Quarter Life Crisis

SO you’re young, you’re in your 20’s, no kids, no responsibilities. Financial advisors may tell you to “take risks since you’re young.” However, inherently you are risk-averse. Want proof?

Let’s play a game –

Fair Coin. When it gets a “Head” the game is over.
The payoffs are as follows:
Head on the first flip = $2
Head on second = $4
Head on third = $8
Etc.

Expected value of Game = (1/2) * $2 + (1/4) * $4 + (1/8) * $8 + ….. = $1 + $1 + $1 + …… = INFINITY

Will you pay me your house + car + xbox360 (everything you got) to play this game, with an expected value of infinity?

I don’t think so.

In fact, the majority of investors are risk-averse. If all investors were risk-neutral, the returns of all investments would equal the risk-free rate.