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Ask HN: What are examples of activities/bets with asymmetric upside?

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Ask HN: What are examples of activities/bets with asymmetric upside?

#1

Post by valdagger »

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.

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 was potentially huge, the downside was capped at -100%.

What other examples are there?

Also welcome examples of things with asymmetric downside like texting while driving.

Re: Ask HN: What are examples of activities/bets with asymmetric upside?

#2

Post by MilnerRoute »

Here's my favorite example -- in the form of a story.

A bunch of friends visits a young guy who recently moved to Las Vegas. "Here's how we get twenty bucks in Las Vegas," he boasts to his friends, putting $20 on the roulette wheel for black. When it comes up red, he puts down a $40 bet, bragging that "I'll keep increasing the size of my bet until I make back my money -- plus another $20!"

One time he'd had to double his bet four times in a row, but he's convinced that his system works, and does it every time company comes to visit.

Do you see where this is going? One day he hits a horrible streak. Five times in a row he's lost the bet. (So, $20, $40, $80, $160, $320.) Now he's got to bet another $640 -- and hope that he wins. (It's getting awkward, with all his friends watching him lose, feeling bad for him...) At some point his wallet is out of cash, and he's slinking back to the in-casino ATM machine. (And the bank balance isn't infinite either...)

Conclusion? This particular strategy has an asymmetric downside. More often than not, you'll walk away with $20. But the casino knows that sooner or later you'll have that one very bad day where they'll get it all back.

Re: Ask HN: What are examples of activities/bets with asymmetric upside?

#3

Post by valdagger »

MilnerRoute wrote: post #2

Here's my favorite example -- in the form of a story. A bunch of friends visits a young guy who recently moved to Las Vegas. "Here's how we get twenty bucks in Las Vegas," he boasts to his friends, putting $20 on the roulette wheel for black. When it comes up red, he puts down a $40 bet, bragging that "I'll keep increasing the size of my bet until I make back my money -- plus another $20!" One time he'd had to double…

Classic martingale. Never fails to capture the imagination.

Re: Ask HN: What are examples of activities/bets with asymmetric upside?

#4

Post by myroon5 »

MilnerRoute wrote: post #2

Here's my favorite example -- in the form of a story. A bunch of friends visits a young guy who recently moved to Las Vegas. "Here's how we get twenty bucks in Las Vegas," he boasts to his friends, putting $20 on the roulette wheel for black. When it comes up red, he puts down a $40 bet, bragging that "I'll keep increasing the size of my bet until I make back my money -- plus another $20!" One time he'd had to double…

Casinos also usually have bet minimums and maximums to thwart things like this

Re: Ask HN: What are examples of activities/bets with asymmetric upside?

#5

Post by threeseed »

MilnerRoute wrote: post #2

Here's my favorite example -- in the form of a story. A bunch of friends visits a young guy who recently moved to Las Vegas. "Here's how we get twenty bucks in Las Vegas," he boasts to his friends, putting $20 on the roulette wheel for black. When it comes up red, he puts down a $40 bet, bragging that "I'll keep increasing the size of my bet until I make back my money -- plus another $20!" One time he'd had to double…

The other thing is that in Las Vegas at least casinos are private property.

So if you keep winning they have the legal right to just throw you out.

Re: Ask HN: What are examples of activities/bets with asymmetric upside?

#6

Post by recursivedoubts »

capture a regulator and have them put your competitors out of business

bribe politicians to use your countries armed forces in your companies interests

get the government to cover any downsides of your product

be the child of a politician and offer consulting services

found a central bank

there are lots more

Re: Ask HN: What are examples of activities/bets with asymmetric upside?

#7

Post by OJFord »

The 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.

I suppose you can just view it as a microcap, very high risk investment.

I don't play, fwiw. I do have Premium Bonds, a lotteryish government scheme in the UK where you keep the invested amount and it can't go down (other than in real terms) but has a shot at winning various amounts each month up to the maximum of £1M. That's a lot easier to justify to myself, but I do wonder if it's a bit too easy to dogmatically hate on the lottery.

Re: Ask HN: What are examples of activities/bets with asymmetric upside?

#8

Post by purpleblue »

> 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.

Re: Ask HN: What are examples of activities/bets with asymmetric upside?

#9

Post by xelxebar »

MilnerRoute wrote: post #2

Here's my favorite example -- in the form of a story. A bunch of friends visits a young guy who recently moved to Las Vegas. "Here's how we get twenty bucks in Las Vegas," he boasts to his friends, putting $20 on the roulette wheel for black. When it comes up red, he puts down a $40 bet, bragging that "I'll keep increasing the size of my bet until I make back my money -- plus another $20!" One time he'd had to double…

This is an good point. From the perspective of a casino, most of their games have asymmetric upside.
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