603.4 Lesson - asymmetricPayoff

Screen: asymmetricPayoff

Headline: Asymmetric Payoff

Reward: 4

Text: When we make decisions about investing our money, we try to predict what might happen and how much money we could make or lose. Sometimes, the amount of money we can make or lose is not equal.

For example, if we invest in something that has a big chance of making us a lot of money, but only a small chance of losing a little bit of money, we might call this an "asymmetric payoff." This means that the potential upside (how much we can make) is much bigger than the potential downside (how much we can lose).

One example of this is bitcoin. Bitcoin's potential outcomes are similar to an option, meaning it either succeeds or fails. If it experiences a catastrophic event, the risk of losing money is minimized.

However, the potential upside is much greater, as bitcoin's total addressable market has the potential to be a primary global store of wealth.

Asymmetry in payoffs, or uneven potential outcomes, only occurs when there is uneven understanding or information about an investment. If everyone fully understood bitcoin, it would already be widely used as a form of currency.

Currently, not everyone is aware of bitcoin's potential as a superior monetary option, so the potential for it to increase in value depends on the demand for it increasing without a corresponding increase in the supply.

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QUIZ

Question: What is an asymmetric payoff in the context of investment decisions?

Answer: When the potential upside is disproportionately greater than the downside risk

Feedback: Correct answer! You got it! An asymmetric payoff means that the potential for gain is much greater than the potential for loss. Good job

Correct: true

Answer: When the potential upside and downside are equal

Feedback: Wrong answer! An asymmetric payoff means that the potential for gain or loss is uneven, not equal. Better luck next time

Correct: false

Answer: When the potential upside is a talking llama and the downside is a mute giraffe

Feedback: Wrong answer! While a talking llama and mute giraffe might make for an interesting investment, they do not define an asymmetric payoff. Better luck next time.

Correct: false