In the past year I have been going on climbing adventures that have forced me to be more mindful about the risks I am taking and making decisions accordingly. In making those decisions, I have seen some parallels between the risks I am taking while climbing and the risks I took while investing. A podcast I listen to did a deep dive into risk taking, risk management, and the decision making process. Listening to this podcast has helped me put into words the decisions and processes I have been honing while climbing.
>Understand that if you are consistently doing an activity that has a 1% chance of a severe negative outcome, after 100 times doing it, you are due to hit that 1%.
Being due to hit is a sort of logical fallacy or at the very least it's a inaccurate way to say it.
You should give the actual formula so people can plug it in to wolphram alpha and get their own expectations based on the time their behavior and probabilities.
Let’s quickly walk through this. The chance of flooding, P(F), is 1%, or 0.01. The chance of not flooding, which we notate P(F’), is 100%-1%, or 99%, or 0.99. To see the chance you don’t flood two years in a row, you would have to “not-flood” the first year, and then “not-flood” the second year, so you multiply the two probabilities together, and get 0.9801. The chance of “not-flooding” 30 years in a row is calculated by multiplying the chance of not flooding with itself, over and over, 30 times, which is a power relationship. P(F’)³⁰. That’s 0.7397 chance of 30 consecutive years of no flood, which means a 26% chance of at least one flood.
>Understand that if you are consistently doing an activity that has a 1% chance of a severe negative outcome, after 100 times doing it, you are due to hit that 1%.
Being due to hit is a sort of logical fallacy or at the very least it's a inaccurate way to say it.
You should give the actual formula so people can plug it in to wolphram alpha and get their own expectations based on the time their behavior and probabilities.
Let’s quickly walk through this. The chance of flooding, P(F), is 1%, or 0.01. The chance of not flooding, which we notate P(F’), is 100%-1%, or 99%, or 0.99. To see the chance you don’t flood two years in a row, you would have to “not-flood” the first year, and then “not-flood” the second year, so you multiply the two probabilities together, and get 0.9801. The chance of “not-flooding” 30 years in a row is calculated by multiplying the chance of not flooding with itself, over and over, 30 times, which is a power relationship. P(F’)³⁰. That’s 0.7397 chance of 30 consecutive years of no flood, which means a 26% chance of at least one flood.