tag:blogger.com,1999:blog-3046071861494986299.post2886605222206850137..comments2017-07-31T01:20:41.657-07:00Comments on Magic, maths and money: The Perils of Physics ImperialismTim Johnsonnoreply@blogger.comBlogger3125tag:blogger.com,1999:blog-3046071861494986299.post-22424464236461474402013-03-09T05:15:46.725-08:002013-03-09T05:15:46.725-08:00I'm late to the comments, but ...
All of that...I'm late to the comments, but ...<br /><br />All of that analysis sounds too theoretical. In practice, the amount one is willing to pay to play such a game is influenced by the amount of money (you think) the flipper is willing or able to pay out. There is never any chance of an infinite series because no-one can make the large but finite payoffs along the way. The Gambler's Ruin fallacy in reverse if you will.<br /><br />The point of mentioning it is that theory is easier and cleaner if you don't have to worry about such information. "Assume a spherical cow on an infinite frictionless plain..." and all that. But some of the issues with finance in the 90's and 2000's have been people treating it as abstract theoretical exercises rather than thinking about where the wrinkles, edges and fictions are. Doug Bonarhttps://www.blogger.com/profile/04833700146695394598noreply@blogger.comtag:blogger.com,1999:blog-3046071861494986299.post-56508682566561280372013-03-07T15:31:43.723-08:002013-03-07T15:31:43.723-08:00The game obviously has an infinite value for an in...The game obviously has an infinite value for an infinite game, but the very high, but very improbable payoffs validate one's naive intuition that the game is not likely to pay very much. If you have a 1 in 10^90 chance of winning 10^100 dollars, you have an incredibly valuable game ($10^10), but not one worth paying very much to play. You'd do much better with a state lottery with much better odds of a much more modest payout.<br /><br />I don't think this has much to do with physics in economics. Physics is constantly changing its mathematics and interpretations to keep up with experimental and observational data. I don't think it has much to do with logarithmic utility functions either. Anyone who was familiar with the doubling grains of wheat on a chessboard story could see the problem. Sure, if you got all that wheat, you'd be able to bake one hell of a huge pizza, but the odds were definitely stacked against you.Kaleberghttps://www.blogger.com/profile/05283840743310507878noreply@blogger.comtag:blogger.com,1999:blog-3046071861494986299.post-84817814096989443872013-03-07T06:44:04.240-08:002013-03-07T06:44:04.240-08:00"Unfortunately, the well regarded actuarial c..."Unfortunately, the well regarded actuarial consultancy Towers Watson has also succumbed to the allure of physics, shame on them."<br /><br />Obviously they do not understand probability because the time average must not consider only one outcome (HT) but 4 (HT, TH, HH, TT)<br /><br />It's a shame.<br />Mati FXhttps://www.blogger.com/profile/16330188458194081816noreply@blogger.com