$5 Million Guaranteed Or 20% Chance At $100 Million - What Would You Choose?

JH
John Honovich
Feb 10, 2015
IPVM

I am curious what the risk level is of people in the security industry is.

As such, I am throwing out this poll. You are given a choice, either $5 million guaranteed, cash in hand, or a 20% chance to get $100 million today. What do you choose?

Vote below:

I'll give my answer in the comments below.

Summary

Security professionals are significantly risk averse overalls, shows the poll results. Nearly 90% of 100+ respondents choose the $5 million option, even though the expected value of the other option was 4 times greater (i.e., a 20% chance at $100 million is an expected value of $20 million).

This is neither right or wrong but does highlight the risk tolerance of our industry.

JH
John Honovich
Feb 10, 2015
IPVM

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.

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KL
Keefe Lovgren
Feb 10, 2015
IPVMU Certified

going for the sure thing... give me the 5 million...

KL
Keefe Lovgren
Feb 10, 2015
IPVMU Certified

John,

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?

JH
John Honovich
Feb 10, 2015
IPVM

The risk of "20% chance to get $100 million today" is the 80% change you get 0.

So in the first case, it's $5 million period; in the second case, it's $100 million if you 'win' (20% chance) and $0 if you 'lose' (80% chance).

U
Undisclosed #1
Feb 10, 2015
IPVMU Certified

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.

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JH
John Honovich
Feb 10, 2015
IPVM

"The impact of $100 million could be big. I might buy a small island w/ plane, if the price was right."

From which you would continue to comment on IPVM.... ;)

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U
Undisclosed #1
Feb 10, 2015
IPVMU Certified

With that kind of money I'd probably just hire people to post for me. ;)

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KL
Keefe Lovgren
Feb 10, 2015
IPVMU Certified

in that case where should i send a resume?

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U
Undisclosed #1
Mar 13, 2015
IPVMU Certified

btw, a new island just surfaced on the market:

It's a bit of a fixer-upper as islands go, but it does come with central heating (volcanic) and genuine igneous subflooring. Act now, this one won't last long...

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Brian Rhodes
Feb 10, 2015
IPVMU Certified

My answer changes depending if I'm starting with $0 or millions in the bank already.

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JH
John Honovich
Feb 10, 2015
IPVM

You don't know how much money you have in the bank? :)

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JP
Jason Pfau
Feb 19, 2015
IPVMU Certified

I dont always know after the wife has been gone for hours with the debit card.

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Jon Dillabaugh
Feb 19, 2015
Pro Focus LLC

At least Debit cards are usually limited daily to $10,000 spending limits.

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Brian Rhodes
Feb 10, 2015
IPVMU Certified

also: more money, more problems

RM
Richard Martinez
Feb 10, 2015

I rather lock 5 million, than take a 1 in 5 chance to make 100, which is 100% not guaranteed!

KA
Konstantin Avramenko
Feb 10, 2015

10 years ago - chance to get 100M. Now with a family and kids - 5M.

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HL
Horace Lasell
Feb 10, 2015

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.

JH
John Honovich
Feb 10, 2015
IPVM

The expected value is not the same.

  • The expected value of $5 million guaranteed is $5 million
  • The expected value of a 20% shot of $100 million is $20 million, ergo 4x the expected value.
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HL
Horace Lasell
Feb 10, 2015

This is one of those times I wish I could quietly delete a previous message LOL

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GN
Gloria Nichols
Feb 10, 2015

$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.

TC
Trisha (Chris' wife) Dearing
Feb 10, 2015
IPVMU Certified

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!

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JH
John Honovich
Feb 10, 2015
IPVM

Agreed.

For example, if the question was "Would you take $5 guaranteed or a 20% chance at $100?" you'd have to think the results would be lopsided to the latter.

But this does show how the practical impact of wealth impacts a theoretically un-rationale move (favoring a far lower expected value to lower risk).

RR
Richard Ramsowr
Feb 10, 2015

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>

Rick

UM
Undisclosed Manufacturer #2
Feb 10, 2015

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.
Or...
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?

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Mark Jones
Feb 10, 2015

" A bird in the hand"

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SM
Steve Mitchell
Feb 10, 2015

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.

