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You are both right, even disagreeing

Posted By: Fezzik
Date: 15 Aug 01, 1:32 am

In Response To: Agree to disagree (docriver)

You bet $1000 at 18 for1. Or you bet $100 at 180 for 1. Or $9,000 at pkem.

Now assume each of these 3 are "on the doorstep" 1 pickem game away. What you bet originally is totally irrelevant. That's fixed cost and was gone as soon as you made the bet. All that matter now is $18,000 is coming your way at a 50% chance or so. If your nonlinear utility curve for money cannot stomach the swing it's time for a partial hedge (typically this would occur if your bankroll was not that high).

The fact you wagered $100 or $1000 or $9,000 actual has some relevance to the equation to the extent that given this was your only wager and you started with say 50k, now the $1000 wager has you down to 49k, and the 9k wager down to 41, so mathematically it would make more sense to hedge a bit more at the 41k position, since the payout now represents a much bigger part of your bankroll. But this is the ONLY reason this wager would have you looking at a bigger hedge vs. the longshot bet. If you had 49k in bankroll left at year-end in both scenarios, it's obviuos the same hedge should be made regardless of the original bet. (This is all basic utility theory).

Also, while I liked Doc's logic completely, I leaned to Stevie's conclusion that most people overhedge winning positions, and basic strategy is typically to roll the dice with a winning position. I cannot tell you how many times I've set people up with great winning situations, and then hear them do something idiotic like completely hedge the opposite side of my favorite game of the weekend to "lock in" a big week. Ugh. I agree with Stevie and Doc. Most of the time, try not to bet so much that you feel the desperate need to hedge, unless you know ahead of time the cost of the hedge is much less than the extra EV of betting more.

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Messages In This Thread

How to handle the "huge exposure game" -- Fezzik -- 12 Aug 01, 11:53 pm
So, will you be hedging against the Mariners in October? -- James -- 13 Aug 01, 12:33 am
Difference between A's and Eagles -- StevieY -- 13 Aug 01, 11:35 am
that's not a hedge -- docriver -- 13 Aug 01, 12:10 pm
Yes and no -- StevieY -- 13 Aug 01, 12:33 pm
risk -- docriver -- 13 Aug 01, 1:04 pm
Hedging -- StevieY -- 13 Aug 01, 1:38 pm
Example please? -- docriver -- 13 Aug 01, 1:56 pm
Example -- StevieY -- 13 Aug 01, 5:36 pm
because you have 40x in equity now -- docriver -- 13 Aug 01, 6:01 pm
above title should read : 18x, not 40x (nt) -- docriver -- 13 Aug 01, 6:08 pm
You aren't wagering 18,000+ -- StevieY -- 13 Aug 01, 6:11 pm
Agree to disagree -- docriver -- 13 Aug 01, 6:20 pm
You are both right, even disagreeing -- Fezzik -- 15 Aug 01, 1:32 am
Size your bets according the payoff, not the bet size. -- Stanford Wong -- 13 Aug 01, 6:39 pm
he really has found some arbitrage -- Math Boy -- 13 Aug 01, 8:21 pm
You can always overbet if the marginal EV from betting more is less than th -- docriver -- 13 Aug 01, 8:41 pm
Practical issues -- James -- 14 Aug 01, 11:27 am
i'm the minority -- docriver -- 13 Aug 01, 8:38 pm
hedging futures bets -- rainmandon -- 21 Aug 01, 7:51 pm
I understand the bet... -- StevieY -- 21 Aug 01, 7:58 pm
hedging futures -- rainmandon -- 21 Aug 01, 9:22 pm
I understand the bet... -- StevieY -- 22 Aug 01, 6:40 pm
Sea hedge -- Fezzik -- 15 Aug 01, 1:34 am
Oops.......I showed my Sea Bias -- Fezzik -- 15 Aug 01, 1:36 am
I'm in the same boat. I won't hedge. -- Stanford Wong -- 13 Aug 01, 8:57 am
Risk-averse betting? -- John May -- 13 Aug 01, 9:14 am
Agree -- Don Schlesinger -- 14 Aug 01, 1:11 pm
1 investment question -- Fezzik -- 15 Aug 01, 2:29 am
Attempt at some answers -- Don Schlesinger -- 15 Aug 01, 8:13 am
how much does money mean to you? -- docriver -- 15 Aug 01, 8:39 am
In-the-money options -- Jaeger -- 23 Aug 01, 6:44 pm
No -- Don Schlesinger -- 23 Aug 01, 8:55 pm
Risk-averse betting? -- lepto -- 14 Aug 01, 1:33 pm
Your bet suffered turf toe -- McNabb#1 -- 14 Aug 01, 4:24 am

 

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