Understand hedging by understanding blackjack.

Post #358,469 by Another Scott 6/5/12 9:23:13 PM Reply	Understand hedging by understanding blackjack. A great post at Salmon's blog at Reuters - http://blogs.reuters...ackjack-strategy/ When mathematician and blackjack expert Jonathan Adler saw my post about hedge fund manager Michael GeismarÂs antics at the Vegas blackjack tables, he offered to explain just how silly Geismar was being. I jumped at the chance. So enjoy: Like most stories dealing with probability, this one starts with a coin flip. If you take a fair coin and flip it, you would expect it to have a 50/50 chance of landing heads. But letÂs say that you flipped the same coin ten times, and on a wild streak of luck each of those times it happened to end up being heads. What are the chances that the eleventh flip will also be heads? While it may feel like youÂre ÂowedÂ a tails, the odds of it being a heads are still 50/50, since the coin didnÂt change in any way. Each flip is what mathematicians call an independent event: the outcome of each flip has no impact on the outcome of any other flips. The idea that after seeing a bunch of one side of the coin on past flips you are more likely to see the other on future flips is called the gamblerÂs fallacy. The fallacy comes from the confusion between the long run outcome (with a large enough sample size, I expect half of my coin flips to be heads and half to be tails) and the outcome on any one flip (since I have seen a bunch of heads before, I need to start getting tails to balance things out in the long run). [...] Cheers, Scott.
Post #358,470 by boxley 6/5/12 9:59:47 PM Reply	Geismar was really that stupid? the best way to promote a slight chance of winning a small percentage of blackjack is to play hilo. Most people cannot keep track of all of the cards in a 6 card shoe but can count numbers of cards 9 and above vs 9 and below. One can make a slim living playing blackjack at a casino but I can make a boatload more working by the hr. Proof that the so called masters of wallstreet are a bunch of smart but lucky fucks to get in the position to start with by leveraging who they know. Oh an the coin toss isnt 50% http://io9.com/58261...eally-fifty+fifty As usual, it's humanity that messes things up. When flipped by a machine, coins come up heads a solid fifty percent of the time, and tails the other fifty percent. Put the fate of the coin in grubby human hands and the odds tip slightly in favor of the side that faces up just before the coin is flipped. The side that was face up at the beginning of the flip has a fifty-one percent chance of landing face-up at the end. Humans are not as precise as machines, and so the coin rotates around several axes instead of one. The extra rotation favors the side the original position, to a measurable degree. This is independent of the material that the coin is made out of. Scientists have tried the experiment using coins made out of balsa wood (and probably the labor of some very tired interns), and gotten the same results. Any opinions expressed by me are mine alone, posted from my home computer, on my own time as a free American and do not reflect the opinions of any person or company that I have had professional relations with in the past 55 years. meep
Post #358,474 by drook 6/5/12 10:34:01 PM Reply	Coin flips don't even out, they dilute -- Drew
Post #358,488 by mhuber 6/6/12 9:24:19 AM Reply	In the real world My guess would be another head. If I saw 10 heads in a row, I'd start suspecting the "fair coin" assumption does not apply to this situation. --------------------------------------- Badass! (and delicious)

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