JH
John Honovich
Feb 10, 2015
IPVM

I intended this to be you personally, Steve Mitchell, regular people, not Steve Mitchell, corporate titan :)

That is a good distinction. Also, it depends on the size of one's business. Does a startup take the route of the low risk $5 million or do they gamble on high risk / high outcome paths (that more than likely will bankrupt them)?

SM
Steve Mitchell
Feb 10, 2015

As a smart individual, then yes, the $5 million. :)

But in the 'security industry' business is a mix of some sure things and some long-shots. The trick is to create the mix, make it a balanced mix, and fund some high risk gables along with short term gimmes.

Is the security industry characterized by this type of risk? Maybe not, given the lack of innovation in our industry as a whole..

SM
Steve Mitchell
Feb 10, 2015

Does a startup take the route of the low risk $5 million or do they gamble on high risk / high outcome paths (that more than likely will bankrupt them)?

Depends on what you consider a startup. In the classic technology startup sense, it's often a company operating off of investor money, at a loss, with promises of big payoffs down the road (relatively high risk). Contrast this to a mom-pop business that wants to make payroll and doesn't have good financial backing (low risk).

The established corporate company is almost always low risk. Even when their CEO is arguing they should leapfrog the competition yada-yada, the many layers of management between them and the bottom line are instead motivated by this quarter's numbers, and are penalized when risks do not pay off.

JH
John Honovich
Feb 10, 2015
IPVM

Even with tech companies, especially now with the low cost of getting started, there is an tension between entrepreneurs and VCs.

VCs want to swing for the fences on every deal and, since they have diversification of many different startups, they can stand the losses (e.g., losing 4 out of 5 times on the $100 m bet) but entrepreneurs do not have that luxury (if they have lose once, that's $0 for them and a years of wasted hard work).

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Jon Dillabaugh
Feb 10, 2015
Pro Focus LLC

I believe you should have my address on file John. I will take the $5M payout please.

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JH
John Honovich
Feb 10, 2015
IPVM

Jon, sorry, I think you meant to address that to undisclosed A.....

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Michael Budalich
Feb 10, 2015
Genetec

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.

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Brian Rhodes
Feb 10, 2015
IPVMU Certified

Yeah, you have a lifetime to regret not taking a $5M sure thing!

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TC
Trisha (Chris' wife) Dearing
Feb 10, 2015
IPVMU Certified

The risk of striking it really big is worth the reward if it happens.

You mean the risk of striking out, I think?

U
Undisclosed #3
Feb 10, 2015

I also like to think I have some cojones.

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Derek Ward
Feb 10, 2015
Hanwha

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 ;)...

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Ethan Ace
Feb 10, 2015

...you don't think $5 million is a great future?

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Derek Ward
Feb 10, 2015
Hanwha

I never said it wouldn't be a great future, but I have this nagging feeling a few years down the road I would look back and think of what could have been.

I wouldn't feel as bad for a superfluous lifestyle if I know I took a chance and it worked, rather than something that was hand-fed to me and I simply said "yea, that's good enough". With a guaranteed $5 million I feel like I would have simply settled, and for some people, that's fine, but a long shot has a chance to hit the mark when the wind isn't blowing, and that's the kind of shots I want to take.

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Mark Jones
Feb 10, 2015

I will bet you love Vegas.

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JH
John Honovich
Feb 10, 2015
IPVM

I don't know if we should send Derek to ISC West this year....

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Mark Jones
Feb 10, 2015

You can't loose money you never had.

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Derek Ward
Feb 10, 2015
Hanwha

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!

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Mark Jones
Feb 10, 2015

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.

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Ethan Ace
Feb 10, 2015

I think given a 20% chance, I'm still walking away with the guaranteed $5M. $5M is a guaranteed life change. $100M is a 20% chance at a more drastic life change. I can see increasing returns on $5M and grow that sum far more easily than I can turn my current assets into $5M. I'm not saying I'll turn $5M into 100, but it could definitely turn into double digits.

I think the other interesting framing of this is what if both outcomes are negative? What if the question is a guaranteed loss of $5M or a 20% chance of a $100M loss? Obviously the only person here this realistically applies to is Undisclosed A up there, aka Rich Uncle Pennybags.

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U
Undisclosed #1
Feb 10, 2015
IPVMU Certified

...a guaranteed loss of $5M or a 20% chance of a $100M loss?

And about a year ago, when faced with a similar situation, I cried Uncle, and sold all my AVO.

