JorgeStolfi
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October 23, 2014, 02:11:29 AM

Everything is based on risk/reward. If someone gave you 3-1 on a coinflip you would accept it instantly, but you could easily lose. Moreover, if they demanded you wager your entire net worth, the math would direct you to decline the offer.

Indeed.  The actual gain/loss is not linear on the monetary gain/loss.

If all your worth is 100'000$, earning another 100'000$ will only make your life a bit better; but losing 100'000$ woud be a terrible disaster, from which you may never recover.

So, taking that bet at 3:1 chances, even though it has a +50'000 expected monetary return, has a hugely negative expected actual return.  That is the reasoning behind the advice "only invest what you can afford to lose".