If I were a US resident, I would just submit a random bet. A nearly-zero chance for a billion for a few minutes of my time and no cost. There is nothing to outwit here.
The expected value for this bet is $1,000,000,000/4,294,967,296 ~= $0,23.
Say, it takes 10 minutes to make the bet. That would compute to the average gain of 6*$0,23 = $1,38/hour.
This disregarded the $100,000 paid to the top 20 as well as the possible psychological effects from making such bet, such as a positive outlook on life for the duration of the bet, etc.
It really bugs me that the article has 4,294,967,296 as the odds, so I can't help but correct it. They don't have the odds calculated to 10 significant digits. We don't have enough data on the teams to get anywhere close to that level of precision.
They made the naive assumption that all games are independent events and that all games have exactly a 50% chance to go to either team. Then they computed 2^32, which is STILL massively incorrect even with those assumptions because there are 63 games, not 32.
The $0.23 definitely doesn't properly value the effect of how few actual chances a person has in a lifetime to make a billion dollars, much less for such a trivial amount of time and effort (average American watches three hours of tv per day).
There have been four $580m+ lottery wins in the US in the last 18 months (powerball & mega millions). $2.4 billion split among eight people. The odds were beyond absurd, and yet these people still won. Granted, I like my odds better in the lottery than Buffett's wager.
>The $0.23 definitely doesn't properly value the effect of how few actual chances a person has in a lifetime to make a billion dollars
You're right, it probably over values it due to the marginal utility[1] of money and the non-zero value of the risk premium[2]
You have as many chances at winning a billion dollars as you want. All you have to do is make lots of smaller bets strung together. It may seem impossible to string 30 winning red/black roulette bets (starting with a dollar), but actually the odds of winning a billion dollars that way are roughly the same. Technically speaking Casinos don't have the capital to support the super large bets, but you could easily transition into 50/50 bets in the equities markets. There is enough capital there to give you a shot at a trillion dollars. All you have to do is take it.
You don't have many (zero?) opportunities to trade 10 minutes of your day for a chance at a billion dollars. Particularly without spending any meaningful amount of money or taking on any meaningful amount of risk. The substantial problem with the stock market and casino versions, is you'll have to constantly put your ever larger winnings at risk with each cycle upward. This introduces an extraordinarily massive risk factor - to real assets - to the equation, that you're not accounting for.
>This introduces an extraordinarily massive risk factor - to real assets - to the equation, that you're not accounting for.
No it doesn't. It's identical, except that rolling your bets gives you the additional option which can only be considered more valuable.
And interestingly in this case, Buffet will actually provide the same opportunity if it comes to it. If you get the first couple rounds of the bracket correct, Buffet will be right there with a check offering to buy you out of your position.
