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A Time Traveler and a Trade

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lax99 View Post
I saw something interesting going around Twitter the other day and I wanted to see how different traders would consider this.

Suppose you're in a trade and a Time Traveler appears in front of you. The Time Traveler has seen the future, and tells you "Your current trade has an 80% chance of quadrupling your net worth and a 20% chance of losing your net worth". He then disappears in a flash of light and you're left staring at your platform with a trade currently sitting at scratch.

What do you do? Do you scratch the trade or do you keep it on, and why?

Close it. If I go to zero, I can't eat. Or buy beer. Or trade.

If he said, "20% chance of losing half your net worth," would I take it? In other words, not really be broke, just knocked back a lot.... Probably I would.

Probably I shouldn't, but probably I would....

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Related question: you get a great idea for a new business. You don't get a messenger from the future, but you know that the odds do not favor new startups. (Most new businesses fail.) Do you borrow money and go for it, or take the safe path and decide to pass on it? If it succeeds, you become a millionaire. If it fails, you have left your job and have a pile of debt.

The same issues of risk/reward/consequences. (Although the odds of failing in a new business are much greater than 20%.) Different people have different tolerances. Also, how old are you, what are your skills/job history, do you have a family, and so on, will affect anyone's tolerances, but not necessarily the same way....

This is more a personality survey than anything else. How risk-taking or risk-averse are you? How confident are you about your ability to bounce back? Etc.

So, I would take the risk of the half loss, not the full one. But I probably would take the new-business risk, because I would feel more in control, even with new-business statistics against me.

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You didn't give your answer, I notice.

Bob.

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