Risk and Reward

Making decisions requires one to think of risk and the rewards therein. Think of the following scenario: A 1% risk of losing €10,000 from your savings is identical to a 20% chance of losing your wallet containing €500. The present value cost of both outcomes is €100.

Consequently, a small chance of great riches is equal to a moderate chance of moderate riches. Most people do not take into account the risk factor when making decisions, but pay more attention on the reward factor.