How many of you are risk-adverse?
 

I had a discussion with some friends and couldn't believe their answers to the following question. While I thought the answer was easy, multiple people disagreed with me. What are your thoughts?

Would you choose...

1) $200 guaranteed?
2) 10% chance of getting $2500?

If the numbers where higher, I bet the answer would change.

Personally, for me, $200 isn't that big of a deal, but $2500 would put a smile on my face. So yeah, I'd probably go with the 10% chance.

Now if it were $20,000 vs 10% chance at $250,000, then I'd pick the $20K in a heartbeat.

Risking nothing gains you nothing.

Betting the farm puts you in hock.

To whom is the question.

The answer would change if we knew who it was.

I'm also of the camp that "I could live without the $200 so I'll take the choice with the higher expected value." I assumed everyone had the same rationale as me but this is clearly not the case.

Clarity is much slipperier as the higher numbers have obscene appeal.

on the day before payday...I'll take the $200

day after payday...I'll take the risk

You should change it up. If you don't get the $2500, you still walk away with no less than what you started with. If you have to choose a 10% chance with the added risk of a 90% chance of losing the same amount, that's a real risk.

I would take $200 because I only have $25 a month, so $200 would be lots of money. The risk to get nothing with a 90% chance is way to high. But I agree with your opinions, it just depends on how much you have anyway. If it was $20 vs 10% chance to get $250 or if I had more money (eg $250 a month) I would take the 10% chance.

Statistics says take the chance: the "expected value" of the gamble is $250 versus the guaranteed $200. However, I'd still go with the guaranteed money. I'm extraordinarily risk-adverse.

Quasi: Your proposed bet would have an expected value of -$2,000; I don't think anyone would take that bet.

200 bucks vs. a 90% chance of getting nothing? Give me the 200.
Even if there were only a 30% chance of getting nothing, I'd still go with the sure-thing 200.

How about if it was 50-50?