Comments on: What is the Rational Decison? http://seoblackhat.com/2010/03/21/what-is-the-rational-decison/ Tired of useless Top 10 Lists for ranking in Google? Looking for effective and insightful info? SEO Black Hat Blog offers articles on Blackhat SEO, Linkbait & Link Spamming. And if you need to escape White Hat SEO Whiners, check out he Private Black Hat Search Engine Optimization Forum. Fri, 04 Feb 2011 05:07:23 -0400 http://wordpress.org/?v=2.8.6 hourly 1 By: Carl http://seoblackhat.com/2010/03/21/what-is-the-rational-decison/comment-page-1/#comment-12144 Carl Wed, 31 Mar 2010 02:05:19 +0000 http://seoblackhat.com/?p=1334#comment-12144 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! 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!

]]> By: Carson http://seoblackhat.com/2010/03/21/what-is-the-rational-decison/comment-page-1/#comment-12021 Carson Tue, 23 Mar 2010 15:10:22 +0000 http://seoblackhat.com/?p=1334#comment-12021 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. 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.

]]> By: Andy http://seoblackhat.com/2010/03/21/what-is-the-rational-decison/comment-page-1/#comment-12018 Andy Tue, 23 Mar 2010 14:37:02 +0000 http://seoblackhat.com/?p=1334#comment-12018 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. 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.

]]> By: Steve http://seoblackhat.com/2010/03/21/what-is-the-rational-decison/comment-page-1/#comment-12015 Steve Tue, 23 Mar 2010 03:51:51 +0000 http://seoblackhat.com/?p=1334#comment-12015 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. 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.

]]> By: WSzP http://seoblackhat.com/2010/03/21/what-is-the-rational-decison/comment-page-1/#comment-12014 WSzP Tue, 23 Mar 2010 02:15:43 +0000 http://seoblackhat.com/?p=1334#comment-12014 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 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.

]]> By: Steve http://seoblackhat.com/2010/03/21/what-is-the-rational-decison/comment-page-1/#comment-12000 Steve Mon, 22 Mar 2010 13:26:11 +0000 http://seoblackhat.com/?p=1334#comment-12000 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 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

]]> By: zoran http://seoblackhat.com/2010/03/21/what-is-the-rational-decison/comment-page-1/#comment-11994 zoran Mon, 22 Mar 2010 02:40:32 +0000 http://seoblackhat.com/?p=1334#comment-11994 I would take a bet net-worth is 5 digits I would take a bet net-worth is 5 digits

]]> By: QuadsZilla http://seoblackhat.com/2010/03/21/what-is-the-rational-decison/comment-page-1/#comment-11992 QuadsZilla Mon, 22 Mar 2010 00:35:17 +0000 http://seoblackhat.com/?p=1334#comment-11992 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. 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.

]]> By: Link Builder http://seoblackhat.com/2010/03/21/what-is-the-rational-decison/comment-page-1/#comment-11991 Link Builder Mon, 22 Mar 2010 00:27:06 +0000 http://seoblackhat.com/?p=1334#comment-11991 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. 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.

]]> By: QuadsZilla http://seoblackhat.com/2010/03/21/what-is-the-rational-decison/comment-page-1/#comment-11984 QuadsZilla Sun, 21 Mar 2010 17:34:08 +0000 http://seoblackhat.com/?p=1334#comment-11984 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. 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.

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