[fractionalhare]

Do you believe the following investments are equally attractive?

1. You invest $100,000 into a fund which has a 1% chance of returning 100% and 99% chance of returning -100% each year.

2. You invest $100,000 into a fund which has a 20% chance of returning 100% and a 80% chance of returning -100% each year.

The possible payouts are the same. The expected values are not. Given the opportunity to invest in both with no difference in fees or other structure, would you leave your decision up to a coin flip?

[darkerside]

I think a better example might be:

1. 10% chance of returning 100%, 90% chance of 0%

2. 90% chance of returning 10%, 10% chance of 0%

Same expected value in year 1, but totally different proposition. And, with compounding returns, the expected value over time is very different.

[smabie]

exactly AM-GM inequality, volatility drag, etc