1.
on risk / chance
and the office betting pool

2.
risk profiles

3.
risk profiles
risk-aversive
risk-neutral
risk-loving

4.
risk profiles
risk-aversive
risk-neutral
risk-loving individuals are aversive to risk, but
we are also attracted to it

5.
risk profiles
risk-aversive
risk-neutral
risk-loving it is part of human nature to be
attracted to risk...

6.
risk profiles
risk-aversive
risk-neutral
risk-loving it is part of human nature to be
attracted to risk...even if there is no rational
payoff

7.
risk profiles
they change
with age, events, people, wealth, and situations

8.
risk premium
the difference between the return on a risky asset and
less risky asset, which serves as compensation for
investors to hold riskier securities.

9.
risk premium
“ as the risk aversion increases,
so does the risk premium ”
the duality of risk

10.
risk premium
“ It is precisely because investors are risk averse that they care about risk,
and the choices they make will reflect their risk aversion. ”
the duality of risk

11.
risk premium
“ As the risk aversion of an individual increases, the risk premium demanded
for any given risky gamble (that they will take) will also increase. ”
the duality of risk

12.
risk premium
risk premium = expected value - certainty equivalent increases, the risk
premium demanded for any given risky gamble will also increase. ”
the duality of risk

13.
risk premium
risk premium = expected value - certainty equivalent increases, the risk
premium demanded for any given risky gamble will also increase. ”
the duality of risk

14.
The simultaneous purchase and sale of an
asset in order to profit from a difference in the
price.
arbitrage

15.
Arbitrage exists as a result of market
inefficiencies; it provides a mechanism to
ensure prices do not deviate substantially
from fair value for long periods of time.
arbitrage

16.
Contingencies by definition depend on
chance, and therefore can’t ever be perfectly
thought out.
arbitrage

17.
“...First, the crime would need to be obscure and confusing, making it
difficult to detect.
...Second, the crime should involve many people engaging in the same type
of crime so that no one can point a finger at you.
...Third, your crime will need to fall under the shady umbrella of plausible
deniability so that if you do get caught, you can always say you didn’t know
it was wrong in the first place
...If you really want to go all out, do something you can spin in a positive
light, and maybe even create an ideology around it… You can also resort to
opaque and promising-sounding language to make your case; you’re
“restoring equilibrium,” “eliminating arbitrage” and creating “opportunity” and
“efficiency” across the board.
...Crimes like burglaries are the least ideal crime: they’re simple, detectable,
perpetrated by a single or just a few people.”
-- Dan Ariely
arbitrage

18.
Speculative trading strategy of providing liquidity to owners
of a stock that is currently the target of an announced
acquisition. One of several event-driven strategies that
seeks to identify and exploit relative mispricings of
securities whose issuers are involved in mergers or other
corporate events.
They are implemented to be market neutral.
risk arbitrage
(M&A arbitrage)

19.
- The acquiring company offers to buy the target’s
stock at a premium offer price > current market price.
- Upon announcement of the acquisition, the target’s
stock price generally rises to a level just below the
offer price (just below, due to uncertainty about the
merger actually taking place).
- There are many things that can block the merger from
happening. If and when a merger fails to go through,
the target’s stock price will immediately fall, often to a
level below where it was before the merger was
announced.
- The mere possibility of this is called deal risk
risk arbitrage
(M&A arbitrage)

20.
- Many shareholders choose to sell. It is risk
arbitragers who choose to buy.
- Risk arbitragers are experts in assessing deal risk.
- Such event-driven speculative trading strategies are
widely employed by certain hedge funds and
proprietary traders.
risk arbitrage
(M&A arbitrage)
http://riskencyclopedia.com/articles/event_driven_strategy/

21.
Experts understand the duality of risk and
they are experts at assessing risk,
so they arbitrage against market
inefficiencies
Where many sell (buy), they buy (sell)
http://riskencyclopedia.com/articles/event_driven_strategy/

22.
Office Betting Pool
Before...

23.
Office Betting Pool
After...

24.
Office Betting Pool
“My bet [City A] (I
hope [City B])”
“I would like to stay
in [City A], but will
bet on [City B], so it
will be a happy
ending.”
Motives

25.
Office Betting Pool
I think inherently, I want the office to be in
[City A], cuz I like how the office is right
now. I think [City A] helps us capture the
office environment, which would be
maintained if we moved to a [City A] office.
Eventually when we grow to a much larger
scale, [City B] is inevitable.
Motives
Because I flipped a coin
Because I want our office to be in
Berkeley but chose [City B] so that
at least I'll get some compensation
for the outcome
I think we'll probably move,
based on conversations, etc.
1) I want the office to be in [City
B] 2) don't want to anger the
gods by hedging 3) I think it's in
our long term interests to be in
[City B]
because I'm going to be sad if
we stay in [City A] either
regardless if I win and if we
move to [City B] I'll be happy so
I should try for extra happy
pandas
I think that is
the choice
Ion will
make
Because I want our office to be
in [City A] but chose [City B] so
that at least I'll get some
compensation for the outcome

26.
Office Betting Pool
After...
1 person will earn $140
or...
7 people will earn $2.86