There's also I think an implicit stationarity assumption built in, that if you say you'll pay me X amount over time, that you'll actually do that, that inflation wont eat it into oblivion, etc. It's a classic case of theoretical models not working in reality.
This is kind of the point of the essay, but I think it could have been made more rigorously (as people here are pointing out).
How many companies have you seen with "contests" to get ideas or content. The vast majority of people end up with nothing.
Yeah, but you see the same thing with giveaways at trade shows, for example. Even for a fixed giveaway budget, there's an argument to be made for having a drawing for a nice prize, rather than giving everyone some cheap swag.
"If you don’t have a dime to your name you should take the guaranteed million dollars all day, every day. But what if you have some money? What if you’re already a millionaire? At that level of wealth taking the 50/50 shot at $50 million might be far more tempting."
A wealthy person, could, for example risk buying an older used car that would potentially need costly repairs. In case it needs these repairs, they will suffer some financial losses but would still be able to derive utility from the car. In case it doesn’t need them, they get rewarded for the risk with a functional car that costs considerably less than a new one.
For a broke person the same decision is much harder. Not being able to repair the car would unlock undesirable 2-nd and 3-rd order effects, like, not being able to go to work.
Prizes for challenges, maybe. Chess tournaments with a buy-in, that I respect because no luck involved, meaning no tipping the scales no cheating.
So the problem in gambling is when you just lost a big bet of money you didn't need and the only way to recover is putting up a tiny bit of money you do need. By nature gambling--and by the way it's sold--is designed to fuck with that fine line.
Poker players make bets based on bank roll size and very good understanding of expected value. They either use Kelly criterion[1] or develop competing heuristics for value at risk[2].
Plenty of areas where psychology adds an interesting human dimension to decision making, but this and other risk-neutrality scenarios are not part of this category!
[1] https://en.wikipedia.org/wiki/Kelly_criterion#Criticism [2] http://www.eecs.harvard.edu/cs286r/courses/fall12/papers/Tho...
I think this counts as a 24:1 bet (we notionally have $1 million, we can gamble to get another $24). The Kelly bet is 0.5 - 0.5/24 ~= 0.5. So we would want to put about half our wealth into this gamble and that implies it starts becoming attractive around the time we have $2 million to invest. Up till then we might take the gamble but we don't have enough money to really feel comfortable.
It's worth noting that it can often make sense to be more conservative than the Kelly criterion would suggest, depending on your risk tolerance. So I would consider your calculation a lower bound.
And it fucks people's reasoning about money up, you can't go into a raise negotiation with those game show numbers getting your personal finances and your leverage and expectations out of whack. Same as fashion magazines, just seeing a pretty shirt and seeing it costs $45000 for instance instantly fucks your notion of the value of a dollar.
In practice most financial decisions take long time to make.