To put this in slightly different terms.
At some point, the value of the guaranteed money, even though "discounted"
by reduced EV, exceeds the value of the all or nothing scenario. To someone
looking at just the math, adding or subtracting a few zeros to the numbers
involved makes no difference. But we are talking about a real world situation,
where people have real money concerns and values.
Those who know me know that I am a pretty successful gambler. If I were
offered a 50-50 chance to win $10 million (if I lose I get zero), I would gladly
"settle" for a sure $4 million, even though I am giving up 20% in EV. That is
because $4 million is worth more than half of $10 million TO ME.
As has been said before, it depends on your situation. If the amounts
involved are "pocket change" you should not give up much, if any, EV for the "sure
thing." If the amounts involved are life changing, a large EV hit is
justifiable. In between, each person must make his own decision on how much EV to
sacrifice for the sure thing.
In the original question, if I were in the poster's position, I would simply
go with his futures bet. But I've lost $820 in a couple of minutes playing
VP, so while not exactly "pocket change," the money involved is not that
important to me. The more important the money is to you, the greater the
justification for giving up EV for the guaranteed payoff.
It's all back to bankroll and risk aversion.
Brian
···
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In a message dated 1/31/2006 2:40:35 AM Pacific Standard Time,
thomasrrobertson@earthlink.net writes:
Bob,
See if the following scenario changes your answer.Suppose The Palms offers a year-long tournament. The prize is $820
million and there will be 100 tickets earned by playing high limit
machines. You play all year and earn 37 tickets. It's been a bad
year and you've dropped $20 million. Just before the winning ticket
is drawn, George Maloof comes over to you and says he'll give you $300
million for your 37 tickets. [To get an advantage, you tactfully ask
him for $320 million, but he doesn't budge.] So your choices are
a 63% chance at $20 million in the hole, a lock of $280 million, or a
37% chance at $800 million. I think we're out of pocket change
territory
LOL. "I don't think we're in pocket change territory any more, Toto."
, but you can adjust the numbers relative to your net worth
to make it interesting to you. What would you do?
Jeff
I think Bob has already agreed that at some point, risk becomes a
significant factor. He wrote: "A general rule of intelligent gambling
is not to overbet your bankroll." He was assuming, as I would, that
whether Steve wins $800 on his bet or not isn't going to make or break
him, and that sacrificing $15 in equity for a guarantee of a few
hundred dollars instead would be too much to pay. Your question could
be rephrased by asking Bob what is the most equity he would recommend
sacrificing in such a situation, assuming a certain bankroll. To say
"0" would be inconsistent with his belief in not overbetting one's
bankroll, no matter what one's bankroll is.
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