Wagers with friends - bet sizing
June 16th, 2015 at 4:55:41 PM
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Behavioral economists like to ask questions like:
"Would you rather receive $100 today or $105 one week from now?"
or
"Would you rather have a 1% chance at winning $1 Million or get $500 with certainty?"
These questions are intended to evaluate how participants make EV decisions with respect to time value of money, risk preference, etc. Often the results show that people make poor decisions from an EV perspective or exhibit a high degree of loss aversion. One aspect of these questions that I have not seen tested is how much a participant's decision is affected by how likely they think they are to be paid in each of the alternative scenarios. Someone standing in front of me offering me a $100 bill today or $105 next week is standing in front of me offering me a $100 bill. If I accept, I will receive the payment immediately. Even if the scenario states that I will receive $105 next week with certainty, I know from personal experience that people don't always follow through on their promises. I think I would take the $100 now because I expect there is at least a 5% chance that I would never see the $105 the next week. It has nothing to do with time value of money, rather I am making an EV calculation based on an assumption from my experience that differs from the assumptions stated in the experiment.
So onto the main point of this post, what range of dollar amounts can you reasonably expect to get paid if you win a wager with a friend or coworker? In the second experiment question above, I might expect someone would actually give me $500, but I would never anticipate someone would follow through with paying me the $1M if I won. Similarly, if I make a bet with friends, I would want it to be for an amount that I would expect to be paid. If the bet is too small, say $1, I would feel a bit petty reminding my friend that he owes me $1 from a bet. At $100 I would expect that my friend would take the bet seriously and remember to pay me, and at the same time he could afford to do so without hardship. If the bet were for $10,000, I think it would be highly unlikely that I could actually get paid. For example, if my friend gave me 1000:1 odds that the Browns won't win a playoff game next year, I might think that is a +EV bet, but I wouldn't want to bet much on it because I won't be able to get paid.
Thoughts?
"Would you rather receive $100 today or $105 one week from now?"
or
"Would you rather have a 1% chance at winning $1 Million or get $500 with certainty?"
These questions are intended to evaluate how participants make EV decisions with respect to time value of money, risk preference, etc. Often the results show that people make poor decisions from an EV perspective or exhibit a high degree of loss aversion. One aspect of these questions that I have not seen tested is how much a participant's decision is affected by how likely they think they are to be paid in each of the alternative scenarios. Someone standing in front of me offering me a $100 bill today or $105 next week is standing in front of me offering me a $100 bill. If I accept, I will receive the payment immediately. Even if the scenario states that I will receive $105 next week with certainty, I know from personal experience that people don't always follow through on their promises. I think I would take the $100 now because I expect there is at least a 5% chance that I would never see the $105 the next week. It has nothing to do with time value of money, rather I am making an EV calculation based on an assumption from my experience that differs from the assumptions stated in the experiment.
So onto the main point of this post, what range of dollar amounts can you reasonably expect to get paid if you win a wager with a friend or coworker? In the second experiment question above, I might expect someone would actually give me $500, but I would never anticipate someone would follow through with paying me the $1M if I won. Similarly, if I make a bet with friends, I would want it to be for an amount that I would expect to be paid. If the bet is too small, say $1, I would feel a bit petty reminding my friend that he owes me $1 from a bet. At $100 I would expect that my friend would take the bet seriously and remember to pay me, and at the same time he could afford to do so without hardship. If the bet were for $10,000, I think it would be highly unlikely that I could actually get paid. For example, if my friend gave me 1000:1 odds that the Browns won't win a playoff game next year, I might think that is a +EV bet, but I wouldn't want to bet much on it because I won't be able to get paid.
Thoughts?
The ratio of people to cake is too big.
June 16th, 2015 at 6:34:01 PM
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With the group of friends and Co workers that I have $20 would be the max I would ever bet. If I worked at a hedge fund place then maybe 10k.
Expect the worst and you will never be disappointed.
I AM NOT PART OF GWAE RADIO SHOW
June 16th, 2015 at 10:13:38 PM
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Most anyone I associate with whom I could see myself making a wager with are gamblers. If they have no problem betting $600 at the casino, I would feel confidant they would pay up $300 if we had a bet
June 17th, 2015 at 4:56:42 AM
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I've said many times betting with friends is simply -EV and I have quit doing it [except poker games]*. There is way too much welching and even trickery. Your thoughts about bet sizing will help, but not eliminate these problems.
