Can anybody explain plz, what is a difference between two following cases:

1) Investor will lose 100% of his money with probabilty 50%
2) Investor will lose 50% of his money with probability 100%

What case is preferable for the investor?

thanx
Igor

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I have understood already.
Here we should to look at st.dev.
1) st.dev = 50%
2) st.dev = 0%

second one is better

it depends on your risk tolerance, to put the problem in another way:
if you have 100 dollars invested in stocks at the begining of a bear market,
do you prefer only losing $50 at the end of the year,
or do you prefer a 50% chance of losing all $100 and 50% chance of losing nothing?

If you have high risk tolerance, losing 100% of money with 50% probability may look more appealing to you.

(01-11-2011 06:46 AM)Igor Wrote:  Can anybody explain plz, what is a difference between two following cases:

1) Investor will lose 100% of his money with probabilty 50%
2) Investor will lose 50% of his money with probability 100%

What case is preferable for the investor?

thanx
Igor

---

I have understood already.
Here we should to look at st.dev.
1) st.dev = 50%
2) st.dev = 0%

second one is better