Roll a dice one million times...

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February 12th, 2010 at 10:05:55 AM permalink

DJTeddyBear

Member since: Nov 2, 2009
Threads: 92
Posts: 4929

Quote: Wizard
Let's say you could roll a die and receive $1,000,000 times the amount rolled. Obviously the expected win is $3,500,000. What amount of money would you be indifferent to if as an alternative settle price? As someone mentioned, I claim the utility of money is roughly equal to the log of the amount. Assuming you had zero money to begin with, that would make the indifferent settle price $2,993,795. However, if I were really in that situation, I think my indifference point would be a bit less, like about 2.7M, not facting in the progressive US income taxes.

Um, what?

One more time, but in English, please?

Wiz -
Sounds like that means you'd be happy with $2.7mil. Am I right?

So I'm guessing you want to avoid, at all costs, ending up with less than $2.7mil and you're gonna shoot a million times, to end up with around $3.5mil - well more than your indifference value.

Superstitions are silly, childish, irrational rituals, born out of fear of the unknown. But how much does it cost to knock on wood?

February 12th, 2010 at 10:10:18 AM permalink
FinsRule Member since: Dec 23, 2009 Threads: 35 Posts: 537	2.5 million. Any lower and taking the deal seems pointless. 2.5 million and I retire immediately and live off interest. Sounds nice...

February 12th, 2010 at 10:53:13 AM permalink
jeremykay Member since: Feb 5, 2010 Threads: 0 Posts: 69	Anything less than $3M and I'd roll the die.

February 12th, 2010 at 11:01:59 AM permalink
DJTeddyBear Member since: Nov 2, 2009 Threads: 92 Posts: 4929	What deal are you guys talking about? Did you read the original question? Superstitions are silly, childish, irrational rituals, born out of fear of the unknown. But how much does it cost to knock on wood?

February 12th, 2010 at 11:40:27 AM permalink

Wizard

Administrator
Member since: Oct 14, 2009
Threads: 256
Posts: 5775

Quote: DJTeddyBear
Wiz - Sounds like that means you'd be happy with $2.7mil. Am I right?

So I'm guessing you want to avoid, at all costs, ending up with less than $2.7mil and you're gonna shoot a million times, to end up with around $3.5mil - well more than your indifference value.

2.7M is my indifference point between walking and rolling. It doesn't make much difference between a flat 3.5M and rolling a die a million times and taking the sum (not factoring in the time required to roll a die that many times), because the standard deviation is only $1708.

Quote: DJTeddyBear
What deal are you guys talking about?

Did you read the original question?

I think I'm to blame for changing the question a bit. See my post above.

It's not whether you win or lose; it's whether or not you had a good bet.

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