Two Box Money Decision

A decision-making framework about when to sell a company or take guaranteed money, using the "Two Box Problem" analogy.

The Two Box Problem Setup

• Box 1: Guaranteed $10M
• Box 2: 50/50 chance at either $20M or nothing
• Expected value is mathematically the same ($10M) for both boxes
• Most people choose Box 1 (guaranteed money) when amounts are life-changing

Why People Choose Guaranteed Money

• Life-changing amount permanently alters your future
• Provides freedom to work on any future project
• Eliminates basic worries about:
  • Bills and debt
  • Housing security
  • Children's education
• Mathematical expected value isn't the right framework for decision-making
  • Real life has uncertainty, not just risk
  • You don't know the actual probabilities
  • Worse than 50/50 because you can't calculate odds

The Freedom Line Concept

• There's a threshold where money becomes truly life-changing
• In 2006: Around $10M was the freedom line
• In 2023-24: Closer to $20M for a "rich lifestyle" in America because:
  • Need balanced portfolio
  • Account for taxes
  • Factor in inflation
  • 4% withdrawal rate annually
  • Results in about $1M post-tax annual income

Key Decision Making Principles

• Consider your current life stage and goals
• Factor in whether you want to keep working
• Think about ability to self-fund future ventures
• Don't adopt others' goals or definitions of success
• Focus on what amount creates meaningful change for your specific situation