How rational are you? (Page 2)

Comrade_
Comrade_: If I have money to waste then I'll put the same money for both games. There's no reason to "put more" on a specific one. Both have 2 different colours and it's all about chance nothing is a certain win.


ps. If there was a choice to choose one game, then I'd choose #2 though they're both equally risky. I prefer the idea of an unbalance ratio of colours than a 50-50 chance.
(Edited by Comrade_)
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SIutskysTheorem
SIutskysTheorem: Autumn - that's a very pedestrian way of looking at risk.

Compare game 1 from the OP vs trading in the stock market. Is there not inherently more risk in trading in the stock market as opposed to a game with 50/50 odds? To say that "a risk is a risk" and to completely ignore the varying degrees of risk involved in different random events is absurd. Even if you compare game 1 with Black Jack for example, your odds would still be significantly better.
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I was here
I was here: Then I guess I have answered your question. I'm not a very rational person then. If I want to play a risk game I don't analyse my odds. I just play the game I want to play knowing I will most likely lose and if I win...whoop, whoop.

As for the stock market...good thing I have someone that handles all that for me. He hasn't done me wrong yet
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Comrade_
Comrade_: Some don't need to analyse their odds. Sometimes subconsciously you already solve the odds but you'll still need to understand that you're not destined to win in either games.
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SIutskysTheorem
SIutskysTheorem: You don't have to be able to compute the exact odds that underlie the random event (although it helps) and sometimes, in the real world, the probability as a function of the underlying random variables may be intractable. But certainly on an intuitive level you can differentiate between different levels of risk.

However, the majority of people make their decisions in the same manner Autumn does. Which is why we have stock market/housing/etc bubbles. Alan Greenspan called it "irrational exuberance."
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AegriSomnia
AegriSomnia: After following this little exercise in rational thinking that's somehow turned into a game of analysis and mathematics (how I hate mathematics), I have to ask this question: If the original question was in regards to how much one "would" pay to participate in either game --and there was no denoted price minimum or maximum-- why "would" you volunteer to pay at all?

The way I saw it, it wasn't a question of probabilities at all. There was only winning or losing at stake at any given time. For me, it was simply a question of practicality.

Then again, I might've just turned it to a game of semantics. I'm good at that.
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I was here
I was here: When it comes to "games" key word here "games" of chance (such as what I have already stated on the 1st page) I think most people do play the game they want to play (not analyzing the odds of each game) knowing they will most likely lose....unless of course they are a "professional" key word here "professional" player.

A professional player makes their money (their living) playing chance "games" Take high stakes poker, blackjack, Texas holdem and the like. I would expect them to analyze all the odds.

I don't make my money in this fashion. "If" I play a chance "game" it is because I have "play" money to spend.

(Edited by I was here)
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SIutskysTheorem
SIutskysTheorem: Aegri - you can choose to answer the question in the OP with $0, but that wouldn't make for a very interesting discussion.

Autumn - I understand what you're saying, but the reasoning & analysis of games of chance where monetary gain/loss is involved, can be extended to investment decisions or any decisions involving money. The risk preference of an individual tends to be constant. Someone who is very risk-averse and prudent when it comes to financial decisions in their day-to-day lives is not going to be a huge risk-taker when it comes to games of chance, regardless of whether or not they have "play money to spend," and vice versa. People don't alter their behavior like that. That's just not how humans are wired.

I wasn't claiming that you make irrational financial decisions in your day-to-day life. You have someone who invests for you. But many people don't have professionals investing their money, and they most certainly do make irrational decisions. This is perfectly illustrated by every bubble there has ever been, be it the tech bubble, or more recently the housing bubble.
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I was here
I was here: I somewhat agree with you. I am very budget orientated, right down to how much I spend on groceries. I determine my meals based on the sales coming up for the following week. I do believe one can be prudent and frivolous at the same time.

When I say "play" money that is exactly what it is. I have budgeted that play money. Now maybe I want to go to the movie with it, perhaps I want to go to the casino with it. Either way, I have budgeted it out to have it available to me.
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Comrade_
Comrade_: I'm not sure if you got this from another site/source but just a suggestion for the OP as it stands, it will make it more interesting if you asked: Which game will you be willing to replay? or Which game will you be willing to spend more on? etc.
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SIutskysTheorem
SIutskysTheorem: It was an interview question I had.
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I was here
I was here: Interesting question for an interview. Did you get the job? What was your answer?
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SIutskysTheorem
SIutskysTheorem: It was for an internship a while ago at a financial institution. I got it. My answer was pretty much exactly as the post in which I proved that the odds of the second game is also 50/50. I said I would pay no more than $10,000 for game 1 (as that is the expected return) and that I would pay the same amount for game 2.
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I was here
I was here: Short, direct and to the point answer. Congrats on getting the position
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SIutskysTheorem
SIutskysTheorem: I don't work there anymore though. It was a couple of summers ago.
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I was here
I was here: Are you still in finances?
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