Theory From One of Sklansky's Books

[Jazza]

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

[PLOlover]

I think a lot of people would take the millions .

[bobman0330]

Yeah, sorry DS, but this is a dumb argument.

The reason no one would take 2.5 M to die instantly is that they would die before they had a chance to enjoy their money. Lots of people would accept 2.5 M to die in 5 years. The better way to look at the situation would be to say that you don't get paid in the circumstance where you die, because you can't use the money. Then the math works out just fine.

[David Sklansky]

There are various flaws in that EV calculation argument when the chance of dying is tiny and the rewards are huge.

[PairTheBoard]

Does David also prove that Bumble Bees can't fly.

Pretty clearly Ivory Tower Myopic Math that doesn't bother to look around and see that perfectly logical people take life threatening risks for the prospect of life improving gains all the time. In fact, a good deal of human progress has been the result of such risk takers. I suppose David will argue that they are all being illogical.

PairTheBoard

[Jazza]

[ QUOTE ]
There are various flaws in that EV calculation argument when the chance of dying is tiny and the rewards are huge.

[/ QUOTE ]

are you suggesting that that EV calculation argument is at all logical when the chance of dying is not tiny or the rewards are not huge?

edit: or if you could just sumarize what you meant in that article, if i have not done so

[David Sklansky]

If you read the whole article you would realize that I don't say anything of the sort.

No one ever proved that bumblebees can't fly. Their ability to fly violates no law of physics.

The Black Scholes model is not a proof regarding math. You offered it up as an example of when an accepted mathematical proof turned out to be wrong.

You are unqualified to seriously talk about many of the subjects that you post about.

[mackthefork]

[ QUOTE ]
You are unqualified to seriously talk about many of the subjects that you post about.

[/ QUOTE ]

Thats an opinion, I don't like opinions, neither do you, right?

Mack

[PairTheBoard]

DS --
"If you read the whole article you would realize that I don't say anything of the sort."

I don't have access to the whole article. All I know is the OP's description and your reply to him which doesn't say much to contradict it or explain it for that matter.

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

Of course no one ever proved it. If they did the proof was obviously flawed. It's an old saying that ridicules those in Ivory Towers who conjure theories that have no basis in reality. Lousy Economists who promote unproven and untried investment strategies come to mind as an archetype.


DS --
"The Black Scholes model is not a proof regarding math. You offered it up as an example of when an accepted mathematical proof turned out to be wrong."

First of all, I did not offer Black-Scholes as "an example of when an accepted mathematical proof turned out to be wrong". How can you say I did? Are you lying, are you too dumb to understand what I said, are you being illogical, or is the wish just father to the thought for you? I said I had problems with it myself but that's entirely different from saying "it turned out to be wrong". I've since been getting some great lessons that explain it in a common sense way and which I suspect a lot of people are enjoying. jason1990 and mosta are a couple of very sharp guys.

I've never read the Black-Scholes paper, "The pricing of options and corporate liabilities", J. Polit. Econom., 81 (1973), 637-659 so I don't know what Mathematics was used in that paper. However there is plenty of mathematics that supports the Black-Scholes Formula and it is commonly taught in graduate level probablity classes.

jason1990 and mosta in this post:
mosta on Black-Scholes Math
have no problem recognizing the math I'm referring to. 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.

Unfortunately I have forgotten far more math by now than I remember.

DS --
"You are unqualified to seriously talk about many of the subjects that you post about. "

Oh Really? Well, pooh pooh pee doo.

PairTheBoard

[David Sklansky]

DS --
"The Black Scholes model is not a proof regarding math. You offered it up as an example of when an accepted mathematical proof turned out to be wrong."

"First of all, I did not offer Black-Scholes as "an example of when an accepted mathematical proof turned out to be wrong". How can you say I did? Are you lying, are you too dumb to understand what I said, are you being illogical, or is the wish just father to the thought for you? I said I had problems with it myself but that's entirely different from saying "it turned out to be wrong". I've since been getting some great lessons that explain it in a common sense way and which I suspect a lot of people are enjoying. jason1990 and mosta are a couple of very sharp guys"

Pair The Board,

You have a problem. Perhaps it is simply that you read too fast. But this is about the fifth time something similar has happenned with you. I would be willing to say that my unclear writing is the problem except that others seem to understand it. In any case you completely misunderstood my point about your Black Scholes post.

I originally said that I knew of no generally accepted proof of a math theorum that later turned out to be wrong. You mentioned that the Black Scholes model might be. And now you think I am admonishing you because it isn't wrong. READ SLOWER. I have no idea whether it is right or wrong. 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.