Reducing risk for a client. Is this the right solution?
Hi,
Don't you agree that any Professional in the field of risk analysis and
accounting should always make the best informed choice to help client
choose his options base on both the value and risk of client's options.
You only considered the value of my client's option.
Assuming that my client is rational risk averse, he will opt to compensate
risk/variance of lost for more EV.
Probability of survival is 50/50 for 6 shot gun whether going 1st or 2nd.
Assuming both prefers survival to death. EV for going 1st or 2nd must be the
same for both players if they both wants to live.
How much they value their life is irrelevant as long as both prefers to
survive, their goal is the same and they cannot trade their positions. Since
EV is the same, it is irrelevant too. So everything depends on variance or
risk.
But risk or variance of choice is not the same. Given 2 package of "3 shots
of fun" the risk averse person will prefer the lower risk of lost package.
The highest risk of death possible is 100% lost of life which is in the
package that includes the last shot. Any rational risk averse person will
prefer any other package holding EV constant.
Fishy
I assumed my Russian client was risk averse.
If he is extremely risk loving then he must be making a grave mistake right
now using my strategy.
Just because he didn't pay for my "risk preference analysis service" to save
a few bucks.
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