Chance News 48

Quotations

In other words, the population of a city is [according to Zipf's law], to a good approximation, inversely proportional to its rank [within its country]. Why this should be true, no one knows.

Steven Strogatz.
Guest Column
The New York Times
May 29 2009

Submitted by Paul Albert

note; Stogatz is a good writer for the public and your students would enjoy reading this. Laurie Snell

Winning system for dice game?

"Accused Cheater's Trial Includes Lesson In Craps"[1]
by Karen Florin, The Day (New London, CT), May 20, 2009

A Tennessee man has been charged with cheating at the craps table of the Foxwoods Casino in Ledyard, CT. During the trial he claimed that he was a "professional gambler who had a winning system that did not involve bribing dealers to pay him for late or illegal bets." (Closing arguments were scheduled for May 21, 2009.)

Jurors watched him provide an in-court demonstration of why his $3,000 or $5,000 bets are successful:

The makeshift craps table was “hot” for a while and [the defendant], who has spent the last eight months in prison, appeared happy to be reunited with the dice. He cradled them in his hand and shook them as [his] defense attorney ... walked him through an explanation of his strategy, which involves combinations of numbers that “go with” other numbers. If the shooter rolls a four, for example, [the defendant] recommends betting on 4, 6, 9, 10, 2, 3 or 11 to come up next.

The defendant described his success:

"The strategy works if you manage your money right and cash out when you're winning,” he said. He said his best run occurred in 2002, when he won $73,000 at Foxwoods. Other times, he won big and then lost big, he said.

A blogger commented [2]:

With 2 dice, odds of rolling 2 of a particular kind are 1 in 36, or 2.8%. Odds of rolling 2 of any kind are 1 in 6, or 16.7%. With 4 rolls, odds are 50-50. All rolls are independent, that is, for any particular roll, odds are 1 in 6.

Submitted by Margaret Cibes

Financial decision-making advice?

"Many Bought Shares High, Sold Low" [3]
by Mary Pilon, The Wall Street Journal, May 18, 2009

The article describes several people who took large losses by selling their stocks around the time of the "March 9 12-year low," and before the more recent 26% "rebound."

One financial advisor told an investor about his "two-Ambien" test for decision-making. (An Ambien is a sleeping pill.)

If two Ambien can allow you to sleep, ... then it still might make sense to stay invested.

Many advisors tell clients not to divest during "downturns," because "buying high and selling low is a formula for awful returns." One advisor says that:

They know that in hindsight, it wasn't the best thing to do.... But it was what they had to do emotionally. Math and the mind don't always add up.

Discussion
1. What do you think about the "two-Ambien" test?
2. People frequently base quantitative decisions on calculations that are incorrect or inappropriate; they simply have weak quantitative skills. Do you think that the "math" behind financial decision-making provides a sufficient basis, by itself, for investment decisions?

Submitted by Margaret Cibes