Umm no. I have the expectation of loss but am putting a small amount money to insure myself against the emotional distress of if I missed a big mooning opportunity. The default expectation is that the money is all lost.
So no, it's not a security.
If you invest $100 with the expectation that it will be lost with 99% probability, and that it will become $100,000 with 1% probability, you are expecting a profit of $901.
That is an "expectation of profit" my friend.
No, it would be stupid to "expect" a profit of $901 because there is no scenario in which you would gain $901. You would either have -$100 or +$100000 and never +$901 in your stated scenario.*
In your case since there is a 99% probability of -$100, my "expectation" would be -$100 and if "surprise" of $100000 happens that is "surprise", not part of the "expectation".
* I realize there is a term called "expectation value" and I hate that term with a passion because in any distribution that doesn't roughly resemble a bell curve it would be stupid to "expect" the mean value. Statistics like the mean are not a good way to establish a strategy for a game that you only get to play once.
GGP said "you are expecting a profit of $901" -- I'm not, personally. I'm "expecting" -$100. How about we take a bet? I'll expect -$100, you expect $901. If I win you give me $100, if you win I give you $100, and if neither of us wins we split the $100K. Deal?
This is a game theory problem, NOT a statistics problem. In my case the utility of losing -$100 is zero, the utility of gaining $100K is very positive, the utility of missing out on the $100K is extremely negative.
I don't know about you but if you have a coin labeled 0 and 1 and flip it it would be mind-bogglingly stupid to expect a 0.5 out of this coin. Just like if you have a coin labeled A and C it would be stupid to expect a B to come out of it. You'd be better off picking either A or C and expecting that instead.
No statistics class I took said that a coin with sides A and C can give you a B, or that you could "expect" 0.5 from a bimodal distribution with a delta function at 0 and a delta function at 1. The mean value may be 0.5 but it's not something you would expect to actually happen; if you wanted to maximize the probability that your prediction is correct you'd be better off picking 0 or 1.
It’s like having a huge argument about a physics problem claiming “force” isn’t mass times acceleration because nobody is “forcing” you to do anything.
Back to your 0 or 1 example. 0.5 is the meaningful value to know over any kind of large sampling because that is what matters for “expected value”. It tells me what I should expect overall if I play 1000 times.
What you want is called the “mode”. Given a single instance of an event, what is the most frequent value.
I already know that.
My point is it's shitty terminology, even though it's somehow become a standard.
Stats 101 also does NOT tell you to "expect" the expected value to happen.
GGGGGP however seems to actually use the value to formulate a strategy, and that's where I'm pointing out that this entire formulation of using stats to approach this problem is flawed. You don't have enough chances at the game such that the mean is a meaningful number to consider.
That's also why I always refer to it as the mean even if other people call it "expected value". I hate the term with a passion and I will not yield to the wise guys who wrote the books.
Honestly I'd rather not have this discussion in English because this isn't a problem in many other languages. In many languages mean is not called "expected" anything.
Calculating utility, or the expected value, is entirely statistics.
"Expected value" and its derivatives is a specific term, with a specific calculation. You can't just throw around words and expect others to understand you don't mean the actual definition when you say them.
While ongoing profit from the investment itself is nice it's not legally required. For example, stock in Uber is a regulated security, even though Uber has a history of losses and is not expected to be profitable in the near or distant future, if ever.
Similarly, loss companies were once frequently sold to savvy investors needing losses to offset their taxable earnings from other sources, and those investments were similarly regulated securities even though there was clearly no expectation of profits.
Yes, more or less. Or call it an insecurity, I don't care, whatever is needed so the SEC can stay out of this.