Recent Blog Posts
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The Times' Rorshach Geithner Story
Apr 27 20099:04am EDT -
Sinking Animal Spirits
Apr 27 20098:04am EDT -
Counter-cyclical Urban Policy
Apr 26 200910:04am EDT -
Be Your Own Counterfeiter
Apr 26 20099:04am EDT -
Being Tim Geithner
Apr 25 200912:04pm EDT -
Notes From a Press Conference Naif
Apr 25 20099:04am EDT -
What Good is the News?
Apr 25 20098:04am EDT -
Stressful Enough
Apr 24 20092:04pm EDT -
Not Regretting the Pound
Apr 24 20091:04pm EDT -
Introducing the New Ford Squeeze
Apr 24 20099:04am EDT -
Non-Economic Questions of the Day
Apr 24 20099:04am EDT -
The Stress Test Blind Alley
Apr 24 20098:04am EDT -
Happy Hour
Apr 23 20099:04pm EDT -
Recovery Without Rebalancing
Apr 23 20096:04pm EDT -
The Shape of Your Recession
Apr 23 20095:04pm EDT
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Thought Experiment of the Day
Ranjan Bhaduri sets up the "balls in the hat game":
The game consists of a hat that contains 6 black balls and 4 white balls. The player picks balls from the hat and gains $1 for each white ball, and loses $1 for each black ball. The selection is done without replacement. At the end of each pick, the player may choose to stop or continue. The player has the right to refuse to play (i.e. not pick any balls at all). Given these rules, and a hat containing 6 black balls and 4 white balls, would you play?
No, I wouldn't play, even knowing that mathematically speaking there's a positive expected value to playing the game. One reason I wouldn't play is that the positive EV comes only if you know exactly what you're doing – and I don't.
I picked a random easy-to-calculate strategy: keep on picking balls out of the hat until you reach a black ball, or four white balls, and then stop. With that strategy, you'll lose about 13 cents on average. Meanwhile, the optimum strategy apparently generates a positive yield of less than 7 cents, on average. I don't know what it is, but it hardly seems worth it.
(Via Abnormal Returns)
