The Logic of Risk Taking

There are many instances where the probabilities may be favorable when looking at a single event, but repeated exposure will eventually lead to ruin. If a single event has a 99% chance of success and a 1% chance of ruin, it looks like a no brainer every single time. BUT, the story is very different if you consider how many times you will repeat the event. At 100 repetitions, there is a 63% chance of ruin!! At 500 repetitions it’s 99%!! It is better to never get involved in these types of events even if you convince yourself this is a one-time thing. A one-time thing often turns into more and then eventually the tail risk will wipe you out. The goal is to find situations with no tail risk, but tail benefits.