question about economics

[Tom]

Just want a better understanding of risk versus reward.

Assuming that the only difference between 2 choices are the risk and the potential reward, ie, one has lower risk and lower reward, and the other is higher risk but higher reward..


if a sufficently large number of people engage in both behaviors, won't the average outcome for each group be the same ?

So like if you made a graph of the outcomes for the people in each group, the higher risk group would have higher peaks and valleys than the lower risk group, but the overall result would end up the same for each group ?

 

[Mrvile]

Good point. I guess so assuming that everything goes as planned. But assuming a few become billionaires and a few only lose millions of dollars, the result is a bit less linear. Sorry I'm having a hard time putting it in words.

 

[ElFenix]

yes. if you have a 1 in a million chance of winning 1 million dollars or a 1 in 1000 chance of winning 1000 dollars your expected value is 1 dollar for both.

 

[her209]

Originally posted by: Tom
if a sufficently large number of people engage in both behaviors, won't the average outcome for each group be the same?

In theory, if you flipped a coin a billion times, you would get heads 1/2 of the time. If you rolled a dice a billion times, you would get a six 1/6th of the time.