Buying a house in the United States. For as little as 5% down, and low-single-digit-fixed rates over a 30-year term, you can purchase an asset worth hundreds of thousands of dollars and you get to keep all the upside if its value goes up (which is historically quite likely, especially since housing policy in the U.S. deliberately keeps supply low). It's insane leverage, an excellent inflation hedge, and you get to deduct the interest payments from your taxes, to boot. Oh, and when you do sell, a bunch of that upside (up to $500k) is tax-exempt if it's your primary residence.
Ask HN: What are examples of activities/bets with asymmetric upside?
11–20 of 100 posts
Re: Ask HN: What are examples of activities/bets with asymmetric upside?
#12> Investing in call options on AMD in 2014 or Tesla in 2019 also had huge asymmetric upside. It was clear that these stocks had massive risks, but while the upside wa potentially s huge, the downside was capped at -100%. This is a terrible example. No one knew that the stocks would skyrocket. So at the time it was asymmetric on the downside because the cost of options were ridiculously expensive.
The point isn't whether you "knew" the stocks would skyrocket. It's whether they could with some reasonable/acceptable probability. I remember these stocks being in the doldrums in each of those years and thinking that they could explode with a little execution. I was thinking of buying the stock (but didn't). If I was thinking along the lines of the call option (adding more asymmetry), I might have pulled the trigger. This isn't a "hindsight is 20-20" example.
Re: Ask HN: What are examples of activities/bets with asymmetric upside?
#13This might be simplistic, but the concept of "asymmetric upside" might be captured in any situation where "the worst thing can happen is that the person says no."
This includes: applying to competitive positions when you don't seem completely qualified, cold calls in sales (sales seems to be heavily based on asymmetric upside, where sales people call many different people until they get a few Yes-s), and asking people to hang out just to make friends.
More related to money, I've thought that cheap (and often free) educational material to have a large potential upside. Good books are often time well-spent, as long as there is enough time spent applying the concepts too. A cheap online course on video editing (I think about $10 USD at the time) has also come in handy many times.
Re: Ask HN: What are examples of activities/bets with asymmetric upside?
#14The lottery. Honestly it bugs me a bit that I don't know the right way to model it - because so often people will slate it for having a terrible expected return (E[X]), but.. some very high percentage of us here could play every single week without noticing it (negligible downside), and yet winning however slim the chance would be somewhat life changing - even if it wouldn't make you quit work it'd be a nice windfall…
The lottery seems like a really dumb thing.
Re: Ask HN: What are examples of activities/bets with asymmetric upside?
#15The lottery. Honestly it bugs me a bit that I don't know the right way to model it - because so often people will slate it for having a terrible expected return (E[X]), but.. some very high percentage of us here could play every single week without noticing it (negligible downside), and yet winning however slim the chance would be somewhat life changing - even if it wouldn't make you quit work it'd be a nice windfall…
Opportunity costs make the lottery a poor option. If you could only invest money in the lottery and nothing else, sure, it's better than no chance of multiplying your income.
But if you invest in an index fund, there's a very high chance of getting a 15-30% return on investment, versus a near-guaranteed amount of just losing the money spent on the lottery. It may not seem like a lot each ticket, but the costs add up over time.
Re: Ask HN: What are examples of activities/bets with asymmetric upside?
#16The lottery. Honestly it bugs me a bit that I don't know the right way to model it - because so often people will slate it for having a terrible expected return (E[X]), but.. some very high percentage of us here could play every single week without noticing it (negligible downside), and yet winning however slim the chance would be somewhat life changing - even if it wouldn't make you quit work it'd be a nice windfall…
Richard Thaler, I believe, talks about how the lottery can be a rational bet. As there is very little downside if not played frequently, but if you win, as unlikely as it is, it is life changing.
Obviously this only applies to something like PowerBall or Mega Millions. There is no rational reason to play the scratch off.
Re: Ask HN: What are examples of activities/bets with asymmetric upside?
#17The lottery. Honestly it bugs me a bit that I don't know the right way to model it - because so often people will slate it for having a terrible expected return (E[X]), but.. some very high percentage of us here could play every single week without noticing it (negligible downside), and yet winning however slim the chance would be somewhat life changing - even if it wouldn't make you quit work it'd be a nice windfall…
That's utility theory under a risk seeking utility function. You model E(U(x)) instead of the risk neutral E(x).
Re: Ask HN: What are examples of activities/bets with asymmetric upside?
#18Legal insider trading.
Prominent example are US Congressmen.
Personally investing into specific technologies (e.g. NVIDIA) and then passing legislation to promote those technologies benefits everyone, although asymmetrically.
Re: Ask HN: What are examples of activities/bets with asymmetric upside?
#19Buying a house in the United States. For as little as 5% down, and low-single-digit-fixed rates over a 30-year term, you can purchase an asset worth hundreds of thousands of dollars and you get to keep all the upside if its value goes up (which is historically quite likely, especially since housing policy in the U.S. deliberately keeps supply low). It's insane leverage, an excellent inflation hedge, and you get to de…
Where’s the huge upside though? You need a roof over your head so if your property goes up 10%, so has every property you’re likely to want to move to when it comes time to sell.
You only really benefit if you’re investing outside of your primary residence.
What’s more, the risk is huge. In the AMD example, you could lose 100% of your investment. Get things wrong with a house and you’re going to be out way more than your initial investment.
I own a home because it’s the most comfortable option for me and my family. With that said, I view it as a utility and not an investment.
Re: Ask HN: What are examples of activities/bets with asymmetric upside?
#20"For example, usually asking someone out on a date has huge asymmetric upside. You might hit it off and end up being in a happy relationship. If not, you'd just be a little embarrassed and maybe awkward with the person afterward."
Or it goes so "well" that you get married and they take half your stuff in a divorce.