I don’t have real world stats, but here’s a hypothetical scenario. Say there’s a world where there’s two options for making money: a lottery with a .0001 percent (1 in 1,000,000) chance of making a billion dollars (EV $1000), or an investment with a 100 percent chance of making a million dollars. The rational thing to do is invest, but the richest people will have bought lottery tickets. So will a great many broke people, but you won’t see them on the news.
careful with your utility function. You need utility to be linear over money to do expected value.
If your goal is to be a billionaire, the ev of the lottery is 1e-6 and the ev of the solid investment is 0. (assigning utility 1 to state of being billionaire and 0 otherwise)
I don’t have real world stats, but here’s a hypothetical scenario. Say there’s a world where there’s two options for making money: a lottery with a .0001 percent (1 in 1,000,000) chance of making a billion dollars (EV $1000), or an investment with a 100 percent chance of making a million dollars. The rational thing to do is invest, but the richest people will have bought lottery tickets. So will a great many broke people, but you won’t see them on the news.
careful with your utility function. You need utility to be linear over money to do expected value.
If your goal is to be a billionaire, the ev of the lottery is 1e-6 and the ev of the solid investment is 0. (assigning utility 1 to state of being billionaire and 0 otherwise)