I know.. I said I've assumed a risk neutral world...
Even with a reasonable utility function, the 50/50 option will be better..

I really don't want to charge with kidnapping with demand of money, so can't answer you :fullofwin:

Personally if I was holding the gun I would choose the 25MM option...
In terms of value, the 25MM is a much better bet..

Try adjusting the winning probability upward to get the same expected return...

Let say you have 90% chance of winning 13.9MM, 10% chance you win nothing. The expected return is still 12.5MM...

Would you still go with the 1MM option?

hmmm... after thinking about it again, i do agree with you but ONLY under the assumption that you had no control whatsoever in the 50/50 lottery.

For example, if you yourself had a flip a coin, and if it landed heads you win the $25 and if it landed tails you end up with $0, then the remorse afterwards will not only be not taking the $1 million, but also thinking "damn, if I had flipped that coin differently...". I think this feeling can be analogous to having to bear the terrible wife.

to a small degree you are right. but we'll mostly if not all feel like we came out with empty handed.

unless the 1M isn't an option, you are given a coin flip win 25M

if you lose the coin flip you'll regret that damn I didn't win! and it was 50/50 how can I lose

however if there is another option 100% guarantee lesser amount like 1M, of course you'll feel, damn, why didn't I just walk away with guarantee money

*edit*
this is just like gambling, you already win X amount 1. you can choose to walk away or 2. you can risk 1M for the chance of winning the 25M grand prize. If you lost, you'll blame yourself I should have walked away.

How the hell did a gun enter the picture? :gun:

I don't think it's adequate to analyze this situation based on the "expected return" logic. For example, what if you changed the question to:

guaranteed $150 million vs 20% chance of winning $1 billion. The expected return for the latter is greater than the former, but I don't think too many people would pick option number 2.

http://www.fao.org/docrep/w7365e/w7365e28.gif

Not really, as you can see, this is a person who is risk-averse. Anything between 1 and 5 is no good. ($0 million and $25 million in the OP's case, taking the no-gamble is strictly better off than taking gamble.)

http://upload.wikimedia.org/wikipedi...skpremium2.png

In a risk neutral scenario, the utility curve is now flat, making the person indifferent between having 0, 1, or 25 million.

Holy Fcuk.
The comprehension level of some people is amazing.
But, I guess a community wouldn't be a community without the idiots.

There are hundreds of practical utility functions with different calibrated parameters...

By "better", i meant if this "deal" was to be sold in the market, majority of the people will value this "deal" for more than 1MM (i.e. 50% chance to win 25MM, 50% to win 0).

Yes, it is certainly more than just expected value.

If it's $1 and 50% chance of $25, I would obviously choose $25.

I wouldn't think twice about losing out on a loonie in my pocket, but I'd be happy to have $25 lining it.

If it's $1B and 50% chance of $25B, I would probably be content to settle for $1B.

$1B is already a ludicrous amount of money, and I can have everything I could ever dream of with that. I don't think my life would be any different if I had $1B or $25B, so I'd take the guaranteed $1B.

But if it's $1M and 50% chance of $25M, it's in the range where it could go either way.

$1M won't significantly change my way of life. It's like getting a house for free. I would still need to work for the rest of my life. However, $25M is definitely enough to change my forever. I can choose to never work another day in my life.

So in a way, for me personally, it would be "would you risk working an extra 10-15 years to make up the $1M you could have had for a 50% chance to live comfortably and never have to work again for the rest of your life"? Tough call.

True, I am just illustrating a very simple person who is risk averse vs. risk neutral.

Would you agree that risk neutral person would have a linear utility function? Would you also agree that risk averse person would have a concave utility function?

If yes, then the above would be one example that the $0/$25 option can't be strictly better than $1 option.

Oh yes I agree... A risk neutral person would be indifferent in regards to losing 100 vs. gaining 100.... therefore, the utility curve is linear..

I'm not saying you're wrong that it's possible that someone wouldn't risk 1MM for 25MM... You can always find a person who has zero risk appetite and won't even risk a penny for $100..

My point is just that, personally, I would go for the 50/50 option because it's a much better bet.. and so would a lot of people..

Naturally it is never wrong to choose the guarantee way. It is never wrong if you choose the risky way too "only if you win", but when you lose, all that becomes negative.

So essentially, are you the type of the person, who can handle that regret/losing situation? If you can't deal with falling down, go to the safer path. But if you don't care about losing 25M not because you can make 25M in other way, but you can make a decent life and doesn't value money that much, know that live isn't always so lucky.

But if you going to become a businessmen, risk is a necessity. They will definitely choose the 25M

Now if the question becomes

100% 1Million vs 50% 25Million vs 25% 50Million

Now, will we all go for the 50M? or the 1M ummm...

Can I go for 75% 12.5MM? :lol

Actually, I would go for the 25MM twice to diversify my risk lol

haha I prefer that too

imagine you said heads to win 25M

both flipped tail

you'll be like FML :devil:

If you can keep doing it then it's pretty hard to lose lol

get the 1 million spend it all on lotto tickets.

:failed:

that would be 1/14 chances,

50% still better

That's only because you're committing a fucking crime by robbing the guy and getting $1m with the better chance to get away is a better idea than a 50/50 shot at $25m.

No cops? 50/50, please.

It's because $1m, while a lot, isn't a LOT. $25m a lot. If you asked me whether I'd take $25m or a 50/50 shot at $100m, I'd take the $25m.

spend it on more then 1 game..

i think ill take the 1 mill

ive never seen 1 mill in my account before lol

Lol well I'd rather take the guarenteed million rather than the 50 50 chance at 25 mill. Who said I think its impossible to make a million. Greed kills mang I'd rather take the safe route.