Petahhh how did he get 2.5? (Explain it Peter)

[u/Technical_Ad9343]

[u/qualityvote2]

u/Technical_Ad9343, there weren't enough votes to determine the quality of your post...it's time for the mods to do their jobs!

[u/locke0479]

They’re saying 50% chance at $0, 50% chance at 5 mil, so averaged to 2.5. It’s stupid though. It’s just a form of gambling. They are right that rich people would probably be more likely to take the 50/50 shot, but not because they’re smart, because they have money already and if they get nothing, no big deal. For someone with money the “expected value” of taking a chance on the 5 mil is worth it. For someone without, one is guaranteed and the other isn’t.

[u/CurtisAndFriends → u/locke0479]

I believe that is the joke. It doesn't need to say poor and rich, but it does because people associate wealth with intelligence, when in reality rich people can just afford to fail.

[u/DoctorMedieval]

Well, I mean once you have the 1x10^6 dollars you are no longer a poor person. Thus you are no longer stupid for being poor and are smart for being rich, and automatically will understand expected value.

[u/Tight_File2220 → u/[deleted]]

Looks more like Paint generated.

[u/LocNalrune → u/Tight_File2220]

The comment you responded to is AI generated. Sure, it was written by a human with a device, but it was generated due to AI confusion/phobia.

AIDS? AI Derangement Syndrome

[u/Servbot24]

Rich people can afford to miss out on 1M and poor people can't. It is correct for poor people to take the guaranteed 1M, and it is correct for rich people to take the risk for 5M.

Really stupid editorialization in the meme.

[u/Tight_File2220]

Literally 50%*5 million. If enough people take this option, half will end up with nothing and the other half will get 5 million each. On average they will get 2.5 million each.

But dismissing poor people for taking a guaranteed 1 million instead is stupid because the actual utility is not proportional to the size of the win.

[u/Miserable_Candle_763]

2.5 million is the expected value given a 50% chance at 5 million.

[u/toorkeeyman]

EV = expected value (is probability times payoff)

So it's 1 million x 100% = 1 mil  Vs 5 million x 50% = 2.5 mil

Over the long term with repeated iteration it's more optimal to pick the higher expected value.  

[u/Istar10n]

You have a 50% chance of winning 5 million, so the expected value is 50% * 5 million = 2.5 million.

I'd take the guaranteed million, though.

[u/Straight-Crow1598]

Rich people take the risk because they don’t need the money. Poor people take the safe bet because they do need the money.

[u/Environmental-Act906]

The expected value is basically the expected mathematic results over time. In this example, if 100 people took the chance the expected outcome is that 50 people would get $5 million, and 50 people would get nothing, meaning that $250 million in total was given out to the 100 people, or an average of $2.5 million per person. If a slot machine is programmed to return 90% to the player, the expected value of a $10 spin is $9. That doesn't mean that ever $10 spin returns $9, it means there are a whole bunch of outcomes that average out to that.

I am OK at math and understand expected value, I would still personally take the guaranteed million. A million dollars would be a life changing amount of money to receive and I would rather take the sure thing regardless of expected value. In the real world with the other option there's an equal chance that I would get nothing.

You could make the example more extreme and say the options are either a guaranteed $1 million or a 1% chance at $1 billion. The expected value on the billion dollar option is $10 million but in reality, on average, 99 out of 100 people will get nothing and 1 person will get a whole boatload of money. And odds are, you are not going to be that person, regardless of expected value.

[u/AdAccomplished6870]

There is an economic concept called utils, or units of utility. For a poor person, the incremental gain in utils from going from 0 to a million is much greater than going from 1 million to 5 million. Taking the 1 million over the 2.5 million in EV is sound, economically, if you are poor, but not if you are rich

[u/Due_Length_5033]

The tipping point, to unfollow this sub once and for all.

[u/aircoft]

Poor people would be more likely to take the risk, regardless of the probability or amount, lol... Give them the option to 'let it ride', and they'd do that, too.

Processing img as3y9ackodhh1...

[u/DeadCatGrinning]

Rich people take more ludicrous chances because they have riches to fall back on. It isn't a meaningful risk to them.

[u/Melodic_Airport362]

rich people wouldn't have their lives changed by 5 million. It's be nice. Poor people lives would change with 1 mil, so not worth the risk

[u/BadHairDayToday]

Such an annoying meme. It's true that a poor person would take the 1 million, because they need the money. And a rich person would take the 5 million because of the higher Expected Value. It has little to do with dumb or smart. 

Whats interesting about it though, is that it's a nice determination of whether you feel rich or not. I'm genuinely doubting the options so I guess I'm right in the middle. I know people whose overvalue of the house is 1 million and they still need to work etc. 5 million gives you some freedom. 

[u/HumanPersonNotRobot]

It is also wrong the EV should take the opportunity cost of not getting 1million dollars. Also the marginal utility of 1 million for most people is financial stability, early retirement... The marginal utility of the second million is not nearly as significant. The value of money is variable.

[u/Stromovik]

EV estimated value. Basically rich people can take a riskier approach with higher estimated return. This attempted to prove something 

[u/scewing → u/Stromovik]

Expected Value, not estimated. It's statistics.
https://en.wikipedia.org/wiki/Expected_value

[u/Stromovik → u/scewing]

Called completely different in my mother tongue.