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19 April, 22:18

Your business partner has proposed you to join him (her) in investing $100000 each in a new enterprise. assume that you have that amount of money available. in case of success your return is $40000 but in case of failure you lose $20000. your analysis shows P40=0.3 of success and P-20=0.7 of failure.

would you invest? what is your investment risk preference and analysis?

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  1. 19 April, 22:21
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    I wouldn't invest.

    Risk preference at least 50-50 chance of gain and loose

    Explanation:

    case of success the return i get is $40000

    case of failure i lose $20000.

    My analysis shows P40=0.3 of success

    And P-20=0.7 of failure.

    The probability of a loose is much bigger than the probability of a gain.

    So I can't bear the loose of loosing 7 times if about 20000 and gaining 3 times of about 40000 it doesn't balance.

    My loose accumulating to 140000

    While my gain is 120000.

    I can't invest
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