Comments on: Are You Logical When it Comes to Risk? http://allfinancialmatters.com/2007/04/05/are-you-logical-when-it-comes-to-risk/ A personal finance blog dedicated to discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance. Fri, 20 Nov 2009 19:56:44 -0800 http://wordpress.org/?v=abc hourly 1 By: Money Articles: Want To Know How To Double Your Money? Why Not Triple It? » Silicon Valley Blog About Money http://allfinancialmatters.com/2007/04/05/are-you-logical-when-it-comes-to-risk/comment-page-1/#comment-97197 Money Articles: Want To Know How To Double Your Money? Why Not Triple It? » Silicon Valley Blog About Money Sat, 14 Apr 2007 15:16:31 +0000 http://allfinancialmatters.com/2007/04/05/are-you-logical-when-it-comes-to-risk/#comment-97197 [...] Money Smart Life has Would You Settle For $500K Or Go For A Million Dollars? is all about getting to know what your financial risk profile is, as illustrated by the game show “Deal or No Deal.” Similarly, All Financial Matters asks Are You Logical When it Comes to Risk? I took JLP’s test and found I voted like everybody else did, when it came to taking a chance! [...] [...] Money Smart Life has Would You Settle For $500K Or Go For A Million Dollars? is all about getting to know what your financial risk profile is, as illustrated by the game show “Deal or No Deal.” Similarly, All Financial Matters asks Are You Logical When it Comes to Risk? I took JLP’s test and found I voted like everybody else did, when it came to taking a chance! [...]

]]> By: plonkee http://allfinancialmatters.com/2007/04/05/are-you-logical-when-it-comes-to-risk/comment-page-1/#comment-95379 plonkee Sat, 07 Apr 2007 12:19:45 +0000 http://allfinancialmatters.com/2007/04/05/are-you-logical-when-it-comes-to-risk/#comment-95379 The expected values being the same only makes them the same if you get to repeat them multiple times. If you are not repeating the experiment, then it doesn't make sense to look at the expected value as its not the solution to the question being posed. The expected values being the same only makes them the same if you get to repeat them multiple times. If you are not repeating the experiment, then it doesn’t make sense to look at the expected value as its not the solution to the question being posed.

]]> By: Jon http://allfinancialmatters.com/2007/04/05/are-you-logical-when-it-comes-to-risk/comment-page-1/#comment-95274 Jon Fri, 06 Apr 2007 22:41:04 +0000 http://allfinancialmatters.com/2007/04/05/are-you-logical-when-it-comes-to-risk/#comment-95274 I picked 'A' for both. I picked ‘A’ for both.

]]> By: Adam http://allfinancialmatters.com/2007/04/05/are-you-logical-when-it-comes-to-risk/comment-page-1/#comment-95221 Adam Fri, 06 Apr 2007 18:23:45 +0000 http://allfinancialmatters.com/2007/04/05/are-you-logical-when-it-comes-to-risk/#comment-95221 I read about this recently in Smart Money Magazine. It's a great study and I think this is the kind of thing our school system needs to get more involved in so we can raise children who have more financial literacy. http://everincreasingwealth.blogspot.com http://20challenge.blogspot.com I read about this recently in Smart Money Magazine. It’s a great study and I think this is the kind of thing our school system needs to get more involved in so we can raise children who have more financial literacy.

http://everincreasingwealth.blogspot.com
http://20challenge.blogspot.com

]]> By: test http://allfinancialmatters.com/2007/04/05/are-you-logical-when-it-comes-to-risk/comment-page-1/#comment-95216 test Fri, 06 Apr 2007 17:42:00 +0000 http://allfinancialmatters.com/2007/04/05/are-you-logical-when-it-comes-to-risk/#comment-95216 test test

]]> By: MyOwnMillions http://allfinancialmatters.com/2007/04/05/are-you-logical-when-it-comes-to-risk/comment-page-1/#comment-95194 MyOwnMillions Fri, 06 Apr 2007 17:19:40 +0000 http://allfinancialmatters.com/2007/04/05/are-you-logical-when-it-comes-to-risk/#comment-95194 I picked A and A for both. I would be very interested to see if the article that the quote came from had any analysis or possible fix for this behaviour than just the findings alone. <a>My Own Millions Blog</a> I picked A and A for both. I would be very interested to see if the article that the quote came from had any analysis or possible fix for this behaviour than just the findings alone.

My Own Millions Blog

]]> By: JLP http://allfinancialmatters.com/2007/04/05/are-you-logical-when-it-comes-to-risk/comment-page-1/#comment-95162 JLP Fri, 06 Apr 2007 16:28:54 +0000 http://allfinancialmatters.com/2007/04/05/are-you-logical-when-it-comes-to-risk/#comment-95162 Ptomkin, I see your point. However, it's in the small day-to-day decisions where people make mistakes that compound on each other. In other words, most people don't get to choose between $1 million and $1 billion. Ptomkin,

I see your point. However, it’s in the small day-to-day decisions where people make mistakes that compound on each other. In other words, most people don’t get to choose between $1 million and $1 billion.

]]> By: Ptomkin http://allfinancialmatters.com/2007/04/05/are-you-logical-when-it-comes-to-risk/comment-page-1/#comment-95110 Ptomkin Fri, 06 Apr 2007 14:19:57 +0000 http://allfinancialmatters.com/2007/04/05/are-you-logical-when-it-comes-to-risk/#comment-95110 <i>(a) $1,000,000 guaranteed or (b) 1-in-1000 chance at $1,000,000,000?</i> This illustrates to me why I'm uncomfortable with some of the conclusions that are made from these scenarios. Mathematically, the expected value is the same, but that is not all of the story. In finance, risk also entails the variance of outcomes. In (b) above, the difference between $0 (99.9% chance) and $1,000,000,000 (0.1% chance) is enormous, making it a very "risky" gamble. Practically speaking, I'd rather take a <b>known</b> $1M that I can manage carefully and retire on, than almost certainly gain nothing at all. (a) $1,000,000 guaranteed or (b) 1-in-1000 chance at $1,000,000,000?

This illustrates to me why I’m uncomfortable with some of the conclusions that are made from these scenarios. Mathematically, the expected value is the same, but that is not all of the story.

In finance, risk also entails the variance of outcomes. In (b) above, the difference between $0 (99.9% chance) and $1,000,000,000 (0.1% chance) is enormous, making it a very “risky” gamble.

Practically speaking, I’d rather take a known $1M that I can manage carefully and retire on, than almost certainly gain nothing at all.

]]> By: Andy http://allfinancialmatters.com/2007/04/05/are-you-logical-when-it-comes-to-risk/comment-page-1/#comment-95020 Andy Fri, 06 Apr 2007 07:04:10 +0000 http://allfinancialmatters.com/2007/04/05/are-you-logical-when-it-comes-to-risk/#comment-95020 I picked A/B. However if I only had $100 total (or some fairly small amount) then I would certainly pick A for the second one as well. I picked A/B.

However if I only had $100 total (or some fairly small amount) then I would certainly pick A for the second one as well.

]]> By: Cents You Asked http://allfinancialmatters.com/2007/04/05/are-you-logical-when-it-comes-to-risk/comment-page-1/#comment-94961 Cents You Asked Fri, 06 Apr 2007 01:07:59 +0000 http://allfinancialmatters.com/2007/04/05/are-you-logical-when-it-comes-to-risk/#comment-94961 I went for A, then B as well. I would consider myself risk adverse. It looks like the commentors are backing up the study! I went for A, then B as well. I would consider myself risk adverse. It looks like the commentors are backing up the study!

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