Elm Risk-aversion Survey
A quick survey related to our ongoing research into real-world applications of academic work in the theory of optimal decision-making under uncertainty. If you subscribe to our blog you can expect some notes from us in this vein soon, or you can sign up for our blog at elmfunds.com/blog.
Is the following a reasonable description of your circumstances: Your wealth is significantly in excess of what would be needed to support your basic consumption needs (referred to in the literature more dramatically as "subsistence")?
Imagine you are presented with a one-time investment opportunity where the outcome depends on whether a fair coin flip comes up heads or tails. The coin flip is uncorrelated with your existing portfolio of investments, consumption and bequest plans. If it comes up tails, you lose 10% of your wealth. Which of the following amounts of upside would make you feel most ambivalent between accepting or declining the coin flip? If you can't decide between two options, tick both. (In case it helps, the Sharpe Ratios of the different options are 0.05, 0.11, 0.18, 0.26 and 0.34 respectively.)
Same question as above, but now the downside if the coin comes up tails is you lose 20% of your wealth. Which upside makes you feel most ambivalent? Again, if you are finding two answers close, tick both. (The Sharpe Ratios are 0.11, 0.25, 0.44, and 0.80 respectively.)
Still flipping a fair coin. Now imagine that if it comes up heads, your wealth will increase 5-fold. What's the most downside you'd accept to take that flip? Again, if your answer is between two options, please tick both.
Please leave any thoughts or comments you have, including your name if you'd like us to know who you are (all results will be anonymized).
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