Vaniver comments on A proposed inefficiency in the Bitcoin markets - Less Wrong
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Comments (138)
If someone has a log utility function, a half chance of $800 and $1250 is as valuable as a certainty of $1000. Basically, people who have more risk than they want are selling to people that have less risk than they want.
(The stated example- of 2.5% growth in absolute terms per day- is very exaggerated compared to actual asset prices, I think. If this were about an asset that had an expectation of 2.5% growth in absolute terms per year, but the high variance, then it would be reasonable to imagine the market being much happier with the $1000 today than the gamble, because of how risky and low-growth it is compared to other options.)