Practical Application
Many bets have the feature that payoffs and probabilities can change before the outcome is determined. In sports betting for example, the line may change several times before the event is held, and news may come out (such as an injury or weather forecast) that changes the probability of an outcome. In investing, a stock originally bought at $20 per share might be available now at $10 or $30 or any other price. Some sports bettors try to make income from anticipating line changes rather than predicting event outcomes. Some traders concentrate on possible short-term price movements of a security rather than its long-term fundamental prospects.
A classic investing example is a trader who has exposure limits, say he is not allowed to have more than $1 million at risk in any one stock. That doesn't mean he cannot lose more than $1 million. If he buys $1 million of the stock at $20 and it goes to $10, he can buy another $500,000. If it then goes to $5, he can buy another $500,000. If it goes to zero (as stocks sometimes do), he can lose an infinite amount of money, despite never having more than $1 million at risk.
Read more about this topic: Proebsting's Paradox
Famous quotes containing the words practical and/or application:
“The best way to teach a child restraint and generosity is to be a model of those qualities yourself. If your child sees that you want a particular item but refrain from buying it, either because it isn’t practical or because you can’t afford it, he will begin to understand restraint. Likewise, if you donate books or clothing to charity, take him with you to distribute the items to teach him about generosity.”
—Lawrence Balter (20th century)
“Courage is resistance to fear, mastery of fear—not absence of fear. Except a creature be part coward it is not a compliment to say it is brave; it is merely a loose application of the word. Consider the flea!—incomparably the bravest of all the creatures of God, if ignorance of fear were courage.”
—Mark Twain [Samuel Langhorne Clemens] (1835–1910)