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?
2 important considerations
1) your age 2)your current net worth
If you are eighteen, you historically could count on that 100k doubling every 7 years in an index fund which would bring you at age 25(200k) ,32 (400k) 39(800k) 46(1.6mil)53(3.2mil)60 (6.4mil)66(12.8mil) Those estimates are certainly open to debate. I am too lazy to look up social security stats, but probably 70 percent of you who are alive at 18 will make it to 66. So if you could keep your hands off the money and very likely add to it, that is what I would do at 18
At my current age 67 and assets, I would guess fastball and swing for the fence. 100k won't change anything and who knows what can happen on a 2-0 pitch
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?
2 important considerations
1) your age 2)your current net worth
If you are eighteen, you historically could count on that 100k doubling every 7 years in an index fund which would bring you at age 25(200k) ,32 (400k) 39(800k) 46(1.6mil)53(3.2mil)60 (6.4mil)66(12.8mil) Those estimates are certainly open to debate. I am too lazy to look up social security stats, but probably 70 percent of you who are alive at 18 will make it to 66. So if you could keep your hands off the money and very likely add to it, that is what I would do at 18
At my current age 67 and assets, I would guess fastball and swing for the fence. 100k won't change anything and who knows what can happen on a 2-0 pitch
Like Llewellyn in no country for old men, you could spend half on hookers and cocaine, and blow the rest
If you are eighteen, you historically could count on that 100k doubling every 7 years in an index fund which would bring you at age 25(200k) ,32 (400k) 39(800k) 46(1.6mil)53(3.2mil)60 (6.4mil)66(12.8mil) Those estimates are certainly open to debate. I am too lazy to look up social security stats, but probably 70 percent of you who are alive at 18 will make it to 66. So if you could keep your hands off the money and very likely add to it, that is what I would do at 18
At my current age 67 and assets, I would guess fastball and swing for the fence. 100k won't change anything and who knows what can happen on a 2-0 pitch
Like Llewellyn in no country for old men, you could spend half on hookers and cocaine, and blow the rest
If I was an 18 year old with 5 million in a trust fund, as was Bill Gates situation, no brainer, 17% chance of being a billionaire
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.
Betting "your own $100,000 for a 1/6 chance at a billion" is not an equivalent scenario to the original scenario to "getting $100,000 guaranteed versus 1/6 chance at a billion" as far as decision theory is concerned.
This is because the marginal utility of money decreases with quantity. Money being the independent variable and utility being the dependent variable of course. (The relation varies from person to person, but it's generally logarithmic.) In your new scenario of BETTING $100,000, you're tapping into your savings (or worse yet: going into debt), which does not occur in the original scenario.
In your new scenario you can travel leftward on the Money V. Utility curve (where the curve is steeper). Whereas in the original scenario you can only travel rightward on the Money V. Utility curve (where the curve is less steep).
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.
Betting "your own $100,000 for a 1/6 chance at a billion" is not an equivalent scenario to the original scenario to "getting $100,000 guaranteed versus 1/6 chance at a billion" as far as decision theory is concerned.
This is because the marginal utility of money decreases with quantity. Money being the independent variable and utility being the dependent variable of course. (The relation varies from person to person, but it's generally logarithmic.) In your new scenario of BETTING $100,000, you're tapping into your savings (or worse yet: going into debt), which does not occur in the original scenario.
In your new scenario you can travel leftward on the Money V. Utility curve (where the curve is steeper). Whereas in the original scenario you can only travel rightward on the Money V. Utility curve (where the curve is less steep).
That’s completely true that the situations aren’t the same. However, for most people (not retirees) the expected utility function should also account for future earnings, so it’s not just the difference in a static utility function of my $100k in savings going to $0 or $1 billion (is u(100k) greater than 1/6*u(1 billion)? assuming we normalize u(0)=0). It’s what adding $100k now does to my expected lifetime utility accounting for other income flows.
The other poster said “assuming you only get one shot.” In fact, the option to take it is “most rational” at the first shot because the expected utility gain is higher than that at subsequent attempts due to the slope of the utility curve. So by saying “you have unlimited attempts until you deplete your savings” it actually should never change your decision compared to the one-shot game. Once you’ve already lost the first time, it becomes more costly in utility to roll the die the next time.
This post was edited 5 minutes after it was posted.
A life changing amount of money for me would be around $1.2 million. With that I could quit my day job and be financially independent. Anything above that would obviously be great, but the returns are greatly diminished for achieving what I actually want in life. Given $100K is still less than 1/6 of the amount of money I consider life changing, I would take the dice roll.
If 1.2 million is "life changing" so is losing 100k
The right answer is to roll, but I would probably take the 100k. I tend to think of money in terms of how many more years do I have to work. An extra 100k problem takes another 3-5 years off of my retirement age. A billion takes the remaining 20ish off. So 1/6 of 20 is 3 and a 1/3. So my first order expected utility payoff is close so I'd lean for the sure thing. I also know I would be kicking myself for the next 20 years if I didn't take the sure thing and I lost.
A life changing amount of money for me would be around $1.2 million. With that I could quit my day job and be financially independent. Anything above that would obviously be great, but the returns are greatly diminished for achieving what I actually want in life. Given $100K is still less than 1/6 of the amount of money I consider life changing, I would take the dice roll.
If 1.2 million is "life changing" so is losing 100k
If I got $1.2 million, there would be a significant difference in my expected age until retirement. If I lost $100k, not so much. I would take that gamble without much hesitation. Not so sure about $1 million, and at $800k would not.
If I had no money or if $100,000 would greatly change my life in some way, I would take the $100,000, and that's what MOST people should do.
