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Old 3rd March 2012, 09:19 PM   #29
WhatRoughBeast
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Join Date: Apr 2011
Posts: 1,499
Originally Posted by ynot View Post
Or do you think they are both the same?
ynot -

That's the question, and the phrase "do you think" is at the core of it. The "mathematical" answer is yes (pretty close, but how do you deal with the fact that you can't lose more than once?). For most folks, however, there exists an ill-defined point where the perception of risk and reward change. This is another version of Dan O.'s "The value of money is not linear." It also pertinent to your question about behavior in the face of long odds.

As the saying goes, "A bird in the hand is worth two in the bush." And the sort of question you posed in your OP, with a few changes, is instructive. Let's make the choice between a lottery with 10,000 to 1 odds (and a $10,000 payoff) and one with 1,000,000 to 1 odds and a $1,000,000 payoff. The average return on a bet is the same in each case. However, this assumes an infinite (or at least very large) number of tries. And none of us will live that long. Just for grins, let's assume you'll buy one ticket per week for 50 years, with no purchase during your two-week vacations. Then a more reasonable judgment is: what are your chances of winning something during your lifetime?

In round numbers, you have a 1 in 4 chance of winning for the first lottery, and a 1 in 400 chance for the second. So which is better?

That depends. Why would you play the lottery in the first place? For some folks, the first choice wins. 1 in 4 is not completely unreachable. But for many others, the longer odds are better, since the bigger payoff is more attractive. After all, you can't quit your job and retire on 10 grand, but you miight do so with a million.
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