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Comment by rowland66 | Hacker News Reader

Wow, that is pretty basic economic fallacy. Whether you hold coins today or not should not impact an investment decision. If the BTC you bought 10 years ago for $100 is worth $100,000 today, and a couple of weeks from now the price collapses and is worth $100 again, you have still lost $100,000. Just the same as if you paid $100,000 for your BTC today. Only difference would be tax liability.

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Yeah this is trading 101 for anyone who has cut their teeth somewhere decent. I had that drilled into my head.

There is no such thing as house money.

Curious, who drilled it into your head? Were you/are you a quant?

I see the 'house money' fallacy all the time (most commonly in the context of 'take out your initial investment').

It sounds like you believe the marginal utility of currency or wealth is constant and anything else is contrary to "basic economics".

Can you explain further, because it sounds weird to me?

I think the idea is you have some amount of "worth" today, denominated in whatever you like. Maybe you have 100k USD in BTC or in cash. If you let your bitcoin ride, that's equivalent, modulo taxes, to buying bitcoin. Or, selling your bitcoin today is equivalent to choosing not to buy.

The idea is that you shouldn't think "I already have some bitcoins, may as well let them ride" but instead think "Would it be better to have bitcoins or dollars?" And then, whatever your answer and current assets are, reposition yourself so you're consistent with your beliefs.

If you have a bitcoin that you bought for 10 dollars and you hold on to it even though you believe the price will likely fall because you think you'll still be able to sell above 10 dollars, that's a fallacy in the sense that you'd probably make the most money basing your decisions only on what you think is likely to happen and not what the original cost of your assets was.

All else being equal, given that you turned $100 into $100K, you're much more likely to have $100K that you can afford to lose.

Saying that the history of your investing shouldn't impact your choices is saying that your total wealth shouldn't affect your choices.

But if I borrowed $100K against my home and it gets foreclosed and I'm homeless, that's very different from if I gambled $100 and got $100K whose loss will be no worse for me than losing the original $100.

That's exactly the fallacy I was describing. Whether or not you can afford to lose money is completely independent of how much your initial investments cost. You will tend to make more money, provided you have some ability to predict, if you do what you predict is best based on the present and the future, compared to changing your decisions based on the origins of your money.

  A = Bob has $1M in bitcoin.
  B = Bob can afford to lose $1M.

It appears to me you think P(B) = P(B|A). I think obviously P(B) < P(B|A).

How about:

  A = Bob has $1M in bitcoin which he paid $100 for.
  B = Bob has $1M in bitcoin which he paid $1M for.
  C = Bob can afford to lose $1M.

It appears to me you believe P(C|A) = P(C|B) = P(C). I'd expect P(C|A) > P(C|B).

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