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Author: NajdorfSicilian Big funky green star, 20000 posts Feste Award Nominee! Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 72484  
Subject: Re: OT: Fun with odds Date: 11/13/2012 3:43 PM
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I can also engage in second-order guessing, skewing my own answer to counter what I think Naj might choose.

I'm not sure how big that effect might be, but it does change the odds from pure 50/50 by introducing a non-random element.

It does not, Fry got it in one.

I choose the colors in the box, but YOU choose the color.

If I make it 80-20 red, you can choose red. If I know you like red, I can make it 75-25 black, but you can know that I know and choose black.

You can blindly choose a color by the second hand of your watch.

It is 50/50. [Hence a 1-time trial, I cannot learn from you and skew the odds if I discover you will always guess Red.]

Game 1 is about risk: we have clearly outlined and understood the risk, EV is $5k, we apply our own personal risk discount, and voila! $4k to play for a 50% chance of $10k.

Game 2 has the *same* risk, but also contains uncertainty. You make this point by calling it a 'guessing game,' [one you can choose not to play however, just look at your watch or remember if your license plate is odd/even.]

People, investors, poker players HATE uncertainty. They are willing to pay less to play Game B -- that's you and virtually everyone else Al --
than Game A, even though the risk/reward is identical.

Your EV in all cases is $5k. The Game B EV is more uncertain in our minds, so we discount it more than in Game A.
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