Invest in Steemit? Take A Risk! The Risk Averse Mind Behind Decision-Making on Steemit! - by chrisadventures

in #money8 years ago (edited)

Are you risk loving or risk averse? What would you choose, receive $1000,- with 100% certainty or receive $2.500 with 50% certainty? In our nature, most of us are risk averse and would choose option 1. Economically seen, this choice is inefficient as the expected value of option 2 is higher (0,5 x $2500,- = $1250,-). Often, humans are scared to take a risk given the uncertainties of that decision. Many motivational speakers tell us to take risks in order to achieve optimal situations in life. Isn't that what most successful people in life have done before us?

 "Just taking risks for risk's sake, that doesn't do it for me. I'm willing to take risks that I think are worth it, and I've worked so hard to make sure that I survive." Chris Hadfield

The choice whether to invest in Steem Power brings uncertainties too. In this case, our human mind might tend to push us into an economically inefficient situation as the one described above. But why and how should we take this into account?

Fact 1: Losing an amount of money generates more pain than gaining that same amount of money

Assuming the situation discussed in the introduction, in a way, you'd expect yourself to have that $1000,- already because it is a sort of certainty (100%)! If you choose option 2, it will feel like a big loss if you're left with $0,- in the end, probably even more than winning the $2500,-. For that reason, most of us tend to be risk averse and prefer the $1000,- because a loss is way more painful than the joy from an equal profit. 

Fact 2: We prefer money today

If I ask you today: do you want to receive $1.000,- now or receive $1500,- in 5 years, what would you choose? Personally, I would choose option 1, I'm a poor student so that $1.000,- today is worth more to me than that $1500,- in 5 years! Future and uncertainties go hand in hand! Right now there are certain ways I can spend that money! In five years, I may have a good job and enough money already but it may also be that I'm sick or dead by then!? Unconsciously, we tend to prefer having that money today! Economists have even made a formula to compute the present value of future money:

Here: Present value of money (PV) = Future Money / (1 + i)^n where i=interest rate and n=number of years from now (see figure below)

But in reality I believe there are way more uncertainties that determine the present value of money. Think about expected inflation, life expectancy, current money stock and all other risks that come with your decision!

Steem Power

The decision whether to invest in Steem Power is related to both two facts stated above. You might prefer having your money today instead of waiting for it, right? It might also be that you're afraid of the uncertainties investing brings. But believe me, sometimes you have to take the risk. You will regret not investing if it eventually ends up to be worth a lot and you could've been one of those investors. Steemit has a strong growth potential and with growth comes demand for Steem. I've decided to invest, but how about you?

The decision is up to you, take that risk!

You might wonder what you can learn from this information? Well, often moments in life present certain situations as described above. Our risk averse human minds unconsciously push us into inefficient situations in life. Situations which are safe and comfortable. Risks are all about uncertainty and the human mind is allergic to pain. Even in life situations when you might think about getting a new job, participate in a new sport or anything else that comes with a risk, our human minds are trying to protect us from pain and loss. We're often afraid of pain and rejection so often intend to choose the safe paths in life. But you must know, we are not afraid of the unknown, our projections of the unknown is what is terrifying. But are these projections true? The next time you're about to take a risk, take these facts into account and consider to take the risk! Only that way there's a potential for you to end up at the highest possible outcomes on Steemit and all other facets in life!

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This was a great post at the RIGHT time. We are taking a risk. I do it with money i can live without. That helps.... lol

I am back and forth about taking a risk in the Bitshare/Peerplay event next month. Should i take a little out of my TDAmeritade account or not. :)

Thank you very much @peacekeeper:). That's up to you to decide but there's an high potential that such an investment would be totally worth it. I wish we knew what the future will bring:-) I know that if everyone would invest it'd be better for the whole community too!

I've only got a little bit of Steem Dollars and Steem Power but I'm holding on to them at the moment as I see the value dropped a little bit. I think the amount of risk comes with wants & needs coupled with age and where we are financially. I certainly could use an extra $80 in my bank account but at the same time it's the first time I'm doing something as an investment. That, to me, is very exciting.

Yep, short-term fluctuations! But let's expect a long-term growth as Steemit will become a big success and people from all over the world will join. This will definitely result into an increase of the value of steem :-)

Do you worry at all that exponential growth might actually flood the market and cause the value to drop significantly?

Yep, you just motivated me to invest some more bitcoin into Steemit.
I'm excited about the future and where well be in two years!
Cheers!

There is a kind of a bias with steemit, as in the more you have invested in it the more steem you can make. Your up-votes are stronger the more steem power you own.

Oh yep, I haven't mentioned that in this post. Whether it's a missing aspect to bring over my message, probably not! Investing brings a chance to earn a lot money (if Steem increases in value + the bias you just mentioned) and it brings the risk to lose money (if Steem loses value!

That's the thing--it's steadily losing value. It's gone from $4 to $1.45 and just keeps sliding. :(

It will increase. Like every economy, there's supply and demand. There'll be a threshold soon and prices will increase. Also if Steemit keeps growing we can definitely expect an increase of value. But we'll have to be patient:-)

That's amazing to hear @rawnetics, you just took that risk, let's see how it works out! ;-)

The theme of taking leaps into the unknown has been heavy on my mind of late, I just quit my job, after finally having had enough of the abuse of my boss. I am trying new things and Steemit is a big one on my horizon. I am in a precarious situation and I need something to come through enough to keep me in the black, and there is no red, it's just landing on the street again with winter coming.

Since I think that there is good reason to believe that people will be interested in reading my story, and somewhat lesser reason to believe that they might be interested in some of my ideas, I am investing a lot of 'sweat equity' into my SP, for the time being, I figure over the coming fortnight there will be a tipping point at which time I will start to see more substantial revenue come in from my content creation.

Thanks for the motivation post :)

Thanks for the motivation. You broke it down really well.

No problem @trogdor, that's good to hear:)!

One of the first things I've done after going around and reading untill I was comfortable enough with my understanding of the system was invest a bit into it. Yeah, perhaps my investment isn't all that big, but it was the cash that I could afford to lose.
Once I fixmy current financial situation, I can see myself adding a category in my budget for investing into steem. Once I figure things about other crypto currencies, I can see myself investing into a rig that can be used for mining.
Nice explanation of decision mechanics, much simpler then most what I've encountered over the years.

the beauty is, you can invest in steemit without $ -- you can build up or add to your position through sweat equity -- best about it is, you'll get a better idea of the system you are investing in... you'll stay on top of whatever is going on and it will inform you whether to stay or go or double down

I am a professional trader of 8 years and the risk for me is not a casino. And do not buy a falling knife. Looking, waiting for the appropriate moment. As an active user I face the problems of Steemit. I like the idea, but emotions aside. There are still a lot of work. The chain is broken on the first level. Minions do not read minions, for example. And I still don't see anybody to work on it. The interest will be lost very fast and the society will close itself.

We prefer money today! Fact ). Thx!

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