By Dean Foster and H. Peyton Young. They fear that hedge fund managers can write a series of naked puts with high probabilities of above-average returns and low probabilities of extreme disaster. Most of the managers will establish track records and attract more funds. They gain on the upside but don’t lose that much on the downside. The key problem is that investors judge investors on the basis of observed past performance, not the entire probability distribution they have created. Yet the latter is what we all end up having to live with.