My box Q (calling fellow math nerds)

[swiggidy]

I like the way you're thinking. I was starting with a simplistic case, but you could build a model and factor in things like utility and an individual's risk aversion, etc. You wouldn't come up with "x" is the answer, but maybe you could come up with "px" is the answer where p varies per person.

rong, at least I know this thread was worth while for one person

[Penneywize]

You wouldn't come up with "x" is the answer, but maybe you could come up with "px" is the answer where p varies per person

Yeah you can do that.

I think an interesting application would be, for a given utility function what would be the amount of money needed to be paid to an individual for him to be indifferent between taking the gamble and not taking the gamble (aka certainty equivalence). Then, if the certain amount of money paid is greater than that amount, said individual would choose the riskless option. If it is less, then they would take the gamble.

Alternatively and somewhat less interestingly you could pick a number between the expectation and the certain payout and find out how risk averse an individual needs to be to accept it. It wouldn't be as fun though as you'd end up with something like "hey the second derivate is -2.5" and we can't exactly quantify how much "more risk-averse" that is than -1.