(I am coming with a new perspective)

You are offered a chance to invest $25k in a brand new business, but which one?
* A potential return of $5,000,000 within 1 year with a 90% failure rate
* A potential return of $1,000,000 within 1 year with a 50% failure rate
* A potential return of $200,000 within 1 year with a 10% failure rate

99% of people are not successful because of this quote

"In cognitive psychology & decision theory, loss aversion refers to people's tendency to prefer avoiding losses to acquiring equivalent gains: it is better to not lose $1k than to find $1k"

So at what point do you move out of your comfort zone?
Unhappy with your 9-5, office work week with a boss who doesn't appreciate you, but the option is what?

[img]blob:https://web.telegram.org/c7a393f7-5f4e-425e-bbd4-806a89309175[/img]


“We are more upset about losing $10 than we are happy finding $10” (Heshmat, 2018).

So if you were asked this question, which would you choose?

Invest $25k in a brand new business, but which one?

1) A potential return of $5,000,000 within 1 year with a 90% failure rate
2) A potential return of $1,000,000 within 1 year with a 50% failure rate
3) A potential return of $200,000 within 1 year with a 10% failure rate

Clearly there are a lot of variables in this. Someone who has $25k sitting around has a different outlook on someone who has to borrow the money.

A person who is 25 has a different perspective on someone who is 55.
Married with 3 kids and a mortgage means you have people depending on you, more so than a single person who is debt-free with no dependents to support.

Health issues could be a deciding factor too.

As emphasized by Tversky and Kahneman (1992) a fourfold pattern (FFP) of risk attitudes is a distinctive implication of these two assumptions.

Specifically, it is predicted that when faced with a risky prospect people will be:

(1) risk-seeking over low-probability gains,
(2) risk-averse over high-probability gains,
(3) risk-averse over low-probability losses, and
(4) risk-seeking over high-probability losses.

In part 2, we will consider how risk aversive are you?

What is your stand so far?

Nice one

Part 2

So, how risk aversive are you?

Are you prepared to sail out there and explore or content to paddle on the beach?

“You cannot discover new oceans unless you have the courage to lose sight of the shore.”

Research shows the following;


Which of the following option would you choose?

100% chance to win $900.
90% chance to win $1000 or nothing ($0)

With option 1, you’re assured to get $900.

While with option 2, there’s a 10% chance you could get $1000 or nothing.

Studies confirmed that nearly 80 percent of people will choose option 1.

The reason?

Most people avoid the risk and take the $900.

Now, consider this example:

Which of the following option would you choose?

100% chance of losing $900
90% chance of losing $1000 or nothing ($0)

With option 1, you’re assured to lose $900…

And with option 2 you have a 10% chance of losing either $1000 or nothing – $0.

Most people would prefer the second option.

Why?

Because when aiming to avoid losses, we become risk-seeking and take the gamble over a sure loss, in the hope of losing nothing, thus engage in the risk-seeking behavior in the hope to avoid the loss.

Buying Something Blindly

Ever seen the tv shows like Storage Wars? Where people bid on containers without fully inspecting the goods inside?


Newer studies from the University of Chicago confirmed that uncertainty has untold power when motivating people about positive outcomes. It gives us feelings of excitement and enjoyment.

In one of the studies:

Two groups were asked to bid on opaque cups of chocolate coins. The cups contained either a certain amount of 5 tasty coins or an uncertain amount of 3 or 5.

Half from each group was asked to focus on the actual bidding process, whereas the other half was asked up front how much they’d be willing to bid for the coin cups.

See attached image

The findings showed those who were made to focus on the process risked more money for uncertain rewards. They risked around $1.50 for the 3-5 uncertain coin cup, as opposed to only $0.80 for the certain 5 coin cup.

So what does this mean?

[Psychologist] Marvin Zuckerman had this to say:

“The uncertainty effect works best with ‘sensation-seekers’: those who have a craving for and desire to seek out positive experiences".


So if you are considering investing in a new site, a new drop shipping service or anything life-changing, ask yourself; are you risk aversive or not?