My choice is $5 million because the impact of $5 million vs $100 million is not that much and the downside (80%) of getting nothing is far greater than the incremental $95 million, even though the expected value of the 20% of $100 million is $20 million.
Now maybe when / if I am older and wealthier, I'd choose differently.
IPVMU Certified | 02/10/15 12:37am
going for the sure thing... give me the 5 million...
IPVMU Certified | 02/10/15 12:39am
How are you measuring risk in this poll? Is the risk not going for $100 million and taking the $5 million? Or is the risk not taking the $5 million and going for the $100 million?
For sure, the 20% chance for the $100 million!
About 15 years ago, literally days before the dot-com crash, every star possible aligned in the heavens, allowing me to sell my share of my first business for something north of $50 million. Today the same business would be worth 1/10 of that. So, I was incredibly fortunate.
Ironically my reasons for taking the risk are the same as John's in reverse.
The impact of $5 million is minimal. It wouldn't change my life, at least day to day.
The impact of $100 million could be big. I might buy a small island w/ plane, if the price was right.
IPVMU Certified | 02/10/15 01:28am
My answer changes depending if I'm starting with $0 or millions in the bank already.
I rather lock 5 million, than take a 1 in 5 chance to make 100, which is 100% not guaranteed!
10 years ago - chance to get 100M. Now with a family and kids - 5M.
Since the expected value is the same, I would expect a risk premium would be necessary to entice some to hazard the 80% failure rate for the $100M possibility.
$5M without a doubt.
Then I would gamble - I mean invest - a portion of that in the stock market to try to make a bigger win. Or start a company with the same goal to make more.
i.e. there is still nice upside potential for the $5M.
IPVMU Certified | 02/10/15 05:38am
Another risk revealing question would be at to ask:
How low does the guaranteed payout amount have to get to before you would take the chance to win $100 million instead?
$100,000 or $10,000? or $1,000? Ouch!
At my age i'll take the 5 million and use it as a grubstake, thus doubling it every 5 years or so — the wiser move. and who know maybe I would end up on an island too <GRAN>
I'll bet that if you paint the risk equation with a somewhat different picture and tweak the odds slightly, it can make a huge difference on one's 'appetite for financial risk'. What if it was only one million against a shot at fifty, and a one in six chance instead of one in five?
A guaranteed, tax-free, suitcase full of 10,000 crisp new Benjamins, free and clear.
A single roll of a single die at a Las Vegas Craps table for a shot at 50 times that amount.
Instant cash-in-hand "Millionaire", or a one-in-six shot at enough money to buy a yacht, a mansion, a small plane and five awesome cars... with enough left over to still have difficulty spending through the interest alone each year.
Does that change people's risk tolerance?
John, I have to assume there's some context within which this decision exists. If it's (say) business, then I have to assume that this will not be my last chance at a choice. That is, in a year I may be faced with the choice of $1 million or a 10% chance at 5 million, etc.
We actually do make decisions like this in this industry. Do I have my sales people slog through 100 calls today knowing they'll close a bunch of small deals or have them spend the next week working up a proposal to land a huge sale? Do I have my engineers work on the also-have feature I know people expect, or the innovative new thing that will differentiate us?
Business is about risk and placing bets. A 20% chance at a huge return is a good bet.
Pro Focus LLC | 02/10/15 03:03pm
I believe you should have my address on file John. I will take the $5M payout please.
I voted the 20% chance at 100 million, but I'm 28 and have plenty of time to save for retirement. The risk of striking it really big is worth the reward if it happens.
I also like to think I have some cojones.
I would try my luck at a 20% chance at $100 million. Life is worth living when the stakes are raised and you let fate deceide your destiny. We're all working for a better tomorrow, but why not take a 20% chance at a great future?
Hell, I'm due for a few million once a few of those Nigerian princes finally send me my cut ;)...
This is an interesting topic, and given the poll, almost 20% of the poll takers would take the chance at $100 million. This really echos out to what we see in society, where a lot of people take the safe, normal route (which, again, is totally fine!), and there are only a few bold risk takers that, most of the time, crash and burn, but win it big when it works.
Fellow risk takers of IPVM, I salute you!
Lets pose the question a different way. Say you could invest in a business that had a guaranteed return of 5 million, or you could invest in a business that could possibly return 100 Million. Your investment was 100K.
IPVMU Certified | 02/10/15 06:59pm
John, if anyone else had asked this question I would have thought it was an idle musing, just spun out for entertainment's sake.
But knowing your undeniably pragmatic nature, I can't help but wonder if it's not more than that...
So, is there another tender offer 'on the table' today, one that you're considering, perhaps? ;)
Take the $5 Mil - more than enough money for me and dad always stressed to me a bird in the hand is worth 2 in the bush.
Since, 5.5 Mil is my NUMBER.
I'd take the guareeteed 5 Mil, invest it (not nessessarily stocks), and live comfortable off the monthly returns for the rest of my life, while I pursue other interests!
Interesting downsides to big jackpots:
[From the linked reddit comment]
Large jackpot winners face double digit multiples of probability versus the general population to be the victim of:
Homicide (something like 20x more likely)
Bankruptcy (how's that for irony?)
And triple digit multiples of probability versus the general population rate to be:
Convicted of drunk driving
The victim of Homicide (at the hands of a family member) 120x more likely in this case, ain't love grand?
A defendant in a civil lawsuit
A defendant in felony criminal proceedings
Come to an agreement with the other 4 people for 10 million each. everybody wins.
Pro Focus LLC | 02/17/15 08:53pm
I just asked a millionare friend his take and he said the 20% shot at $100M for sure. I only asked him because I want to see his choice vs mine for perspective sake. He said if he could even have a 10% chance at the $100M, he would take that. He said $5M doesn't change his life, but the $100M would. He said it takes 7.5 years to double your money today, so spending $5M for a quick shot at $100M would save him 150 years of investment time.
IPVMU Certified | 02/17/15 09:54pm
with those feeling like they couldn't live on 5 million dollars do you think you would stop working if you had won or been given the money? personally I would have to keep working in order to stay sane... not sure if anybody else would do the same or just retire...
This thread is like the TV show Deal or No Deal. I am risk adverse and would yell at the folks not walking away when they had a sure thing.
Actually, I suppose it is like every game show on TV. There is always that person trying to milk the board on Wheel of Fortune and hits bankrupt.
Name only buddy, I can assure you.
$5 million guaranteed would pay for the kids college, mortgage and provide plenty to invest with... couldn't say no. My answer would be different if it had been $50,000 vs $1 million or perhaps even $500,000 vs $10 million.