Option 2: Walk into a casino and be given a fair 6-sided dice (you'll be allowed to verify it). A random guy will then be given the dice. If he rolls a 6, a billionaire will give you $1 billion. If he rolls anything else, you'll get nothing.
Both options are tax-free. Which do you pick?
Take my chances on the billion; but have my wife lay down a hundred million dollar prop bet at casino-friendly odds for me to lose. Hedge my result and guarantee a 9 figure payout.
So you think $100,000 would greatly change MOST people’s lives. Really?
Median net worth in the US is slightly under $200K, so yes a 50% increase in net worth would greatly change most people’s lives in theory.
The reality is that most people tend to blow money, especially easy money. So in the long term would have little impact on most lives.
Well if $100,000 is a game changer for most people then it is a game changer for Flagpole. He could buy 2 or 3 cars with that money. It is not change you pick up on the sidewalk. Anyone posting here would pick up $100,000 off the ground if there were no danger in doing so. So ask yourself why? Because it is the sort of money which one might find useful, even if one has several million.
1 in 6 chance of landing $1,000,000,000 has an expected value of $167,000,0000 (167 million dollars)
You'd have to be a damn fool to take $100k
It’s not expected value you should optimize for but expected utility (generally speaking), in my second semester micro class we actually did some stochastic utility problems like this, just much more complex.
The thing is, people are generally pretty bad at estimating their own utility functions, you see this in behavioral experiments that demonstrate behaviors inconsistent with utility theory, such as cognitive biases like loss aversion. But that can also lead to philosophical discussions about akrasia.
To those that said they’d take the shot at a Billion, would you bet your own $100K for a 1 in 6 chance of winning $1B? You only get one shot. I wouldn’t.
And the fact that different agents have different utility functions is what leads to insurance markets. For example, a homeless person may very well make a rational decision of choosing the $100k, whereas a multimillionaire would choose the chance at a billion. And he could purchase the lottery rights from the homeless guy for $500k for a Pareto improvement in expected utility.
I woukd take the $100,000, precisely because I don’t need it, but it is guaranteed. Guaranteed money is better, especially if you don’t need it. The $1 billion is not going to improve your life as much as you think, especially if you are already financially secure. Take the guaranteed money, precisely because you don’t need it.
Either one of the handful of guys with the cash buys it, or someone needs a loan.
I can see a bank putting 50 for it.
Insurers, interest rates, and administrative costs could probably make it happen for more than 100 million.
Now we're getting into stips that the OP never included. Sure you'd sell the roll if you could, but the original question never stated that this was an option. So for consistency you'd have to presume you can only roll or take the smaller amount.
Either one of the handful of guys with the cash buys it, or someone needs a loan.
I can see a bank putting 50 for it.
Insurers, interest rates, and administrative costs could probably make it happen for more than 100 million.
Now we're getting into stips that the OP never included. Sure you'd sell the roll if you could, but the original question never stated that this was an option. So for consistency you'd have to presume you can only roll or take the smaller amount.
So many fools on here don't get it, they want to add their own spin to the question when there is none. It's a simple deal, 1 roll for $1 billion, no selling your chance or any other nonsense people. You either end up with $100,000, $1 billion, or $0 if you roll and lose, there are no other options.
I would sell tickets at $5 a piece for a chance at winning $100M. The winning ticket would only win if I also won the Billion. If I won the winner would be paid out of my Billion. If I lost I would keep all of the ticket sales. Either way I'm definitely making more than $100k.
I would sell tickets at $5 a piece for a chance at winning $100M. The winning ticket would only win if I also won the Billion. If I won the winner would be paid out of my Billion. If I lost I would keep all of the ticket sales. Either way I'm definitely making more than $100k.
You cannot sell what you don’t have. You’re just running a Ponzi scheme.
I would sell tickets at $5 a piece for a chance at winning $100M. The winning ticket would only win if I also won the Billion. If I won the winner would be paid out of my Billion. If I lost I would keep all of the ticket sales. Either way I'm definitely making more than $100k.
You cannot sell what you don’t have. You’re just running a Ponzi scheme.
You don't seem to understand how a Ponzi scheme works.
By a wide margin. The “break even” amounts for me would be ~ $15M / $1B. Even then, it would be smarter to roll the dice, but the guaranteed part is obviously the attractive feature for option 1.
I feel like there is a point where you can't look at it mathematically. $15 million would be life changing money for me as it would allow me to retire. Even though it's much lower than the expected returns of 1/6th of 1 billion, I'm taking that option.
My break even is probably 4-5 million. That's a number that would substantially speed up my retirement. Much lower than that, and we are rolling the die every time.
You cannot sell what you don’t have. You’re just running a Ponzi scheme.
You don't seem to understand how a Ponzi scheme works.
You are committing fraud when you are taking money for something you cannot deliver. It is not exactly a Ponzi scheme but it is the same idea of taking money and delivering nothing. Plus the rules don’t allow for it. Can you not read?