What I *think *he meant was that if he borrowed $750 he’d then have $1500 total. Which would be enough money to play the game enough times at his chosen price to have a 50/50 shot at winning the $50K once. But even then the risk would be too high *for him *since he’d be utterly screwed if he not only lost all his own capital of $750, but also ended up owing another $750 he had zero chance of being able to repay.
All of which amounts to the usual advice. Don’t gamble money you can’t stand to lose. In his case he has zero dollars he’s willing to lose. He’s also not willing to lose other people’s money he’d have to repay. So for him there’s no price at which he will play the game even once.
What if there’s a very slight change to the scenario, to remove the “funny business”: what if you’re on a game show, and you’ve already won $1000? You and an opponent get to “bid” to make this wager, and whoever bids the most will get to make it. How much of your winnings would you risk on this exact wager?
Now it’s plausible; I wonder if it’d change folks’ answers to make it money you’ve just won, and why.
It occurs to me that this scenario changes things too much by making it money you just won–a lot of people won’t take that money as seriously as money from their normal budget. So here’s my version that removes the “funny business” concern:
You’re walking down the street when you see the host of Street Smarts, a popular game show where the host approaches random people on the street and makes them strange deals, ranging from the embarrassing to the risky to the difficult. Make a good deal, and you win the prize. The show is on the level: the deals never have any tricks to them, and the show makes money through advertising, not through winning its bets.
Today’s prize, of course, is the chance to play the game described in the OP–except the host is holding an auction. Only one person gets to draw a card, and that person will run their credit card, paying their winning bid before playing. Make sense?
Bidding starts at $1. What will be your final, highest bid?
There is a 0.004102398% chance that 500 people could guess incorrectly in a row, if one wants to be exact. I don’t believe TruCelt understands that there are mathematical formulas which are used to calculate odds and somehow she believes that the formulas are different for the player and the house, which makes no sense mathematically.
I agree on both counts; that it would change the answer knowing this this is completely legitimate rather than someone who just breaks out a deck of cards and that paying cash would be different than betting on money just won.
I’m not sure what I would do. Back when I was working as a sales manager in Tokyo and would often spend a lot on entertainment, then it would be different than now when I’m teaching and hardly spend any on entertainment.
I think, in my modified scenario, that I’d bid up to $100 pretty easily, and drop out by $200. It’s not that I’d misunderstand the odds; it’s that beyond $200, we’re moving into a financial loss that would be pretty noticeable in our monthly budget.
That’s incorrect, as I cited earlier: $50 is the average household expenditure on eating food out of the home in a week. Most people, by replacing those meals out with cheap home meals, could recoup $50 in a month or less.
I know my lower-middle-class family splurges a 2-4 times a month on a meal out, spending $40 or so to feed a family of four. We eat a lot of meals at home, and a meal of bean burritos costs us around $5 for the family. Replace two meals out with bean burritos, and $50 is paid for: an inconvenience, but hardly a financial disaster. If I were making bets like this a couple of times a month, or if like I said I went far above $100, it’d be different–but AFAICT the majority of Americans can absorb a $50 loss if they want to.
Which doesn’t mean any shame on folks who don’t want to. I don’t enjoy gambling at all, and part of my feeling about the whole thing would be irritation at the game show who put me in this position of doing something that stresses me out because it’s suddenly the sensible thing to do. If other folks decide the stress of making this bet is more than the expected payout, I totally get that.
Edit: you can explore that difference by changing the bet: if you pick the Ace of Spades, you win $50. Would you be willing to bet $1 for this bet? I suspect most folks would, because the stress of losing a single buck is so minimal that emotional factors wouldn’t figure much into the risk assessment.
Aren’t some of those legitimate reasons? Certainly poverty is a legitimate reason. I think risk aversion is too. Like, why make a bet when you know that your psychology isn’t aligned with it? Two out of three?
I mean, it kind of is? The two of us went back and forth on this topic several times. I rephrased in an attempt to remove part of my original phrasing that you thought was misleading. I wasn’t trying to be misleading, so I rewrote it. I wasn’t trying to drop the rephrasing either, but I admit that I was sloppy and left it out. If I make multiple similar statements, focusing on the flaws of each is like the definition of uncharitable reading
Look, obviously communication is fraught with issues. I have imperfectly selected words trying to convey ideas. But you can also choose to read my posts as written by someone who is legitimately trying to have a substantive conversation, or by someone who’s just being a dismissive dick on the internet.
I would say that this paragraph is an excellent description of being “risk averse”. I believe you suggested this as a counterargument, and you seem to think that the phrase “risk averse” is a pejorative, so maybe we just disagree about what it means to be risk averse?
I guess it is also partly loss aversion. We weigh losses more than gains.
FWIW, I am risk averse too, but not as much as most people responding here seem to be, which surprised me because I tend to think of myself as more risk averse than the average person!
Pedant alert: you didn’t say “poverty” and “risk aversion,” you said, “extreme poverty” and “extreme risk averse-ness.” For folks who are just normal impoverished or risk-averse, the implication is that it must therefore be innumeracy that leads them not to take this bet at $50.
But if you’re scrapping that “extreme” word, I think you’re probably right :).