That's not my situation today though, so I would take the shot at $1 billion.
So you think $100,000 would greatly change MOST people’s lives. Really?
Of course it would. There are a lot of people in this country living on Social Security alone. 20 years of $100,000 gives them an extra $5,000 a year to spend even if they don't invest it or park it in a HYSA.
There are a lot of people who have $100,000 in consumer debt, and paying that back is cripling to them. Getting rid of that debt guaranteed would change their life...enable them to save and invest.
$100,000 would make a great down payment on a house that could enable someone to buy a house when they wouldn't have been able to before. That can greatly change their life...gets them into a better neighborhood, better school system, enables them to stop throwing money away on rent sooner, locks in the price of the house sooner.
$100,000 could be the difference between allowing someone to retire now rather than waiting another 5 years to pay off debt to be able to do so (think mortgage needing to be paid off before retirement makes sense). Time is limited, and if $100,000 can enable you to retire sooner, that can greatly change your life.
Why is the above true? Because the median saving for retirement in this country is seriously lacking.
The highest age group in terms of retirement savings is the 65-74 age group, and the median amount there is $200,000. Pathetic. Median amount for 45-54 is $115,000. Pathetic.
So you think $100,000 would greatly change MOST people’s lives. Really?
Of course it would. There are a lot of people in this country living on Social Security alone. 20 years of $100,000 gives them an extra $5,000 a year to spend even if they don't invest it or park it in a HYSA.
There are a lot of people who have $100,000 in consumer debt, and paying that back is cripling to them. Getting rid of that debt guaranteed would change their life...enable them to save and invest.
$100,000 would make a great down payment on a house that could enable someone to buy a house when they wouldn't have been able to before. That can greatly change their life...gets them into a better neighborhood, better school system, enables them to stop throwing money away on rent sooner, locks in the price of the house sooner.
$100,000 could be the difference between allowing someone to retire now rather than waiting another 5 years to pay off debt to be able to do so (think mortgage needing to be paid off before retirement makes sense). Time is limited, and if $100,000 can enable you to retire sooner, that can greatly change your life.
Why is the above true? Because the median saving for retirement in this country is seriously lacking.
The highest age group in terms of retirement savings is the 65-74 age group, and the median amount there is $200,000. Pathetic. Median amount for 45-54 is $115,000. Pathetic.
Sure and if you don’t need $100,000, and I believe you, you sure as hell don’t need $1 billion, and of course the $100,000, while not life changing for you, is something you would gladly accept, and probably find a use for. After all, if you got the $1 billion, you would then essentially be coming out of retirement, as managing that amount of money is a full time job.
I'd rather sell the chance at $1 billion to some centibillionaire for a number like $20-50 million. The expected value is about $166.66 million vs a guaranteed $100,000 (1666 times less). Having a guaranteed ~$35 million would be certainly enough for me - and regardless, I'd probably just throw the vast majority just into low cost index funds and that wouldn't affect me too much whether it's tens of millions or 1 billion
Of course it would. There are a lot of people in this country living on Social Security alone. 20 years of $100,000 gives them an extra $5,000 a year to spend even if they don't invest it or park it in a HYSA.
There are a lot of people who have $100,000 in consumer debt, and paying that back is cripling to them. Getting rid of that debt guaranteed would change their life...enable them to save and invest.
$100,000 would make a great down payment on a house that could enable someone to buy a house when they wouldn't have been able to before. That can greatly change their life...gets them into a better neighborhood, better school system, enables them to stop throwing money away on rent sooner, locks in the price of the house sooner.
$100,000 could be the difference between allowing someone to retire now rather than waiting another 5 years to pay off debt to be able to do so (think mortgage needing to be paid off before retirement makes sense). Time is limited, and if $100,000 can enable you to retire sooner, that can greatly change your life.
Why is the above true? Because the median saving for retirement in this country is seriously lacking.
The highest age group in terms of retirement savings is the 65-74 age group, and the median amount there is $200,000. Pathetic. Median amount for 45-54 is $115,000. Pathetic.
Sure and if you don’t need $100,000, and I believe you, you sure as hell don’t need $1 billion, and of course the $100,000, while not life changing for you, is something you would gladly accept, and probably find a use for. After all, if you got the $1 billion, you would then essentially be coming out of retirement, as managing that amount of money is a full time job.
1) I don't need $100,000, and today, it wouldn't enable me to do anything I WANT to do that I can't already do.
2) No one NEEDS a billion dollars. What that amount of money does though is it would enable me to give to causes I want to help in a very meaningful way.
3) I disagree that managing a billion dollars is a full time job. I would hire someone to do that...a company.
Sure and if you don’t need $100,000, and I believe you, you sure as hell don’t need $1 billion, and of course the $100,000, while not life changing for you, is something you would gladly accept, and probably find a use for. After all, if you got the $1 billion, you would then essentially be coming out of retirement, as managing that amount of money is a full time job.
1) I don't need $100,000, and today, it wouldn't enable me to do anything I WANT to do that I can't already do.
2) No one NEEDS a billion dollars. What that amount of money does though is it would enable me to give to causes I want to help in a very meaningful way.
3) I disagree that managing a billion dollars is a full time job. I would hire someone to do that...a company.
Who do you want to give money to? Nobody is stopping you now are they? Why would your opinion about who to give money to be more important than anyone else’s? You should take the $100,000 and give it away.
Flagpole you have no idea what it is like to have that much money. It is a full time job and if you are hiring a company to manage your money, then you are also taking a risk, if you care about the money. But since you are so noble as to give it away, you won’t miss it anyway.