My philosophy is to not include the huge upside tail events that are of minuscule probability, but do include the huge downside events of minuscule probability.
If you include miniscule probability but huge payoff upside events, you can chase some ridiculous things. My favorite is when the powerball jackpots is over $300MM or something like that. Even after taxes (with lump sum payment) its positive expected value and pays off in days if you win. That would suggest you should take all your money and buy lottery tickets.
While that philosophy is valid (especially as the higher expected value also obviously comes with higher variance), if you are an investor who invests in dozens of companies over years it seems like an argument worth considering. Obviously though, these events get more media coverage, blog attention etc... than the ones that fail.
I would disagree strongly. Perhaps we have different meanings of the term miniscule. Do you still include it if its on the order of 1E-6?
Lets say you have interest 100 companies over 30 years, which is pretty hard to do anyways. What percentile event is it that you get a piece of a 1E-6 event in one of your companies? Pretty low.
My thought is that you don't increase your wealth meaningfully and especially don't feed your family with lottery tickets. And that is the exact example I brought up.
If you include miniscule probability but huge payoff upside events, you can chase some ridiculous things. My favorite is when the powerball jackpots is over $300MM or something like that. Even after taxes (with lump sum payment) its positive expected value and pays off in days if you win. That would suggest you should take all your money and buy lottery tickets.