Hypothetical Gambling Situation

[AdamL]

What's the utility of 10k vs the utility of 5k here Dave? *cough*

(innocent, stupid look)

[DavidC]

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What's the utility of 10k vs the utility of 5k here Dave? *cough*

(innocent, stupid look)

[/ QUOTE ]

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You care just slightly about money between $10k and $30k, but you care about $30k A LOT.

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[DavidC]

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You care just slightly about money between $10k and $30k, but you care about $30k A LOT.

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The numbers don't quite match up my personal circumstances, but it pretty much sums up what I'm going through right now (with the exception of the $5k royal [img]/images/graemlins/cool.gif[/img]).

I've found that it APPEARS as though I have some utility of money, even though I don't really spend a ton of money or anything. I've called this marginal utility of money that I don't spend "utility of income". Meaning that on a daily/weekly basis I like to see a growth in my assets regardless of whether or not I have any spending goals, regardless of if I'm way over-rolled for my current limit and I've got the "Miller 3-months" behind me.

This is pretty weird, but seems to be general human nature.

Thus, your utility of 10k is higher than 5k, even if you aren't planning on spending the $10k or the $5k...

It was stated in the original question, though. Everything was there from the hero's perspective.

Anyways, enjoy your day, sir. I'm off to bed. [img]/images/graemlins/smile.gif[/img]

[AdamL]

You knew this, because you ruled it out in your original post, but normally 5k in the hand is worth more than 50% of 10k *even* if you have a strangely shaped utility function (as you've described.) The reason of course is that the 5k has the ability to make money, even if nothing more than simple interest. You have two options which each have equal EV, but only one of them is guaranteed to be "playable".

Any surefire permanent addition to your roll is worth more than a 50% neutral EV shot at the same thing. There is no opportunity cost to keeping the 5k.

I hope that makes sense. "Well, if you had 10k you'd have twice as much opportunity to collect interest". True, but if you lose you'd have zero interest.

Given that interest and other bankroll-related activities are *compound* activities, a 100% 5000 is worth more than a 50% 10,000. The loss in compounded interest when you lose the double out-weighs the extra interest you'd have with 10k.

5k at 10% interest = 5500 ev, plus guaranteed compound interest.

50% x 10k at 10% interest = 5500 ev, but when you lose, you cost yourself in time-interset accumulation.


This is very similar to my suggestion that there are real costs to downswings, if they prevent you from doing things in real life which would make you money or prevent you from spending it on unprofitable outcomes.

If you rent for an extra 6 months due to a downswing in a booming real estate market, you lose a lot more than you would have if you had an upswing or stuck near EV. The "Sklansky Bucks" may be equal, but the real dollars won or lost are far from equal.

Likewise, if some individual were planning on buying a big money-pit, pain-in-the-ass, somewhat uneccessary, depreciating asset if they had an upswing, then they would actually prefer from a utility standpoint to NOT have an upswing. The upswing has "excess baggage" beyond the neutrality of the sklansky bucks that the individual shouldn't, from a strictly financial standpoint, wish to incur.

Of course, some people just want to have their toys. *COUGH*. [img]/images/graemlins/laugh.gif[/img] [img]/images/graemlins/laugh.gif[/img] [img]/images/graemlins/wink.gif[/img]

[DavidC]

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If you rent for an extra 6 months due to a downswing in a booming real estate market, you lose a lot more than you would have if you had an upswing or stuck near EV. The "Sklansky Bucks" may be equal, but the real dollars won or lost are far from equal.

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Firstly, yes, the cost of keeping the 5k is basically the amount of time that you have to go without the car, which is significant due ot the shape of your utility curve. The interest doesn't compensate for this, in our current investment climate, though if you consider poker earnings "interest" (which you know you shouldn't), then keeping the 5k becomes much more attractive.

Regarding this point, I think that if you take on high variance with positive EV, you actually lose Sklansky Bucks when you've got something planned like taking out a mortgage... As you take on more variance you have a greater likelihood of renting, whereas the upside of that same variance wouldn't be as profitable to you as the downside would be unprofitable (you save a little on interest when you increase your downpayment, but you lose a lot when you don't have enough to pay it, particularly if real estate is in a downswing at the same time you are).

My response to that sort of situation, as you're aware, is to reduce your bankroll for all risk calculations, instead of your approach, which has been to say that you have baknroll X, but bet in a manner consistent with bankroll Y, where Y is less than X.

I think my approach is best, and it lends itself to evaluating all bets at baknroll Y, so that you avoid situations where betting at bankroll X provides a good but minimally acceptable hourly rate and then you're screwwed because you don't have your mortgage due to downswing. When you start mixing bankroll X and Y in your decisions, rather than using one or the other, you start taking on a real risk of ruin somewhere between your threshold at X and Y, which, if you really had your threshold at Y, means that you're taking on more risk than you desired.

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Likewise, if some individual were planning on buying a big money-pit, pain-in-the-ass, somewhat uneccessary, depreciating asset

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You mean like a car, right? [img]/images/graemlins/smile.gif[/img]

Let's just say that there are some utility factors involved here that supercede money. I intend to prove people wrong who say, "Man can not live on 'digs' alone."

---

Tubasteve, what's discrete math? I'm kinda curious. I think I used to call it Finite when I was in highschool, but I"m not sure.

[bozlax]

I've missed you, Dave. I haven't had a good headache in 6 weeks.

[crovax4444]

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I've missed you, Dave. I haven't had a good headache in 6 weeks.

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holy crap, just got back from class and read the new stuff, I think I wanna return back to class now...less thinking involved...

Crovax

[Shillx]

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I've missed you, Dave. I haven't had a good headache in 6 weeks.

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This is classic dude. NH. [img]/images/graemlins/laugh.gif[/img]

[AdamL]

No, poker is not an interest garnering activity. The whole point is that the money can be used to create more money. There is a big difference in the dictionary but a small one on paper when we're talking about opportunity costs of not having money. I gather the point itself was clear.

The correct approach is to adjust bankroll based on your evaluation of what you'll need and how likely you are to need it. It just doesn't have to be 100%. "Calculated Risk" is the whole point, whether you are investing or gambling. The way poker players normally manage their bankroll is actually very conservative. (Which is fine, but not necessary for everyone.) The entire business world has been doing just fine using weighted probabilties of both likelihood and importance for their spending decisions with respect to their cash holdings. Maximizing utility often involves making probablistic estimates about what you're likely to need, when you'll need it, how likely you're going to need it, and how much (qualitatively, urgently) you'll need it if you do.

If you're doing that, your approach is best. It's not really proprietary - lol. [img]/images/graemlins/smirk.gif[/img]

Certainly a car counts as "a big money-pit, pain-in-the-ass, somewhat uneccessary, depreciating asset." I know mine does. [img]/images/graemlins/laugh.gif[/img]

See you shortly...