*I'm not sure why poker games with friends has them exhibit different behavior. A sense of tradition maybe
*I'm not sure why poker games with friends has them exhibit different behavior. A sense of tradition maybe
the next time Dame Fortune toys with your heart, your soul and your wallet, raise your glass and praise her thus: “Thanks for nothing, you cold-hearted, evil, damnable, nefarious, low-life, malicious monster from Hell!” She is, after all, stone deaf. ... Arnold Snyder
June 17th, 2015 at 5:04:08 AM
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Quote: odiousgambitI've said many times betting with friends is simply -EV and I have quit doing it [except poker games]*. There is way too much welching and even trickery. Your thoughts about bet sizing will help, but not eliminate these problems.
*I'm not sure why poker games with friends has them exhibit different behavior. A sense of tradition maybe
I mostly agree with this, but I have a few friends with whom I can wager with confidence, as we set out ground rules to start with, and make sure we clarify terms before we agree on a particular wager. I won't do it casually or informally, as my friendships in general are more important to me than taking their money.
The amount I'm willing to risk depends on our mutual track record and knowledge of the person and their ability to pay if they lose, so I don't think there's a particular amount I could name.
If the House lost every hand, they wouldn't deal the game.
June 17th, 2015 at 5:25:55 AM
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Quote: odiousgambitI've said many times betting with friends is simply -EV and I have quit doing it [except poker games]*. There is way too much welching and even trickery. Your thoughts about bet sizing will help, but not eliminate these problems.
*I'm not sure why poker games with friends has them exhibit different behavior. A sense of tradition maybe
Helps to collect the money up front at poker and stick it in the box the chips came from.
Wisdom is the quality that keeps you out of situations where you would otherwise need it
June 17th, 2015 at 7:35:47 AM
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I only bet significant amounts with friends if there is a known track record of paying previous bets, if I believe they have strong 'gamblers honor', they have the finances to pay, the bet is made in front of a witness (or documented), and terms are clarified. My best friend and my brother, and a couple golfing friends fall in these categories
What I mean by 'gamblers honor' are those individuals that understand that a bet is a bet, and they'd make good on the bet before they'd eat if it came down to it. I have some friends who have honor in most other areas, but don't have a gambler's mentality and think a bet is in good fun and can be paid at a later time (or in some cases, not at all). I don't make bets for any amount with them.
What I mean by 'gamblers honor' are those individuals that understand that a bet is a bet, and they'd make good on the bet before they'd eat if it came down to it. I have some friends who have honor in most other areas, but don't have a gambler's mentality and think a bet is in good fun and can be paid at a later time (or in some cases, not at all). I don't make bets for any amount with them.
June 17th, 2015 at 7:50:50 AM
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I like to keep bets with friends to amounts that are fun but not burdensome. I, being a native Wisconsinite living in Chicago, have ongoing bets with the sports teams down here. I have ongoing sports bets with friends on Bears/Packers games that are $20 or $50 depending on the person I am betting, but in these grudge match type bets, the bets take place year after year, regardless of how good or bad the teams are and we are not allowed to take or give points, because in a Bears/Packers type rivalry to the victor go the spoils. A Bears fan ain't gonna be happy that they only lost to GB by 8 points when the spread was 10. Same with Brewers/Cubs. We bet $10/game and an additional $10 for the series. So say the Cubs win a weekend series 2 games to 1, he would win $20 from me. He would net $10 from winning 2 out of 3 games, and an additional $10 for taking the 3 game set
A flute with no holes is not a flute, a donut with no holes is a danish
June 17th, 2015 at 8:16:00 AM
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Quote: dkSo onto the main point of this post, what range of dollar amounts can you reasonably expect to get paid if you win a wager with a friend or coworker?
Normal range is from a nickel to a case of beer.
A soda or a dollar is typical for a minor point of contention or a question of trivia.
A twelve pack of beer is typical for the outcome of a routine sporting event between two favorite teams.
May the cards fall in your favor.
June 17th, 2015 at 9:57:59 AM
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Friendship is more important than winning a bet, so I would limit it to a bet that both sides agree is a fun bet, as someone has said about £5 or the next round.
