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Subject:  Modeling Investment Choices Date:  11/21/2012  9:19 PM
Author:  trader2012 Number:  34518 of 35909

One of the spin-offs of the unproven hypothesis widely known as ‘Modern Portfolio Theory’ is ‘Investor Profiling’ in which would-be investors make a series of choices and then are directed toward the proper asset-allocation for their personality/life stage. This technique --though mostly as much garbage as its parent-- is highly germane to the discussion I’ve launched in another thread with my nemesis in this forum. But set aside, for a moment, the personalities of the two players and consider just the following choice:

“Would you rather have an investment that offered zero loss, but a limited upside of X (+/-Y), or an investment whose downside was X (+/- 2Y) but whose upside was