Two investment strategies, S1 & S2. They have the same average expected ROI, but S1 involves investing all my money in a single highly speculative company with a wider expected variance… my investment might go up or down by an order of magnitude. So, S1 suffers from a single point of failure relative to S2.
You’re saying that I could just as readily express this by saying “S1 involves diminishing marginal utility of wealth relative to S2”… yes?
Huh. I conclude that I haven’t been understanding this conversation from the git-go. In my defense, I did describe myself as finance-phobic to begin with.
No—what’s under question is the scaling behavior of your own utility function wrt money; if you exhibit diminishing marginal utility of wealth, that means you want to avoid S1.
“Diminishing marginal utility of wealth” means the same thing as “don’t want to be exposed to a single point of failure”.
Yes, I think we do need a series on econ/finance.
(blink)
Two investment strategies, S1 & S2. They have the same average expected ROI, but S1 involves investing all my money in a single highly speculative company with a wider expected variance… my investment might go up or down by an order of magnitude. So, S1 suffers from a single point of failure relative to S2.
You’re saying that I could just as readily express this by saying “S1 involves diminishing marginal utility of wealth relative to S2”… yes?
Huh. I conclude that I haven’t been understanding this conversation from the git-go. In my defense, I did describe myself as finance-phobic to begin with.
No—what’s under question is the scaling behavior of your own utility function wrt money; if you exhibit diminishing marginal utility of wealth, that means you want to avoid S1.