The guy in the video did his math wrong.
And 80% gain gives you 1.8x. A 50% gain gives you 0.5x. When combining them, you multiply them, giving you 0.9x, which is a 10% loss with each set of 2 flips.
Try it yourself: $100 x 1.8 = $180. $180 x 0.5 = $90. So you start with $100 and end with $90.
What the fuck? 50% gain gives you 1.5x not 0.5x For 50% decrease, you multiply by 0.5
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Should we basically do the life equivalent of “invest in VGRO” index funds and focus always on the smaller more time-tested actions that lead to improvement incrementally but meaningfully/steadily?
Make smaller bets that are more likely to win and that have smaller risks of downside for a higher “guranteed” positive return rate. —Me (my understanding)
Is this an accurate understanding? Like focus on additive gain rather than trying to “hit the motherlode” or something?
Sorry, I didn’t feel like he really spelled out a takeaway means of immediately understanding and applying this
The key is not letting your losses affect your bet amount. With the gain being only 80% instead of 100%, betting your bank means 1 win and 1 loss leaves you with less than you started. Making your bet amount fixed between flips means 1:1 will instead give you a net gain. The Kelly Criterion says there is an optimal proportion of bank you can bet that will maximize this gain over many flips
Is there a metaphysical or like everyday life kind of application to this, everybody seems to be talking about Gambling or like using that metaphor at the very least. I don’t gamble (in name if not in deed) but I sense there’s a takeaway I can sort of apply to life buried in here. Any thoughts?
How is this video calculating that a 50% chance of 80% gain and a 50% chance of 50% loss yields a positive expected gain? An alternating string of heads and tails will drive your money to zero - a 50% loss (1/2) would be balanced by a 100% gain (2/1) in a fair system.
This is true if you’re betting everything you have. By not having shrinking bets after losses you can tap into the net gains. Compare 1 win followed by 1 loss with $100 start:
Win is $100+$80 = $180
Loss is $180-$90 = $90
Compare with fixed bets of $50 with bank of $100:
Win is $100+$40 = $140
Loss is $140-$25 = $115
Because if you gamble in small increments the odds are in your favor. If you gamble your entire wealth then you’ll likely lose.
Lets say you’re gambling in $5 increments. The odds are 50/50, if you lose then you’ll have $2.5, and if you win you’ll have $9. That’s a 50% chance to lose $2.5 and a 50% chance to gain $4, the actual risk is if you lose too many times in a row that you don’t have enough money to gamble with. Otherwise, you’ll slowly gain money.
