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Old 09-16-2002, 08:05 PM
Mano Mano is offline
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Join Date: Sep 2002
Location: Salt Lake City, Utah
Posts: 265
Default Re: Confidence Levels? and a followup

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Thanks for all the help, everyone. I suspected I wouldn't be able to do the integral, but I can still solve the problems I wanted in matlab or excel. Here's something that confuses me, though. In "Gambling Theory and Other Topics", on the section on bankrolls, Mason shows how to calculate a BR such that you will "never" go broke (he uses 3 standard deviations). However, he follows up saying that if you want only a 5% risk of going broke, you should use 1.64 standard deviations in the equations instead of 3. Isn't 1.64 SD's only a 90% confidence level? For 95% confidence, why don't we use 1.96 SD's? Thanks again.

~Magic Man
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The reason for only needing the 90% confidence for not going broke is that half of your remaining probability is positive - that is 5% of the time you will win more than the 1.64 standard deviations, and 5% of the time you will lose more than 1.64 standard deviations, with the remaining 90% of the time being within 1.64 sd's of the expected value.


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