TC
Trisha (Chris' wife) Dearing
Feb 10, 2015
IPVMU Certified

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? ;)

JH
John Honovich
Feb 10, 2015
IPVM

Yes, BRS Labs, $100 million in BRS Labs stock for 100% of IPVM, should I take it?

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TC
Trisha (Chris' wife) Dearing
Feb 10, 2015
IPVMU Certified

Yes, because then you would own 100% of both. ;)

JH
John Honovich
Feb 25, 2015
IPVM

Update: And I can't believe I have to explain this, but BRS Labs did not offer to buy IPVM. Evidently, my (obvious?) joke has transformed into a rumor amongst the BRS Labs 'community'.

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Joseph Trowbridge
Feb 16, 2015

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.

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TM
Thomas Marino
Feb 16, 2015

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!

TC
Trisha (Chris' wife) Dearing
Feb 17, 2015
IPVMU Certified

Easier said than done, though.

You have $5,000,000 cash in hand.

Taxman cometh. -$2,000,000

You now have $3,000,000 cash in Money Market / CD's?

CD's / MM paying 1.5% = approx $50,000 / year

Taxman Cometh Again. -$10,000

You now have $40,000 / for the year

Inflation Adjusted principal after 1 year $2,997,000

How much do you need to live on?

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JH
John Honovich
Feb 17, 2015
IPVM

Absolute worst case scenario:

$100,000 per year for 30 years and that's after taxes. Most people can live pretty decently on that.

And that's worse case.

TC
Trisha (Chris' wife) Dearing
Feb 17, 2015
IPVMU Certified

Most people can live pretty decently on that.

Yes but,

Most people can live longer than that.

Who wants to fear living because they won $5,000,000? Or hope the pace of medical science slows down a bit? I would take the $30,000/unlimited over the $100,000/30 yr plan in a "heartbeat". Now true, the $1,000,000/5 yr, live to excess, f the taxes plan has some appeal also.

In any event, Thomas specifically indicated low-risk investment and interest subsistence.

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Brian Rhodes
Feb 17, 2015
IPVMU Certified

$5M is not enough?

Meanwhile, the entire 2nd, 3rd, and developing world thinks they've taken crazy pills all of a sudden.

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Ryan Hulse
Feb 16, 2015

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:

  1. Homicide (something like 20x more likely)

  2. Drug overdose

  3. Bankruptcy (how's that for irony?)

  4. Kidnapping

And triple digit multiples of probability versus the general population rate to be:

  1. Convicted of drunk driving

  2. The victim of Homicide (at the hands of a family member) 120x more likely in this case, ain't love grand?

  3. A defendant in a civil lawsuit

  4. A defendant in felony criminal proceedings

You just won a 656 Million Dollar Lottery. What do you do now? : AskReddit

JG
Jeff Goodall
Feb 17, 2015

Come to an agreement with the other 4 people for 10 million each. everybody wins.

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Jon Dillabaugh
Feb 17, 2015
Pro Focus LLC

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.

1:150 time

1:20 chance

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JH
John Honovich
Feb 17, 2015
IPVM

Your friends with undisclosed A? ;)

Thanks for sharing. It makes perfect sense. If you already have lots of cash in the bank, much more sensible to go for the 1 in 5 chance at $100 million.

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Jon Dillabaugh
Feb 17, 2015
Pro Focus LLC

If A disclosed I could tell you, but I doubt it's him. Lol

KL
Keefe Lovgren
Feb 17, 2015
IPVMU Certified

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...

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Jon Dillabaugh
Feb 17, 2015
Pro Focus LLC

I would be able to live just fine off of the $100,000 / year that John estimates, but I would still keep working. The fall back of knowing I don't HAVE to work would be relieving though.

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U
Undisclosed #1
Feb 18, 2015
IPVMU Certified

No, I don't know you Jon, but I feel like I do. :)

btw, John's 100K 'estimate' is just the three million (after taxes) equally divided over thirty years. Like he says its worst case, since hopefully some reasonably safe and insured investments will reappear, ones that yield over 3% after inflation. So, depending on your age and health it's a way to go...

But you don't strike me as someone who would try to just fritter away your days, even if you could! You feel strongly about many things, (much stronger than I), and conviction like yours is worth a lot, more than $100K a year, for sure.

