The same could be said about any job though. There's always another job somewhere else that pays better. That's true whether I get a pay cut or not.
Exactly. Since you said that your confidence in finding another job is the qualifier on why you'd make the gamble of risking the layoff, and the above fact is true
regardless of whether you get a pay cut or not, the smartest option is to take 90% in the interim instead of
risking 100% in order to not have to look for one of those jobs and maintain the status quo.
On average I'm losing $10 every time I play this game.
My point is that it is a stupid bet because you will always come away losing over time. Actually, you break even over time.
It's
always stupid to take a bet where you risk way more in each single instance than what you can gain when the ultimate best case scenario is breaking even.
Instead take the position that has no risk, because over time, there
is no gain to be had in the other position.
According to your numbers, a layoff would cost me somewhere between $1282 to $2564. But if I vote for the layoff, I'm only being laid off myself about 10% of the time. The other 90% of the time, it costs me nothing. So my expected loss is only:
(.1)(-$1282 to -$2564) + (.9)($0) = $128 to $256 on average
No, if you fall into the 10% your expected loss is 100%. If you fall into the 90% our expected loss is 0%.
In the alternative situation, you are in the 100% with a guaranteed loss of 10%.
In each scenario, the
long term results of repeating the gamble over and over again are a loss of 10%.
Thus, taking
any risk at all for what over time equals the same situation isn't worth it. Let alone risking everything on it.
And since you have no control over when you'd get hired again, and at what pay scale you get hired at, your risking everything and then some.
If the ultimate result is that you end up with a job that pays 85% of what you made before the bet, you've got continuing losses on top of the short term losses.
Whereas you can always look for another job that pays more than what you will make with the pay cut while taking
no risk at all.
The risk/reward equation means that this would
always be a stupid bet
except in scenarios where a 10% loss means your are totally screwed.
That's because it adds a "risk" value to the paycut that is equal to the risk value for the layoff. It also removes the reward side of the paycut scenario entirely (reward = guaranteed job) since the guaranteed job itself just means you are totally screwed with a job instead of being totally screwed without one.
This also
adds to the reward side of the layoff scenario (reward =
not being totally screwed).
In that case, the equation turns from high risk-low reward (for all people who wouldn't be totally screwed by a 10% paycut) to low risk-
high reward (for those who would be totally screed by the pay cut).
Low risk-high reward bets = good. High risk-low reward bets = bad.
When you made your claim about risking the layoff, you were trying to alter your "risk" side of the equation with
another bet of your own invention: the bet that you'll find employment quickly.
Using a secondary bet (of
unknown odds) to justify taking on a high-risk primary bet with little to no reward is
always the stupid move.
It does not actually decrease the risk. It is only an irrational justification for taking a bad bet to begin with.