It's not logical. You can sell the 0-5m random option for more than 1m (more than 2m!). Or you can buy some sort of insurance where someone pays you if you get a low roll, but you pay them if you get a high roll.
Taking 40% as much money (on average) is some really expensive risk mitigation. There are much, much better deals available.
For the larger amounts of money, the risk mitigation comes at a much higher price and is even more silly.
In a perfect information world, there is no shared pooling of risk. You are paying exactly what you will cost, plus margin. That is the point im trying to make.
It's very clear why they are not doing it. Putting the risk on you instead of themselves a) is better for them for obvious reasons, and b) makes it less likely for something bad to happen in the first place.
Also, I can imagine clients worried about this are not the money-making kind of clients anyway.
The website does not imply "little to no risk." It explicitly states that it's a Ponzi scheme, which clearly means that you're gambling on not being the last one the party.
I think another way to put it is you need to pay them for the risk they are taking. That's why you can't do a one-to-one swap. If they get the same total amount of money that they would in a more stable position, they have no reason to take the risk.
Exactly. I mean, I assume people operated under the assumption that the risk was non-transferrable, so I can see the logic in taking $1M over 0-5. You're giving up some expected value in order to reduce risk. Especially when you take into account the diminishing marginal value of money, especially around the low to mid millions, it makes some sense.
What doesn't, as you say, is considering a random amount between zero and 100 billion dollars in any way risky compared to $1M. You're probably more likely to take the $1M then to be struck by lighting than you are to take the random option and end up with less. (And even THEN, ending up with $900k isn't the end of the world, so the odds are even lower of a really unfortunate outcome.) So you're giving up an absolutely massive expected value in order to avoid a truly miniscule risk. This is risk-aversion at its most ridiculous IMO.
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