People are struggling to find out the 'missing' $1 in this restaurant bill puzzle

Riddles are fun to solve as long as you can reach the end. However, some riddles are almost impossible to crack. Such a riddle is the missing dollar riddle which has been baffling people across the globe for years. While the riddle based on a fallacy is tough to crack, it teaches an important lesson that can be applied to real-life situations, including investing. 

What is the missing dollar riddle?

The riddle is based on three friends who go to a restaurant for a meal. The bill turns out to be $30 and the three decided to split it, with each paying $10. On their way out, the waiter stops them, due to a mistake in billing. The waiter realized that he made an error and the actual bill was only for $25. 

In an attempt to split the extra $5 evenly among the three, the waiter hands $1 to each of them and keeps $2 to himself. So in the end, each friend pays $9, which is a total of $27. Also, the waiter keeps $2, thus, the total comes out to be $29. However, they had originally paid $30, so where did the $1 go?

Here's where the missing dollar is

There is no straight solution to the riddle as the missing dollar isn't actually missing. The answer lies in the approach to the problem. 

The total cost of the meal for the three friends was $25. Further, they were handed $1 each, which brings the total to $28. Lastly, the waiter kept $2, and upon adding that to the total, it came out to be $30. Everything is now magically accounted for. 

The illusion of the missing dollar is created by an informal fallacy which means the error is only in the approach and not the solution. 

An informal fallacy happens due to an error in reasoning. Here, the premise of an argument fails to establish an apparent conclusion because of its structure and content.

Thus, they fail to provide enough reasoning for people to believe their conclusion is right. In real life, there are various problems that can be solved by re-aligning the approach. Such fallacies occur in the world of investing too, causing massive losses for investors. 

Fallacies in Investment and how to avoid them

Gambler's Fallacy 

The gambler's fallacy or the Monte Carlo fallacy, occurs when people believe that a random event is likely to happen based on the series of events leading up to it. An example of this is when a coin is tossed 5 times, and the outcome of all tosses is headed, people tend to believe that there are more chances of tails occurring in the next toss. However, there is no scientific backing to this, as the chances remain an equal 50%. 

The same happens in investing when investors erroneously anticipate a stock's rise or fall, based on their prejudice. To avoid this, investors need to view events (rise or fall) in isolation and invest scientifically instead of chasing the buzzing stocks. 

Sunk Cost Fallacy 

The sunk cost fallacy or trap occurs in investing when people irrationally keep putting more into something that doesn't meet their expectations, simply because they have put too much time and money into it.

The best way to avoid this is to set a goal for each investment and drop out or re-evaluate if it doesn't meet the expectations in the set time.