As I previously posted at TMF:
[A TMF poster wrote about reading the Terhorst's book]
To be fair, it should be noted that the scenarios by the Terhorts and by hocus described are far from exactly the same.
FMO provided an excerpt of the the Terhort's book here:
http://nofeeboards.com/boards/viewtopic ... 912#p12912 If it comes up tails, I pay you a dollar. If it comes up heads, you pay me a dollar. Sure, you say. Why not? We play a couple of times. Then I ask if you want to play for $10. Of course. We continue to play. Then I offer to play for, say, $500,000, your entire net worth. You laugh. It's ridiculous.
The authors go on to use that example to explain the diminishing utility of more and more money.
Hocus's post is here:
http://boards.fool.com/Message.asp?mid= ... sort=whole
In it he considers a scenario where:
A man comes to you with an "investing" proposition. He says that he will ask you to guess whether a coin will come up heads or tails. If your guess is correct, he will pay you $200,000. To play, you must agree that, if your guess is incorrect, you will pay him $100,000.
...
Now, let's consider another change. You are offered the same proposition as above, but with a condition attached. In order to take the gamble, you must be willing to take it ten times in a row.
So in his example you have a very large positive expectation, but also the chance of losing most of your retirement stash, which is perhaps more like the stock market than the Terhorst's even gamble.
I will further note that neither the Terhorst's nor hocus can claim they were first with this sort of coin toss mental exercise. In this post (
http://nofeeboards.com/boards/viewtopic ... 339#p11339 ) therealchips traces the problem and illustration back some 300 years:
This is the famous St. Petersburg Paradox, much discussed and resolved the better part of three hundred years ago. Here is another description of the game, maybe better written:
"The expected utility hypothesis stems from Daniel Bernoulli's (1738) solution to the famous St. Petersburg Paradox posed in 1713 by his cousin Nicholas Bernoulli (it is common to note that Gabriel Cramer, another Swiss mathematician, also provided effectively the same solution ten years before Bernoulli). The Paradox challenges the old idea that people value random ventures according to its expected return. The Paradox posed the following situation: a fair coin will be tossed until a head appears; if the first head appears on the nth toss, then the payoff is 2n ducats. How much should one pay to play this game? The paradox, of course, is that the expected return is infinite. . .Yet while the expected payoff is infinite, one would not suppose, at least intuitively, that real-world people would be willing to pay an infinite amount of money to play this!"
I see no reason to believe that hocus' post isn't original. He poses the issue in a way significantly different than the Terhorsts (or Bernoulli for that matter). It is certainly far removed from plagiarism. That said, this brouha does go to illustrate the old truism 'there's nothing new under the sun'. Which I don't believe, by the way.
"Do not spoil what you have by desiring what you have not; remember that what you now have was once among the things only hoped for." - Epicurus
(is there a head shaking gif?)
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