Study 11: Revisiting the Devil's Card Game
Considering risk of ruin, compounding, & volatility clustering
The Devil’s Card Game is a thought experiment that makes us decide how early to take profits or cut losses during an uncertain game. It’s a fun game for investors.
It has a key flaw though - at each stage of a game, all probabilities are known. This is totally different from markets, where we have to guess about future probabilities.