Monday, April 13, 2009

Hard to believe that economists designed this one

Heads, investors win, tails the tax payer loses.
Suppose someone is willing to fund your gambling.., and lends you $80 at zero interest. Better still, if you lose the bet you don’t have to pay him back. Under that scenario, a [risk neutral bettor]would pay $90 for a [(0, $100) lottery], giving him an even chance of winning or losing $10.

This is a microcosm of what the Public-Private Investment Program (PPIP) is intended to do: create an incentive for investors to pay $90 for a bet that is worth only $50.

No comments:

Post a Comment