The value of a dollar
What value do you place on a dollar? A simple way to test this is to ask yourself what your times ten tipping point is. For this situation you must select one of two choices.
First choice: You get a guaranteed $1.
Second choice: On the successful flip of a coin you get ten times the first choice (i.e. $10). However if you lose the coin toss you get nothing.
So which option would you pick? Well the majority of people would easily give up a guaranteed $1 for a 50/50 chance at getting $10. The reasoning is that the loss of one dollar for a 50/50 chance to gain ten dollars is an acceptable risk for the majority of people.
A fairly simple question? Well this is where things get more complicated. What if we repeated the experiment but with different dollar amounts. Have a look at the following table. By going slowly down it see if you can figure out what your tipping point would be for accepting the guaranteed amount over the coin toss.
Guaranteed | 50/50 chance |
| |
$1 | $10 |
$5 | $50 |
$10 | $100 |
$50 | $500 |
$100 | $1000 |
$500 | $5000 |
$1000 | $10000 |
$5000 | $50000 |
$10000 | $100000 |
$50000 | $500000 |
$100000 | $1 million |
$500000 | $5 million |
$1 million | $10 million |
There is no right or wrong answer to this question as it is made up of only one thing: what value do you place on a dollar?
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