Theory From One of Sklansky's Books

[TheRedDragon]

DS- Do you consider death to be infinitely -EV? I don't think you logically can. To illustrate, let us suppose that you were given the choice between living for 20 years with full use of your body or 20 years and 1 day without sight, hearing, or sensation, you would most assuredly (I should hope) select the former.

Prolonging life, therefore, is not of infinite value. The conditions in which that life is lived also weigh into account. Money in our society has a great impact upon the quality of a person's life. Consequently, risking duration of life for a medium by which the quality of life can be improved is not inherently illogical.

Whether or not that 1% chance at death for $10,000 makes sense is largely a question of pre-existing economic status. If you were to be offered that proposition, it would most certainly be -EV. $10,000 isn't terribly much to you, a few big bets perhaps.

If that same proposition were offered to a man starving to death on the streets of some third world hell-hole, he would take it in a flash, and logically so. The improvement in the quality of his life that would most likely be brought by that money outweighs the risk that the duration of his life might be cut short. If I were to be offered $1,000,000 in return for a 1% chance that I would die, I would likely accept the proposition.

Consider also that any action carries with it some small chance of death. When you cross the street, there's a small possibility that you won't make it to the other side. Evidently you conclude that the benefit of being able (or willing) to cross streets outweighs the potential risk of death, which proves that death isn't infinitely -EV.

[jason1990]

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My admonishment to you was that the example you brought up was in error, not because Black Scholes is not wrong, but BECAUSE IT IS NOT A MATH PROBLEM.

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I don't know what "problem" you are referring to as "Black Scholes," but the questions of existence and uniqueness of hedging strategies in particular market models, as well as the determination of hedging strategies and option pricing, are definitely math problems. Mathematical finance is not really an experimental science; it's more of an axiomatic one. Once you lay down the axioms you're willing to accept, everything becomes a math problem. The fact that the EV of the stock does not enter into the price of the option is a mathematical theorem which must be proven.

[jason1990]

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The math on the topic which I studied is from "Inroduction to Stochasitc Integration" by K.L. Chung and R.J. Williams, 2nd edition, pp255-262. R.J. Williams was my phd advisor at UCSD.

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I just saw Ruth last month. I may in fact see her this weekend. I will have to mention you. Though she may not know who "PairTheBoard" is. [img]/images/graemlins/wink.gif[/img]

[Jcrew]

I think sklansky considers problems that exist on a purely abstract universe as math problems but not its applications to the real world. One characteristic of sklansky classified math problems(SCMP) is that they can be either true or false based on a set of axioms(so this includes logic).

Math is applied to the real world in the form of models. Models are neither right or wrong but are just description of behavior. They are accurate/inaccurate in various degrees. Except some models might be exact like a model that simply counts a quantity. Not sure how would classify that under (SCMP).

[PairTheBoard]

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The math on the topic which I studied is from "Inroduction to Stochasitc Integration" by K.L. Chung and R.J. Williams, 2nd edition, pp255-262. R.J. Williams was my phd advisor at UCSD.

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I just saw Ruth last month. I may in fact see her this weekend. I will have to mention you. Though she may not know who "PairTheBoard" is. [img]/images/graemlins/wink.gif[/img]

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She will remember the student who moved from Las Vegas to San Diego to study probabilty - with an interest in the genetic algorithm and Fluid Limits. Tell her I'm doing fine and give her my best.

PairTheBoard
aka Lou
aka Louis

[Girchuck]

Isn't this similar to David's opinion about survival in the tournaments?
If one takes a big risk in a tournament and loses his chips, one is finished and eliminated from the race for bigger prizes. Since one is done when one's chips are gone, one needs to play conservatively and take less risks. Provided that one is an expert player who has an edge.

If you have the potential to earn 20 millions in your life, surely, taking 1 million for a 1% chance of dying is not correct?

