61–70 of 75 posts
Earlier quoted context omitted.
"Would you rather have a $100k steady job, or a 5% chance to make $1m in a year with a startup?" -> Definitely startup, even if the expected utility is half.
Would you pay 50k to join a startup and work for free as a consultant?
I'm sure that my behavior does not reflect my answers on this test. Given the numbers, I calculate expected value and answer rationally. In real life, a) the values and percentages are much less clear and b) even if they weren't I know I don't follow them as rationally.
Then why didn't you answer according to what you think you would actually do? The idea of the test was to gain insight into your personality with regard to risk and reward. If you can't honestly see yourself accepting a (.4 * $1000) loss over a $50 loss, then you answered incorrectly according to what the question was actually asking. Personally I had the same dilemma, but I found it revelatory to really look inside…
For example, let's take one of the loss scenarios and pretend that it's some wacky hosting cost.
* $50 guaranteed loss - paying $50 for 100GB of bandwidth
* 0.04% of chance of $1,000 loss - paying $2.50 for 100GB of bandwidth, but an extra $997.50 for unlimited bandwidth if you go over 100GB.
If I don't expect to do much traffic, I'll take the 4% chance; I project I might do 20GB of traffic during the term of the contract, so I will save 20x as much money. My product has a 4% chance of going viral. If I lose the contract lottery, it's because I've won the product lottery, and that 4% means I've got a rapidly-growing product that is going to make me a lot of money. The risk of that extra $1000 is well worth knowing that I'm not going to have to move my product between hosting providers when the blogosphere in in a mad frenzy about my internet tortilla delivery service.
That's completely different than a scenario wherein the hosting provider says "This is a variable contract; you owe us $2.50 for 50 GB of bandwidth, but each month we pick one of our 25 customers and they pay $1,000." There's no way in hell I'd sign on for that. There is no indicator of success correlated to the risk there.
Without context, I'm not sure that these questions are all that useful. You point this out yourself - the risk questions will be interpreted variably depending on the individual's resources and perspective. I can absorb a $50 loss trivially, so if the reward is equivalent, I'll choose that.
I'm sure that my behavior does not reflect my answers on this test. Given the numbers, I calculate expected value and answer rationally. In real life, a) the values and percentages are much less clear and b) even if they weren't I know I don't follow them as rationally.
Based on all these "rational actor" responses, I take it none of you purchase insurance?
Naive rationality may be easy to analyse but that just means that the GIGO transfer doesn't cost much.
I'm sure that my behavior does not reflect my answers on this test. Given the numbers, I calculate expected value and answer rationally. In real life, a) the values and percentages are much less clear and b) even if they weren't I know I don't follow them as rationally.
This is the point that I'm trying to get at. For Arrington to assert that entrepreneurs are "different" because they like risk, adventure, he is claiming that they knowingly choose bad deals. He is saying that these bad deals are compensated for not by money, reward, but the thrill of doing a startup. Hmm. We get a thrill from gambling sometimes even though we know that the odds are stacked against us. Arrington is d…
Tell you what: I tried to go with my gut feeling on every question. I am very risk-averse, but the idea of gaining money doesn't mean that much to me. Winning $100 vs $1000 isn't that emotional for me. Oh, sure, I'd like $1000 but I don't even care about $100. I thought about scaling the numbers up til they mattered to me, and decided I'd almost always take the sure thing because I could turn that money into a higher amount thru investing it in expanding my product.
But I would gladly pay $250 instead of even a slight risk of losing $1000. (Or whatever the numbers were I've forgotten already!) IRL, I've bought a new car because I'd rather pay a couple grand more than have the uncertainty of potential repair bills, etc. Clearly I hate negative unknowns.
That risk aversion has clearly influenced the type of "startup life" I've chosen. My products are "boring," but quite profitable. No funding, no 80 hour weeks, no sleeping under the desk, and no potential to be gobbled up by Google, either.
Nevertheless, I find this far less risky than having a job, because nobody can fire me from my own company! Plus, I'm not miserable because people are always screwing with my work.
That said, I think part of the special startup mindset is similar to the people who will bet more on dice they've rolled than dice rolled by someone else... whether a startup is acquired feels like something they can control, however irrationally.
Maybe you could ask what people believe is the average chance of acquisition for a startup in general, and what they believe their chance is?
By making the amounts small, the expectation is that you could run the bet multiple times, in which case it's just an odds game. The real question is what chances do you take that have such volatility, the deviation dwarfs the expectation for a single lifetime.
Just went through it and feel, as it seems many here do, that my financial risk-aversion quotient will be no higher than that of the general population. Does anyone else think that what really makes us entrepreneurs wasn't touched upon by the survey?
I didn't like this test very much. The financial questions are highly dependent. I guess I was relating to a hypothetical situation rather than the one I'm in now, but I don't think the choices here have anything to do with entrepreneurship; they're all circumstantial. As all entrepreneurs know, things can fluctuate quickly; there are times when $50 today, little as it is, is more important than the potential of $500…
This is all about statistics, and also about comparing with a control group. I assume the authors have (or can get) baselines for all the questions here. They look like the kind of questions Dan Ariely would work a lot with.
So it doesn't matter that the questions are context dependent. If HNers massively answer one way while the college student population doesn't, you have a difference you can work with. Of course, it's not a definitive answer but it's still valuable information.
As for the results, I'd guess entrepreneurs are more risk averse then average, but also more inclined to chose rewards in the future.
I'm sure that my behavior does not reflect my answers on this test. Given the numbers, I calculate expected value and answer rationally. In real life, a) the values and percentages are much less clear and b) even if they weren't I know I don't follow them as rationally.
You treated it like a school test, looking for the "right" answer. To paraphrase Nicholas Nassim Taleb, if a coin falls head 100 times straight, the chances it will fall tails the 101 time are 50% only in academia - in the real life the coin is fixed.
i have to agree with the others, I just calculated the value and chose the higher one. Interesting could be the outcome of the last questions where no probability, or intrest rate was given.
Additionally, I think, even if all of us are entrepreneurs (there's still now agreed definition of the term see http://bit.ly/amULry ) we decide different. We decide different, depending on our situation or the environment (see Gartner 1989ab 1989b, 1990) we are in. I'm a student my self, perhaps getting $150 now could get me through the month, but one million in two month isn't. So I would take the 150 bucks.