You believe and therefore others will believe you. So I'm guessing you would end up taking the money out of the safe zone and putting it in 'play' in creating some type of organization. Even though it's risky it's not the same as Vegas, and your skill and acumen would determine your result more than the occasional and inevitable 'bad roll'. Am I right?

My Uncle once joked that his biggest fear was dying with a full tank of gas!

Crazy but I know what he meant...kinda

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PV
Pat Villerot
Feb 17, 2015

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.

Avatar
Jon Dillabaugh
Feb 18, 2015
Pro Focus LLC

I guess that you don't have to worry about money since your name is Rich

PV
Pat Villerot
Feb 18, 2015
Name only buddy, I can assure you.
UI
Undisclosed Integrator #4
Feb 23, 2015

$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.

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JH
John Honovich
Feb 13, 2021
IPVM

Resurrecting this, I posted the same question on LinkedIn and their voting is even more risk-averse:

IPVM Image

JH
John Honovich
Feb 21, 2021
IPVM

Check this out, a variant of this question with the same odds / tradeoff except the amount offered is lower:

IPVM Image

U
Undisclosed #1
Feb 21, 2021
IPVMU Certified

congratulations, you’ve discovered a semi-covert way of asking how much people make.

offer $500 million/$10 billion to isolate Musk and Bezos :)

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JH
John Honovich
Feb 21, 2021
IPVM

Evidently so, LOL

Avatar
Ethan Ace
Feb 21, 2021

I feel like that's so much money that it flips off the other end of the scale, though. Those dudes are so rich that their life won't change with another 10 billion, so I feel like they would take a guaranteed $500M.

U
Undisclosed #1
Feb 21, 2021
IPVMU Certified

Those dudes are so rich that their life won't change with another 10 billion, so I feel like they would take a guaranteed $500M.

They both like the same store though:

IPVM Image

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Ethan Ace
Feb 21, 2021

I hate that that made me laugh.

UM
Undisclosed Manufacturer #5
Feb 22, 2021

How the offer is made can radically change the outcome. Just watch any episode of Deal or No Deal.

My opinion is the original offer of 5M/100M presented in a Deal or No Deal scenario results in approximately 99% of the people saying "No Deal!" to the 5 Million. LOL

Exactly why I don't know, but they do the equivalent of that over and over and over in that show.

UM
Undisclosed Manufacturer #5
Feb 22, 2021

Here's the game if you want to try it yourself and see how many times you reject the bankers offer which is the sure bet of course. ;-)

Deal or No Deal - MSN Games - Free Online Games

U
Undisclosed #1
Feb 22, 2021
IPVMU Certified

My opinion is the original offer of 5M/100M presented in a Deal or No Deal scenario results in approximately 99% of the people saying "No Deal!" to the 5 Million. LOL

that may be, however I think the point is that the it’s more than the relative ratio of safe money/risk it all money, it’s also the absolute dollars involved.

In D or No D, the typical top prize is $1,000,000, which corresponds to safe money of $50,000. $50,000 may not be enough to excite people to take the offer, especially those who are recruited for a game show.

playing the lottery is essentially trading $1 in safe money for possibly millions, but the odds of winning are typically many more millions against. still people do it.

Avatar
Marty Major
Feb 22, 2021
Teledyne FLIR

I can't believe that I never posted on this old thread back in 2015....

After reading the thread from the top, I just doled out a bunch of Informatives and Funnys - so if your comment from 6 years ago shows up in the Recent Votes On Your Comments list it was me.

and FTR: only a rich person would even contemplate the 'chance' at 100M over a guaranteed 5M. If I had 5M you would never ever hear from me ever again.

also, I'm starting a GoFundMe page for people who don't want to ever hear from me again. I know I can count on at least a few here for an easy $500 each...

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U
Undisclosed #1
Feb 22, 2021
IPVMU Certified

I just doled out a bunch of Informatives and Funnys - so if your comment from 6 years ago shows up in the Recent Votes On Your Comments list it was me.

necrovoter :)

Avatar
Marty Major
Feb 22, 2021
Teledyne FLIR

I already knew UD1 was you... and if you want to be the 1st $500 donation to my cause, you know my phone number...

IPVM Image

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UM
Undisclosed Manufacturer #6
Feb 22, 2021

I can't believe I didn't comment either.

My answer is the 20% chance every time. I wouldn't even think about it.

Posting undisclosed for obvious reasons.

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