[Daniel Negreanu]

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I have read "Poker, Gaming & Life" by David Sklanksy (is it socially acceptable to admit this in this forum?) and most of it seems logically correct, and is interesting, but one bit I disagree with

Basically DS says that it is illogical for some one to take a 1 in 1000 chance of dying for $25,000. He reasons no one would accept $2.5 million and take certain death, and this has the same mathematical EV as the 1 in 1000 case, therefore it is illogical to take the 1 in 1000 chance of dying for any amount of money.

I would quote a few paragraphs, but I'm not sure about the legality and morality of that or whatever

anyway, before I get into this, I thought I'd let Sklansky confirm or deny this claim, maybe I have missinterpreted what he was trying to say or whatever, but it looks to me like a big mistake

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It's comments or posts like these that show me how disconnected some people can be to human emotion. By not factoring in human emotion you'll often come to the WRONG conclusion as David did here. Here is an example where taking this chance would be ENTIRELY logical:

A father see's that his son needs a transplant or he will die. He has no medical insurance and no way of paying for the procedure for his son which costs $25,000.

Some goofy scientist tells him that if he can retrieve a rare poisonous bird from the wild he'll give him $25,000. Let's say the odds of him dying in the process are 1000 to 1.

Would it be "illogical" for this father to try and save his son?

Love isn't logical David. I can take that a step further:

Your son is about to get hit by a truck. If you do nothing he will die 100% of the time. If you try to save him you will die 50% of the time and save him 25% of the time. Meaning that 25% of the time you'd both die.

Without love or human emotion the "logical" answer is simple. Save your own butt! Luckily, that's not how this world works.

[MCS]

First, I should say that I haven't read PG&L. But I don't understand how David can possibly conclude that, in general, there is no amount of money for which it is worth taking a 1 in 1000 shot of dying. So I doubt he actually did.

That being noted, Daniel, you said

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Love isn't logical David. I can take that a step further:

Your son is about to get hit by a truck. If you do nothing he will die 100% of the time. If you try to save him you will die 50% of the time and save him 25% of the time. Meaning that 25% of the time you'd both die.

Without love or human emotion the "logical" answer is simple. Save your own butt! Luckily, that's not how this world works.

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I'm not sure I see what you're doing here. I don't see any reason why the "logical" answer can't be to attempt to save your son. Are you assuming that the completely "logical" person would value his own health incredibly highly relative to that of his family? Why is that necessary?

What point is it you're trying to make here?

[Zygote]

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A father see's that his son needs a transplant or he will die. He has no medical insurance and no way of paying for the procedure for his son which costs $25,000.

Some goofy scientist tells him that if he can retrieve a rare poisonous bird from the wild he'll give him $25,000. Let's say the odds of him dying in the process are 1000 to 1.


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If the father takes the risk, this obviously only means that he believes taking that risk is better than not. To restate, HE believes that HE could not live with himself without having made that choice, therefore, he decides to save his son. He takes the risk because he believes the possibility of success weighs against the consequences. The small chance he survives and saves his son will be the reward, while on top of the chance that he doesn't succeed, he also feels he could not live with himself having not taken the risk.

If the father decides not to take the risk, this obviously means that he believes not taking the risk is the better choice. This is probably because he holds little value to his sons life and/or assumes he will feel no remorse.


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Without love or human emotion the "logical" answer is simple. Save your own butt! Luckily, that's not how this world works.


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Thats exactly how this world works. Notice that whether or not the father chooses to save his son, he is always acting in his own best interest.

[PairTheBoard]

Daniel Negreanu --
"Some goofy scientist tells him that if he can retrieve a rare poisonous bird from the wild he'll give him $25,000. Let's say the odds of him dying in the process are 1000 to 1."

The thing is, there are plenty of guys taking risks like this all the time just for the money. They're not being illogical. They're just living.

Here's a good one:
DS --
"No one ever proved that bumblebees can't fly. Their ability to fly violates no law of physics."

Duh. Or could a more down to earth reason be that it's obvious to anyone who watches bumblebees fly that bumblebees Can fly.


PairTheBoard