Question

Your business partner has proposed you to join him (her) in investing $100000 each in a new enterprise. assume that you have that amount of money available. in case of success your return is $40000 but in case of failure you lose $20000. your analysis shows P40=0.3 of success and P-20=0.7 of failure.
would you invest?what is your investment risk preference and analysis?

Answer 1

Answer:

I wouldn't invest.

Risk preference at least 50-50 chance of gain and loose

Explanation:

case of success the return i get is $40000

case of failure i lose $20000.

My analysis shows P40=0.3 of success

And P-20=0.7 of failure.

The probability of a loose is much bigger than the probability of a gain.

So I can't bear the loose of loosing 7 times if about 20000 and gaining 3 times of about 40000 it doesn't balance.

My loose accumulating to 140000

While my gain is 120000.

I can't invest