You literally said “unreasonable risk-averseness”. I quoted it, and it’s back on page one if anyone thinks I’m making up the quote. Having an unreasonable level of X means that the amount of X is not reasonable, and thus not a legitimate reason for making a decision. Like, why use the word “unreasonable” if you think what the person is doing is reasonable? This isn’t any kind of leap, you used a specific word that means the opposite of reasonable.
The trick with the ‘poverty’ piece is that the clear implication of that statement is that someone could only find $50 to be a significant sum if they are actually in a state of poverty - which is just not true, and is dismissive of people’s financial situation and judgement. The fact that you marked it up to “extreme” poverty makes the implication even stronger.
I think that the phrase “unreasonable risk-averseness” is prejorative, because of that pesky word ‘unreasonable’, that says that you think the person is being risk averse to a level that isn’t reasonable. This isn’t me digging up some obscure implication of a word or even looking at the implications of a sentence, that’s using the literal, basic definition of the word ‘unreasonable’.
If you’re offering me a 50-1 shot on a 53-1 payoff of course I’ll make that bet - I like gambling and a positive EV bet for a trivial amount of money is an easy call.
If I can make the bet an unlimited amount of times I will literally quit my job to do this full time.
Take another look, though. Mr Shine is correct that I’d goofed: your chance of pulling the Ace of Spades out of a deck where the black aces have been removed is a lot less than 50-1.
I don’t make it a point agree with statements that don’t seem to say anything useful. It looks to me like if I take your caveats into account, what you’re really saying doesn’t have anything to do with the mathematical concept of +EV. Instead, the statement seems to really be saying something like "People who take bets that they magically know are +EV, always avoid scams, never bet where the amount has a significant risk of ruin, and otherwise never take significant risk on the bets do better than people who don’t take those bets’. And sure, I don’t dispute the truth of the statement, but I dispute the idea that it’s saying something meaningful.
I’ve given an example of an extremely +EV bet in the thread that would actually be awful to take IRL. (You are handed $100 million, with an immediate opportunity to go quadrouple or nothing on a coin flip). Every person who doesn’t take the ‘quadrouple or nothing’ bet will be rich enough to not need to work ever again, but 50% of the people who do take it will end with nothing. You can stretch your ‘life altering’ caveat to cover it, of course.
People in the real world who take ‘too good to be true’ bets (like the OP if it didn’t have the magical ‘not a scam’ attached) tend to find out that the bet actually was too good to be true. Someone who takes allegedly plus EV bets like that will generally be worse off than someone who ignores all such bets, even if they get one magical no-funny-business bet at some point in their life, because they’ll find out that the $50,000 check bounced and the guy offering the bet moved on to his next scam when they try to cash it. You can say ‘well, then it wasn’t really a +EV bet in the first place’, but that makes your statement not meaningful to the real world.
People who look only at simple EV and not things like the risk of ruin or the time needed to expect a win also come out behind. While it’s not too hard to bankroll the $50 version of the OP’s bet, bankrolling the $900 is significantly more money than most people have available. If you, like five people in this thread, would not hesitate to take the bet at $900 because it’s +EV but have ‘only’ $200,000 in your bankroll, you’ve got a 50% chance of ending up broke at the end. (I used an online calculator to do this quickly, so the numbers may not be quite right but the amount of cash needed to get risk of ruin down to 50% is pretty huge). Again you could stretch the ‘life altering’ caveat to cover this, but it doesn’t seem to leave much room for meaning.
Sorry, but I forgot they removed Aces or whatever from the deck.
I thought the new bet was a full 52 card deck, which would make the odds 52-1.
I’m also a gambler, but seems like some people wouldn’t take any bet for any odds. Seems strange to me.
Incidentally, if there is a game with odds of 52-1 (like pulling the Ace of spades), what is the way to figure out how many times you would have to play before having a 99% chance of winning? Is there a way of figuring that out?
Yes, each round you will lose with 51/52 probabilty. You just need to keep multiplying by 51/52 to get the odds of losing every time. After 238 goes the probability of never winning is about 0.984%
I also found it rather strange that roughly half of the respondents here wouldn’t be willing to wager as little as $50 for a one-in-fifty chance at winning $50,000. But people often use very rudimentary heuristics when making their decisions (e.g. all gambling is bad, consuming alcohol/meat/supplements is bad, voting is good, natural is good, religion is bad, one political party is bad while the other party is good, etc.) so we shouldn’t be surprised.
What I was trying to convey here is that being unwilling to risk $50 on this bet is wildly bad from a financial perspective. It’s an incredibly good deal.
It is unreasonable to turn it down in the sense that the decision seems not to be based on reasoning out the situation. But that’s obviously a narrow a definition of reason.
Someone who thinks gambling is immoral, for example, would turn down the bet at any price, and would be using reason and judgment to do so, just not financial reasoning.
Fair. I withdraw “extreme”. I’ll even withdraw “poverty” and just state it as “faces substantial financial hardship from losing $50”?
And they should. Because even though the expected rate of return is the same, risking the $1000 is much harder.
But, the surprising thing to me is that it seems (this is my impression of comments here so far, obviously not based on hard data) like more people would take the $1 for $60 bet than would take a $50 for $60,000 bet.
Essentially because in the first case, they’re rounding $1 down to 0 (losing a dollar doesn’t matter), and in the second case, they’re rounding 2% down to 0 (I’m not going to win anyway).
That inconsistency is… let’s just say “highly suboptimal” in a modern financial system.
