Imagine that I’m offering a bet that costs 1 dollar to accept. The prize is X + 5 dollars, and the odds of winning are 1 in X. Accepting this bet, therefore, has an expected value of 5 dollars a positive expected value, and offering it has an expected value of −5 dollars. It seems like a good idea to accept the bet, and a bad idea for me to offer it, for any reasonably sized value of X.
Does this still hold for unreasonably sized values of X? Specifically, what if I make X really, really, big? If X is big enough, I can reasonably assume that, basically, nobody’s ever going to win. I could offer a bet with odds of 1 in 10100 once every second until the Sun goes out, and still expect, with near certainty, that I’ll never have to make good on my promise to pay. So I can offer the bet without caring about its negative expected value, and take free money from all the expected value maximizers out there.
I’m confused. Could someone help?
Imagine that I’m offering a bet that costs 1 dollar to accept. The prize is X + 5 dollars, and the odds of winning are 1 in X. Accepting this bet, therefore, has
an expected value of 5 dollarsa positive expected value, and offering it has an expected value of −5 dollars. It seems like a good idea to accept the bet, and a bad idea for me to offer it, for any reasonably sized value of X.Does this still hold for unreasonably sized values of X? Specifically, what if I make X really, really, big? If X is big enough, I can reasonably assume that, basically, nobody’s ever going to win. I could offer a bet with odds of 1 in 10100 once every second until the Sun goes out, and still expect, with near certainty, that I’ll never have to make good on my promise to pay. So I can offer the bet without caring about its negative expected value, and take free money from all the expected value maximizers out there.
What’s wrong with this picture?
See also: Taleb Distribution, Nick Bostrom’s version of Pascal’s Mugging
(Now, in the real world, I obviously don’t have 10100 +5 dollars to cover my end of the bet, but does that really matter?)
Edit: I should have actually done the math. :(