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There's diminishing returns on the utility of money. If you're living paycheck to paycheck that guaranteed million is gonna give you a higher expected return of utility than the next 49 million combined. I disagree with the title calling it a "dumb" financial decision. It can be perfectly rational to take the million.
There's diminishing returns on the utility of money. If you're living paycheck to paycheck that guaranteed million is gonna give you a higher expected return of utility than the next 49 million combined. I disagree with the title calling it a "dumb" financial decision. It can be perfectly rational to take the million.
It is a dumb financial decision. You could find a third party you could agree with to give you 20mil now for whatever the coin toss brings you.
There's diminishing returns on the utility of money. If you're living paycheck to paycheck that guaranteed million is gonna give you a higher expected return of utility than the next 49 million combined. I disagree with the title calling it a "dumb" financial decision. It can be perfectly rational to take the million.
There's also "purely statistical" problems with the argument the 50 million at 0.50 probability is the better decision: it makes an erroneous ergodicity assumption. In other words, it assumes that the expectation of a one-shot decision over people is the same as it is for the decision within-person. Sure, if you were making the choice over and over and over again, it would be better to repeatedly hit the green button…
How many companies have you seen with "contests" to get ideas or content. The vast majority of people end up with nothing.
There's diminishing returns on the utility of money. If you're living paycheck to paycheck that guaranteed million is gonna give you a higher expected return of utility than the next 49 million combined. I disagree with the title calling it a "dumb" financial decision. It can be perfectly rational to take the million.
It is a dumb financial decision. You could find a third party you could agree with to give you 20mil now for whatever the coin toss brings you.
> Expected value (also known as EV, expectation, average, or mean value) is a long-run average value of random variables.
If you can only press a button once - you should take the guaranteed money in almost all circumstances (assuming you have finances that look like most Americans - if you're already a millionaire... do what you want, this game doesn't matter much to you).
Basically - This is a dire misunderstanding of how statistics works in general. The population at large might be better off pressing the 50% at 50 million button (because then you are running this game many times and you will likely achieve the expected value) - but as an individual, who can only roll the dice once, you are much better off just taking the immediate and guaranteed win.
And that's not even accounting for the drop off in marginal value of each dollar as you accumulate them - that first million is far more impactful than the next 49.
The way I've been able to deal with this personally is by thinking "what would I do if this was Monopoly money?" and then reconcile that with my emotional decision.
"Emotion may lead you to make bad financial decisions. For example, people who feel sad will pay more, sometimes four times more, for a consumer product than those who do not feel sad."
The "Nash equilibrium" also delves a bit into the psychology of decision making: https://www.reddit.com/r/math/comments/1tc80g/is_the_explana...
Expected value doesn't mean jack shit if the game can only be played once. > Expected value (also known as EV, expectation, average, or mean value) is a long-run average value of random variables. If you can only press a button once - you should take the guaranteed money in almost all circumstances (assuming you have finances that look like most Americans - if you're already a millionaire... do what you want, this ga…
This is in fact the reason you should take the million.
How many times you get to play the game is irrelevant. Your whole life is filled with potential but uncertain payoffs, and you should maximise expected utility every time (where utility is not the same as dollars).