A mind game

[Rearden Metal]

Quote from Josef K:

No, you've misread/misunderstood the rules of the game. I only bet 40% ($200,000), so I can only lose 40% ($200,000). If I win, then I win $200,00, but if I lose, I still have $300,000 left, which is a pretty substantial sum that could be used to raise more capital.

Yes, that's exactly how I meant to set up the rules. Also, you only get that $500,000 once, to start with right now. You won't be given anything more in the future except the chance to double any amount wagered on that five in six chance, once a year for the rest of your life.

<i>"Not if you're long options overnight and the underlying gaps severely against you. Then your position could become worthless before you have a chance to exit it."</i>

---> Exactly! This guy gets it.

 

[trendlover]

My question to Rearden is the bet start with $500,000. All the % of the bet is on this number. But you say even if people have more or less $500,000 net worth in the real world, the bet is on the % of $500,000. Ok. So if the (real networth of someone is $200,000) but the game is play with pretend $500,000, then someone bet 40%, then lose $200,000, is the real life money $200,000 gone? Or is the billionaire give you $300,000?

 

[Rearden Metal]

Quote from trendlover:

My question to Rearden is the bet start with $500,000. All the % of the bet is on this number. But you say even if people have more or less $500,000 net worth in the real world, the bet is on the % of $500,000. Ok. So if the (real networth of someone is $200,000) but the game is play with pretend $500,000, then someone bet 40%, then lose $200,000, is the real life money $200,000 gone? Or is the billionaire give you $300,000?

Forget whatever you have in real life. That entire amount is taken away, and then you are given $500,000 this one time. And then the game begins.

 

[peilthetraveler]

This is actually a very interesting experiment mathematically. Assuming the law of averages comes into play, then the smartest move seems to be to bet 70% of your net worth on every roll. After six years, you will have 5 wins and 1 loss. It doesnt seem to matter when that loss happens, at the end of 6 years you will have the same amount of money. The funny thing is, if you bet 80% of your net worth on every roll, you end up with about the same as if you bet 50% of your net worth on every roll. If you bet 90%, you end up with less than if you bet 50% or 80% after 6 years. I didn't run through all the possible combinations, but 70% does seem to be the best bet. At 75%, you end up with slightly less than if you bet 70% after 6 years. At 65% you end up with about the same as if you bet 75%. Either direction above or below that seems to return less and less.

So it seems like 70% if the magic number with maximizing your return. (over 300% over 6 years)


Disclaimer: Just because 70% works with dice rolling does NOT mean its a good idea to do it with trading. With dice, you have only a few variables. The money roll, the death roll, and the law of averages. With stocks every stock has a different variable for the money roll. One stock might return 10%, another 200%. Deaths rolls are more common, but not as brutal as losing everything. I'd love it if there was a math guy on there that would figure it out.

 

[trendlover]

Quote from Rearden Metal:

Forget whatever you have in real life. That entire amount is taken away, and then you are given $500,000 this one time. And then the game begins.

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Ok. So is really like 85% chance to win.

 

[FreakofNature]

prob chance to lose 16.6%
prob chance to win 83.4%

risk 100%
reward 200%

 

[Josef K]

Quote from peilthetraveler:

After six years, you will have 5 wins and 1 loss.

No, that is just the mathematical expectation, not a mathematical law. You could also have six losses in six years. Hence, you need to practice risk management which takes this into account.

 

[trendlover]

Quote from Rearden Metal:

.

. Another thing is that your insane potential benefactor has put aside millions in trust/escrow so that you will have the opportunity to play this one in six game, once a year, every year, for the rest of your life.

<b>Question: How much of your net worth do you risk this time/this year?</b>
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Is every year you have $500,000 to try again?

 

[Josef K]

Quote from trendlover:

Quote from Rearden Metal:

.

. Another thing is that your insane potential benefactor has put aside millions in trust/escrow so that you will have the opportunity to play this one in six game, once a year, every year, for the rest of your life.

<b>Question: How much of your net worth do you risk this time/this year?</b>
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Is every year you have $500,000 to try again?

No, every year you get to bet any portion of your net worth that you wish.

 

[trendlover]

Quote from Josef K:

No, every year you get to bet any portion of your net worth that you wish.

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Yes,I understand. The escrow is for not funding $500,000 again and again and again every year, but for to cover the wins of the player. Thank you Josef K to be so nice and answer my questions with no anger.