vpFREE2 Forums

Chicken versus gambler question posed on GWAE

#1

On last
night's "Gambling with an Edge," I posed a question that Munchkin and
I plan to address on the air next Thursday. This might well be a subject that's
appropriate for discussion here. I don't intend to participate in this
discussion other than setting it up --- although I will tell you where I stand
on the issue --- but rather "save" my analysis for "on the air"
next week.

            In
September, the Palms Friday-Saturday drawings give the winners a choice. The
winners can select a guaranteed $1,500, or they can play a game. In this game,
there four envelopes with a 0, 1, 2, 3 inside in some order. Players arrange
the envelopes (not knowing what's inside), and then read off the number in
dollars. The greatest amount you can win is $3,210 and the smallest is $123.

            The average
(mean) of the equally-likely choices is $1,666.50. The average (median) of the
choices is anything between $1,320 and $2,013, including, of course, the
fallback prize of $1,500.

            What we
call EV (or ER) in video poker is $1,666.50 --- if we're willing to
"gamble." You could give up about 10% of that, chicken out, and keep the $1,500
with no gamble.

            To me this
is a no-brainer. I'd go for the higher-EV option 100% of the time. I'd do it if
the choice were $1,666.50 versus a guaranteed $1,650. This is not a close
decision for me. I'm sure many players with chicken out and keep the $1,500.

            What would
you do? And why?

            I don't
think there are any "cash versus free play" differences between the
two choices. Even if there are in the casino, let's ignore them for the sake of
this discussion.

Bob

[Non-text portions of this message have been removed]

#2

I would do the exact same thing for the reasons you stated. However I think this is a question about the tradeoff between EV and variance, and more importantly risk aversion. I imagine the 166.50 in risk premium is too low for many people and that the would go for the guaranteed payout.

#3

I'd take the sure thing $1500 & stop off at the store for some nice chicken to BBQ, because I don't need to be gambling on everything that comes my way.

#4

I think what the person decides to do depends on how significant the
amount of money in question is to them. For example if the prize given was multiplied by one thousand and the prize offered was $1,500,000 instead of $1,500 and you could gamble and get between $123,000 and $3,210,000 then I am sure Bob's decision wouldn't be a no-brainer.

···

--- In vpFREE@yahoogroups.com, Bob Dancer <bobdancervp@...> wrote:

            On last
night's "Gambling with an Edge," I posed a question that Munchkin and
I plan to address on the air next Thursday. This might well be a subject that's
appropriate for discussion here. I don't intend to participate in this
discussion other than setting it up --- although I will tell you where I stand
on the issue --- but rather "save" my analysis for "on the air"
next week.

            In
September, the Palms Friday-Saturday drawings give the winners a choice. The
winners can select a guaranteed $1,500, or they can play a game. In this game,
there four envelopes with a 0, 1, 2, 3 inside in some order. Players arrange
the envelopes (not knowing what's inside), and then read off the number in
dollars. The greatest amount you can win is $3,210 and the smallest is $123.

            The average
(mean) of the equally-likely choices is $1,666.50. The average (median) of the
choices is anything between $1,320 and $2,013, including, of course, the
fallback prize of $1,500.

            What we
call EV (or ER) in video poker is $1,666.50 --- if we're willing to
"gamble." You could give up about 10% of that, chicken out, and keep the $1,500
with no gamble.

            To me this
is a no-brainer. I'd go for the higher-EV option 100% of the time. I'd do it if
the choice were $1,666.50 versus a guaranteed $1,650. This is not a close
decision for me. I'm sure many players with chicken out and keep the $1,500.

            What would
you do? And why?

            I don't
think there are any "cash versus free play" differences between the
two choices. Even if there are in the casino, let's ignore them for the sake of
this discussion.

Bob

[Non-text portions of this message have been removed]

#5

Chicken is cheap, why not some prime steaks from the butcher store? :slight_smile:

···

--- In vpFREE@yahoogroups.com, "rob.singer1111" <rob.singer1111@...> wrote:

I'd take the sure thing $1500 & stop off at the store for some nice chicken to BBQ, because I don't need to be gambling on everything that comes my way.

