Jones is willing to risk $1 million when his research shows he’s likely to make $5 million. Of course, he could be wrong. But if he uses the same 5:1 formula on his next investment, and he’s successful, he will have made $5 million, minus the first investment loss of $1 million, for a net investment gain of $4 million. Using this formula of constantly investing where he has the opportunity for asymmetric rewards for the risk he’s taking, Paul could be wrong four out of five times and break even. If he loses $1 million four times in a row trying to make $5 million, he’ll have lost a total of $4
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