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March 21st, 2010 
QuadsZilla Imagine you asked to take a bet. The bet is for your entire net worth. If you win, you double your net worth. If you lose, it goes to zero.
Here’s the kicker: You have a 90% chance to win and only a 10% chance to lose.
Do you take the bet? (answer with how many digits in your net worth).
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The rational decision is to take the bet – but to involve a second part to share the risk and the winnings.
I do not. My net worth is deep in the negative right now, and a 10% chance that it’ll be zeroed out isn’t worth the risk.
Unless it’s a 90% chance you’ll double my assets, not my net, which makes this a no-lose situation for me.
The rational decision is to take the bet.
The human decision is not to. Human beings are not rational. Loss aversion.
I’d take the bet with 7 digits.
I’m not sure it is rational. If the benefits from having 10 million vs 5 million are not 10X greater than suffering you get from going from 5 million to 0, then it would not be worth it.
You have to take into account the marginal utility of money. The first $1000 of net worth you earn is worth exponentially more than the 10000th $1000 you earn in terms of marginal utility.
definitely.
two reasons:
1. those are good odds.
2. i am extremely confident i can re-make my current net worth. my wealth is renewable.
current net worth: (low) 7 figures.
doyle brunson (the poker lengend) once said that if you offered him 51% for double or nothing on his net worth, he’d have to take the best.
I would take a bet net-worth is 5 digits
The Kelly formula, corresponding to a logarithmic utility of money, would suggest that the odds and return in this case warrant betting 85% of your bankroll, ie. net worth. Betting the entire net worth would therefore be too much, unless you have a different personal utility of money, e.g. Link Builder’s reason 2.
http://en.wikipedia.org/wiki/Kelly_criterion
I would not take it. I took a similar very good sounding offer in the past, and I lost quite a hefty sum. As in not totally lost, but to get it back I had to start a lawsuit that’s running since more then a year and none can see the end.
I can not take this bet because my net worth is negative haha. This is just a simple question of is a simple expected value problem. Let’s say you have 10 dollars. 9 out of 10 times you will end up with 20 dollars and one time you will end up with zero dollars. So on average you will end up ahead $8 dollars.
The question really is will you be happier with $10 dollars, $18 dollars or 0 dollars. If you are completely miserable with $10 dollars and would be living your dreams with $18 then you should take the bet as long as you aren’t close to turning the $10 into $18 anyways. If your life is awesome with $10 and would only be slightly better with $18 and terrible with 0 you probably shouldn’t take the bet. So I guess what I’m saying is the best way to measure isn’t monetarily but based on your personal happiness for the various outcomes.
I once bet a million dollars on a 50/50 coin toss and won. At that point I had everything I wanted and high earnings potential so it wouldn’t have been a big deal to me to lose.
The issue with this is, the risk and the reward are exponentially linked, even more so with the 90/10 split on win or lose.
I think the majority of people with 6 figure net worth and above wouldn’t take the risk.
I wouldn’t take the bet and I don’t think doing so would be rational for me–even though the odds are great.
I come at this from a risk analysis perspective. I look at the likelihood of each outcome and then assess the advantage or disadvantage of the outcome in those terms.
In my case, doubling my net worth from X to 2X would be nice–but not necessarily life changing. The impact of a complete wipeout would be cataclysmic.
The rationality of the bet is dependent upon the individual circumstances of the bettor. I’m pushing forty. I have two kids. I have retirement money to consider. Etc. Ten percent isn’t a high risk, but starting over financially at this point? No f-ing way!
If you asked me this question 20 years ago, I’d ask where to place the bet.
Sounds like playing stock options on expiration day. Easy potential to double your money or lose it all. I have taken the bet many times and been successful many times, but it’s the few times that I lost that I remember most!