Billy Foster, PhD

Billy Foster

Clinical Assistant Professor of Economics at

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Quotations

The state — or, to make matters more concrete, the government — consists of a gang of men exactly like you and me. They have, taking one with another, no special talent for the business of government; they have only a talent for getting and holding office. Their principal device to that end is to search out groups who pant and pine for something they can’t get, and to promise to give it to them. Nine times out of ten that promise is worth nothing. The tenth time it is made good by looting ‘A’ to satisfy ‘B’. In other words, government is a broker in pillage, and every election is a sort of advanced auction on stolen goods. — Henry Louis Mencken, Prejudices, First Series (1919)

Posts Tagged ‘probability’

Expected value is a concept that allows us to factor in the probability of an uncertain event into our calculations. Imagine that you have a summer roofing job in Sandy, Oregon. I chose Sandy because it gets 182 precipitation days per year so on any given day there is a 50% chance of not working due to the weather. If you get paid $80 per day worked and $20 when you do not work due to rain, what should you expect to make in a twelve-week summer? Let’s break this down into a smaller problem.

The expected value of any given workday is the average of the payment received for working ($80) and not working ($20), which is $50. This is because there is an equal chance of either type of day occurring. By extension, the expected value of a five-day work week is $250 and of total summer income is $3,000.

What does this have to do with betting? A fair bet has an expected value of zero. For example, a bet of $10 on a coin flip is fair. There is an equal chance of losing or gaining $10. The average of these two values (+10 and -10) is zero. Casinos make their money by offering unfair bets. The expected value of (almost) every casino bet is negative (and none of them are positive). They cannot collect a guaranteed profit from a fair game so they count on you to play a rigged one. What do you suspect about the expected value of casino profits?