skip to main |
skip to sidebar
This post is dedicated to all financial advisors and every client who get once in contact with a wealth planning specialist.
I once made an analysis for a client how long his assets will be sufficient to maintain his actual standard of living. Given you invest about 200'000 in a mutual fund which should provide you with an average yearly return of 8%. Furthermore you decide to withdraw about 21'000 a year. Due to the high return your assets are exhausted after 20 year instead of 9.5 year.
The truth is shown by picture number 2. 
Well, the answer is: You have to switch doors.
My first thought was as well that chances are similar but in fact they aren't.
If you have chosen door 1 there are three possible outcomes:
- The car is behind door 1: If you stay you win / If you change the goat is yours.
- The car is behind door 2: If you stay you get the goar / If you choose to change you win the car.
- The car is behind door 3: The host had opened door 2 instead of door 3.
As you see the probability for you brand new car are 50% if you choose to change, wheareas they are 33% in the case that you stay with your first choice.
To put some maths in this conclusion one can read into the bayesian conditional probability. Well if you like to you are probably unique, once was enough for me :).
As you may recognized i wasn't as active as i supposed to be within the last month. Looking forward I am willing to change this and deliver you some insights of my lastly buyed book. It concerns about behavioural finance in private banking and is written by swiss professor Thorsten Hens and Kremena Bachmann.
There are many concerns about the validity of MPT because of problem with measuring risk with volatility and investors irrational behaviour. I will provide you with some insights inside the whole story and tell you about some experiments i consider interesting. One of these experiments goes as followed:
Experiment #1: car or goat
You have the possibility in a game show to choose between door 1, 2 or door number 3. Whereas you could win a car behind one door, there is a goat behind the two others. So your probability without haven chosen a door is 1/3. Easy maths so fare. After you have chosen door number 1 to get you a new car, the host let door number 3 open behind which there is a goat. Now you are asked to choose to either stay with your choice or to switch from door 1 to door number 2. How do you decide?
As you may know the same questions was a part of the movie "21" in which students counted card to beat las vegas's casinos. I consider it to be more exciting to wait with the conclusion. The only hint I would like to give you is that the chance after the host has opened door number 3 are not equal.
Well, have fun with it :)
