Unproven but huge potential > proven stars?
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07-23-2011, 10:06 AM
Messi Is God
Join Date: Oct 2007
Location: Montreal, Qc
You can use expectational analysis.
It would be like handling very risky stocks versus vary safe stocks, and it would also be based on if you're risk averse, neutral or lover.
I'll just use a simple Wiki example:
A person is given the choice between two scenarios, one with a guaranteed payoff and one without. In the guaranteed scenario, the person receives $50. In the uncertain scenario, a coin is flipped to decide whether the person receives $100 or nothing. The expected payoff for both scenarios is $50, meaning that an individual who was insensitive to risk would not care whether they took the guaranteed payment or the gamble. However, individuals may have different risk attitudes. A person is:
risk-averse (or risk-avoiding) - if he or she would accept a certain payment (certainty equivalent) of less than $50 (for example, $40), rather than taking the gamble and possibly receiving nothing.
risk-neutral - if he or she is indifferent between the bet and a certain $50 payment.
risk-loving (or risk-seeking) - if the guaranteed payment must be more than $50 (for example, $60) to induce him or her to take the guaranteed option, rather than taking the gamble and possibly winning $100.
Even when they have the same expected value, we can see how someones preference's value it differently.
Unfortunately we can't accurately measure their probability to succeed or fail, nor all the outcomes in between. (Some may argue that)
Even then you still have to deal with a "lag" effect, of not acquiring that potential until down the road.
Lastly the law of averages will eventually kick in, and not every prospect will pan out no matter how "good" they looked.
Last edited by KimiFerrari: 07-23-2011 at
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