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I'm quoting a reply from Canyon678@xxxxxxx
>A insurance company bets that 5 people will die when it writes a 1000
>policies.
>It knows the number from historical figures / acturial tables. But it cannot
>pinpoint or identify the 5 people. It knows that if it bets on 1000 people ,
>it will be ahead of the game.
The insurance company _does_ know who's most likely to die, and they spend
a good deal of time and resources to understand it and calculate
it. That's why health insurance rates vary for different health profiles.
>Another example will be a unskilled angler... if he were to go fishing a
100
>times, chances are he will catch a fish. But I will not like to bet on his
>which try. Could be his very first or the eighty seventh time.
You are assuming that all things are held equal. I am not assuming
that. What if he's fishing the first 90 times with a piece of cheese, but
after that he's able to get live crawfish? We both can guess which will be
higher probability tries for bass.
Or what if you know something about the weaknesses of the roulette wheel?
A good book on this subject is the one already mentioned or any book on
>"game theory" from a college library.
> > >"The Mathematics of Gambling" by Edward Tharp. One of the later chapters
I've now read those chapters, and his negative expectancy examples are
based on roulette games where the player must assume that all bets have
equal probability, or if they're not he has no way of knowing if some bets
are higher probability bets than others. He says so explicitly.
The main objections to my question, by people who have responded, seem to
fall into two camps.
1) By definition, a negative expectancy game must be a loser over time.
If someone defines a term differently than you do, or the standard way of
doing it, anything becomes possible. I suspect that Edward Thorp, in
viewing my previous thought experiment "proving" that a negative expectancy
game could be highly profitable, would look at the same fact pattern and
call it a positive expectancy game with a bunch of ill-conceived smaller
trades that hurt profits.
2) It is not possible to know which trades have a higher probability of
winning than others.
What can I say? My own backtesting says very differently.
-Paul
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