tag:blogger.com,1999:blog-6837159629100463303.post6040705494918544320..comments2023-06-18T01:25:08.748-07:00Comments on Information Transfer Economics: RegulatorsJason Smithhttp://www.blogger.com/profile/12680061127040420047noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-6837159629100463303.post-34435755512064525742016-06-10T12:06:44.805-07:002016-06-10T12:06:44.805-07:00I wasn't familiar with VaR. Interesting.I wasn't familiar with VaR. Interesting.Mhttps://www.blogger.com/profile/17351584119181245920noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-31347686770264820632016-06-10T11:55:57.964-07:002016-06-10T11:55:57.964-07:00I was talking about value at risk, but I agree tha...I was talking about value at risk, but I agree that the variance is important (it can be used to define VaR; a higher variance means higher VaR ceteris paribus)<br /><br />https://en.m.wikipedia.org/wiki/Value_at_riskJason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-84161842639164496152016-06-10T10:20:21.113-07:002016-06-10T10:20:21.113-07:00Risk is usually measured as variance (or standard ...Risk is usually measured as variance (or standard deviation), not expectation. In this case the variance is infinite (to be mathematically pedantic, it doesn't even exist), thus giving a strong disincentive to playing the game.Mhttps://www.blogger.com/profile/17351584119181245920noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-87674976767097302642016-06-10T09:49:15.514-07:002016-06-10T09:49:15.514-07:00I think that should say "absolute risk" ...I think that should say "absolute risk" in that sentence because that makes more sense (in order to calculate the relative risk, you'd have to calculate the expectation).<br /><br />In that case, the absolute risk is finite: at worst you lose c (your bet). I ran a Monte Carlo and found that conditional on losing money (i.e not winning), the average loss is about 14.4 dollars for a 16 dollar bet.<br /><br />This is actually close to the zeta regulated answer of an expectation of E = -c - 1/2 (which would be a loss of 16.5 dollars).Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-39896460537620373002016-06-10T08:55:56.183-07:002016-06-10T08:55:56.183-07:00Note this "resolution" of the St. Peters...Note this "resolution" of the St. Petersburg paradox from the page in Wikipedia:<br /><br />"Various authors, including Jean le Rond d'Alembert and John Maynard Keynes, have rejected maximization of expectation (even of utility) as a proper rule of conduct. Keynes, in particular, insisted that the relative risk of an alternative could be sufficiently high to reject it even if its expectation were enormous."Mhttps://www.blogger.com/profile/17351584119181245920noreply@blogger.com