The ultimate winner" which I would recommend to everyone here.
