[thing85]

[ QUOTE ]
OP

you can't figure out what's optimal for others without considering their attitude towards risk

[/ QUOTE ]

I believe this to be the correct answer in the thread. I haven't read all responses, so others may have made similarly correct remarks. While maximizing EV is certainly one perspective and certainly a valid one, it is not the only valid one. Like econ_tim has pointed out, the "optimal decision" depends on both EV and attitude towards risk. If I have a 0% risk tolerance, I am hedging 100%, and that is the correct move for me.

I am not a stock trader nor do I think stock trading is gambling per se, but I like to use it as a comparative example. Startup company A's stock will often have an EV higher than that of an established company. Risk, however, is much higher. Which is the correct investment? The answer is, it depends. If I'm creating a short-term portfolio to fund my child's upcoming college education, I may choose the risk-averse, lower EV option.

Similarly, if I know that I need $500 for rent this month and I don't know if I will be able to make that money otherwise, I'm going to take the lower EV, 100% hedged bet to guarantee my rent will be paid on time.

Realize that this example isn't without its flaws, but it illustrates the importance of risk tolerance. EV can't be viewed inside a vacuum.