If M5 simulation, were replaced by 5% of one’s current portfolio, the players reactions will be different. 5% representing one stock selection, there by 20 stocks of a diversified portfolio. The simulation may not be carried out in real-life after a couple of rounds. Also if the same player is asked to repeat the situation at the age of, say 20s, versus age of 50s, the outcome will be different. Risk Tolerance v Risk Capacity is different.
Prospect theory plays a major role. Big investors are able to take outlandish positions, based on their wealth in hand.
Unfortunately stats with smaller-numbers does not correlate with laws-of-larger-numbers. Frequency based statistics are useful for ‘regular’ playing field, like heights of humans etc. Irrational fields require probabilistic calculations based on Bayes’ theorem and self-updating models.
For another question of ‘what to compare performance (XIRR) against?’; there is nothing definitive in one view.
Real_Return = Nominal_Return – Inflation is perhaps a satisfactory measure. If R_R > Average Market Returns (Nifty 500, not 50), then one can be happy.
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