#6

Depends on how big your bankroll is. Use the "certainty equivalence" formula:

CE = EV - Variance/(2xBankroll)

If you have a monster bankroll like Warren Buffet, CE approaches EV, otherwise CE is always less than EV. Another way to think about it is that you can't get the EV out of a gamble unless you have a monster bankroll. More normal bankrolls can only get a fraction of the EV out, small bankrolls can't get any and in fact can lose money in the chase for EV.

http://en.wikipedia.org/wiki/Risk_premium

···

--- In vpFREE@yahoogroups.com, Bob Dancer <bobdancervp@...> wrote:

            On last
night's "Gambling with an Edge," I posed a question that Munchkin and
I plan to address on the air next Thursday. This might well be a subject that's
appropriate for discussion here. I don't intend to participate in this
discussion other than setting it up --- although I will tell you where I stand
on the issue --- but rather "save" my analysis for "on the air"
next week.

            In
September, the Palms Friday-Saturday drawings give the winners a choice. The
winners can select a guaranteed $1,500, or they can play a game. In this game,
there four envelopes with a 0, 1, 2, 3 inside in some order. Players arrange
the envelopes (not knowing what's inside), and then read off the number in
dollars. The greatest amount you can win is $3,210 and the smallest is $123.

            The average
(mean) of the equally-likely choices is $1,666.50. The average (median) of the
choices is anything between $1,320 and $2,013, including, of course, the
fallback prize of $1,500.

            What we
call EV (or ER) in video poker is $1,666.50 --- if we're willing to
"gamble." You could give up about 10% of that, chicken out, and keep the $1,500
with no gamble.

            To me this
is a no-brainer. I'd go for the higher-EV option 100% of the time. I'd do it if
the choice were $1,666.50 versus a guaranteed $1,650. This is not a close
decision for me. I'm sure many players with chicken out and keep the $1,500.

            What would
you do? And why?

            I don't
think there are any "cash versus free play" differences between the
two choices. Even if there are in the casino, let's ignore them for the sake of
this discussion.

Bob

[Non-text portions of this message have been removed]

#7

Bob,

Add some zeros and you would be a chicken too - if the choice was between a guaranteed $1.5 million or the risk of only getting $123,000 what would you do? How about $15 million versus 1.23 million? The fact is people have real lives with real financial needs or goals - and that is virtually everyone - I suspect even Bill Gates would takes the $15 million versus the $1.23 million - after all this is a guy who playes $3-6 limit poker. Most of the readers here are quarter players or below - $1,500 is 1.5 royals - not easy to get - they would be wise to take $1,500 certainty.

···

--- In vpFREE@yahoogroups.com, Bob Dancer <bobdancervp@...> wrote:

            On last
night's "Gambling with an Edge," I posed a question that Munchkin and
I plan to address on the air next Thursday. This might well be a subject that's
appropriate for discussion here. I don't intend to participate in this
discussion other than setting it up --- although I will tell you where I stand
on the issue --- but rather "save" my analysis for "on the air"
next week.

            In
September, the Palms Friday-Saturday drawings give the winners a choice. The
winners can select a guaranteed $1,500, or they can play a game. In this game,
there four envelopes with a 0, 1, 2, 3 inside in some order. Players arrange
the envelopes (not knowing what's inside), and then read off the number in
dollars. The greatest amount you can win is $3,210 and the smallest is $123.

            The average
(mean) of the equally-likely choices is $1,666.50. The average (median) of the
choices is anything between $1,320 and $2,013, including, of course, the
fallback prize of $1,500.

            What we
call EV (or ER) in video poker is $1,666.50 --- if we're willing to
"gamble." You could give up about 10% of that, chicken out, and keep the $1,500
with no gamble.

            To me this
is a no-brainer. I'd go for the higher-EV option 100% of the time. I'd do it if
the choice were $1,666.50 versus a guaranteed $1,650. This is not a close
decision for me. I'm sure many players with chicken out and keep the $1,500.

            What would
you do? And why?

            I don't
think there are any "cash versus free play" differences between the
two choices. Even if there are in the casino, let's ignore them for the sake of
this discussion.

Bob

[Non-text portions of this message have been removed]