Fog Creek Software
Discussion Board




52 oil mogul

A better reason to choose 1 over 2 is that even though the expected values are same, one generally wants to minimize risk (defined as standard deviation/variance for finance-y types).  So,
a 1% chance of making 50 cents is better than a 1% chance of losing 50 combined with a one percent chance of making a dollar -- there is no risk-reward tradeoff to select 1 over 2.  (Of course, someone could be risk loving...but that's not relevant to classical finance/portfolio theory...though you can certainly point that out after stating the prior rationale, assuming your interviewers actually care abut such matters).

andrew lin
Sunday, February 02, 2003

*  Recent Topics

*  Fog Creek Home