Imagine you are given a generous slot machine and 25$ to bet with it. The machine is built so that your bet is doubled 60% of the time and for the remaining 40% you receive nothing. You have 30 minutes, and are allowed to play multiple times. How would you divide up your bets to maximise your winnings?
Participants in a study who faced this decision showed a large tendency to stake all their money in one large bet. As many as 28% of these students ended up losing all their money even with the odds clearly in their favour.
Most of life’s decisions are bets where we have limited control over the outcome. During such moments, we are prone to stake more than we ought to for a shot at glory. But that decision can just as easily wipe us out.
Avoid ruin at all cost.
Suggested reading: The Kelly criterion provides a simple formula to calculate the optimal amount to bet when you have positive odds.
Inspiration: Naval Ravikant