Do you think that probability theory can help you decide if the next person you meet is the perfect spouse? How about your next job? No? Then you must read the book Chance: A Guide to Gambling, Love, the Stock Market and Just about Everything Else by Amir D. Aczel. How about the lottery? Have you ever purchased a lottery scratch card? Of course not, that is a sucker’s bet. Right? But did you know that there are people who have won the lottery many times? Some of these folks have even formed syndicates and made a business of beating the lottery. In his book The Perfect Bet: How Science and Math are taking the Luck Out of Gambling, author Adam Kucharski discusses everything from the lottery to roulette to horse racing.
Using probability and statistics in everyday life to examine common questions is possible and even fun. You can explore statistics and probability with Salil Mehta in his book, Statistics Topics. Not into this kind of “fun?” No problem, just sign up for his blog. I provide the link on my companion website to this blog, Staying Rich, under “Services We Admire.” You can also find details on the books mentioned here in the category “Probability, Risk, Return, Asset Allocation & Portfolio Policy” under “Books to Read.”
Now let’s get back to winning the lottery; there is no question that the odds are terrible, but it also seems a small number of people have figured out how to beat the odds on occasion. Kucharski discusses some of these cases including the mysterious cases of a woman who reportedly won $20.4 million between 1993 and 2010 by winning four jackpots in the Texas scratch-card lottery. By doing a little digging around on the internet, I found the story to be much more fascinating than one could imagine. It seems that she has purchased tens of thousands of scratch lottery tickets at certain times. Because it takes a lot of time to scratch multiple cards, it is speculated that she had a “scratching partner” with whom she shared some of the winnings. Do you think she was lucky? In reading various blogs discussing her winnings, I saw that some thought her luck was similar to that alluded to in remarks attributed to Warren Buffet that by dumb luck there will be some hedge fund manager or money manager that will put together a long string of successful winning years.
Think of 100,000 people flipping a coin 20 times and discovering that someone was so good at flipping heads that he managed to get x number of heads in a row; now this person clearly was an expert coin flipper and deserves to be rewarded for his extraordinary skill. So, was this mystery woman lucky or skillful? I will let you decide by reading about her, but before I give you her name, here are some interesting facts. She moved to Las Vegas following her first big win, which gave her a 20-year annuity of approximately $270,000 against which she could write off all future losing tickets as gambling losses. She refuses all interviews. Oh, and by the way, she has a Ph.D. in statistics (some have reported her degree to be in math) from Stanford University. Her name is Joan Ginther; give her a google. This article is a great place to start.
All three of these books are fascinating, relatively easy reads and require no background in math, probability or statistics. They are also just plain fun. What is the takeaway for the average investor? I want you to think about the education and brainpower trying to find an edge in horses, roulette, blackjack, poker and lotteries and realize that this type of effort is also going into the analysis of financial markets and has been for decades. My website, Staying Rich, can provide you with many useful tips on avoiding painful losses from fraud and mistakes and guide you in keeping what you have and earning more. As for the horses or the lottery? Good luck!
Labels: Opinion