Yesterday I got a neat book in the mail – I’d seen Nassim Taleb recommend it on Twitter:
One warning – this is not a “popular math” book, it is pretty math heavy. Flipping through the first 1/4 of the book, I really enjoyed the presentation and was once again reminded of the surprising fact that foundational research on basic gambling problems was being done in the late 1950s and early 1960s. An accessible and incredibly interesting account of some of this work can be found in Ed Thorp’s autobiography “A man for all Markets.”
One nice example from the beginning of the book relates to gambling in a 50/50 game called “red and black.” Think of the game as trying to guess the color of a card pulled from a randomly shuffled deck, or just betting on a coin flip. If you want to turn, say, $100 into $1,000 by betting on this game, what is your best strategy?
IF you are interested, a shorter account of this problem (with accompanying practice problems) can be found in this nice summary paper by Kyle Seigrist published by the Mathematical Association of America.
Because this particular gambling problem is accessible to kids, for today’s project I wanted to introduce the idea of 50/50 gambles and ask them what they thought the optimal gambling strategy would be. The specific question is what is the best strategy to follow if you want to try to turn $100 into $1,000?
They had some absolutely terrific ideas. My 6th grade son practically suggested the betting strategy from the Kelly criterion!
Next we turned to the computer to study this game in Mathematica. We looked at some simple betting ideas first. So, if we want to turn $100 into $1,000 in this game, what happens if we bet $100 on each bet? What happens if we bet $50 on each bet?
After seeing the surprising results from the fist set of trials, we looked at the gambling strategies that the boys proposed. First we looked at a version of the strategy that my old son suggested -> basically bet the maximum amount every time (except when you don’t need to bet the max amount to reach $1,000).
Are you more or less likely to turn $100 into $1,000 with this strategy?
Now we checked the betting strategy that my younger son suggested -> bet 1/2 your money each time (except when you don’t need to bet that much to reach $1,000).
The boys had some pretty interesting ideas about what would happen here.
So, definitely a fun project and the result is pretty surprising (at least to me!) -> in 50/50 games your betting strategy doesn’t matter.