Frontlines of the Non-digital: Hedging Our Bets
So I’m in a bit of an interesting quagmire: remember my post a few weeks back about the NCAA tourney pools? Well, low and behold, I’m in 4th place in a 250 person pool with quite a bit of *cough* pride on the line (enough for the IRS to be interested, let’s say). It’s an interesting dilemma that might be best phrased in this way: if someone walked up to you on the street and offered you a month’s rent but you had to flip of a coin to get it, would you risk that OR take half of a month’s rent guaranteed without having to flip the coin? This is basically what hedging a bet is all about, because only fools would flip the coin.
So here’s my situation fully explained: there are 3 games to be played (the round of 4 and then the round of 2, aka the championship) and I need to correctly predict all 3 games. If I do so, let’s say for the sake of argument that I will finish in 2nd place and win $1500. Now here’s where it gets interesting: I want to hedge my bets and after a bit of analysis I’ve figured out that if team A wins the match-up between team A and B in the final four game, and then Team A goes on to win the championship over teams C or D, I’m guaranteed 2nd or 3rd ($750). In other words, if Team A beats Team C in championship, I win 2nd; if Team A beats Team D in championship, I win 3rd. My problem is simple if Team A reaches the final: just hedge half the $ at stake by betting on either Team C (for $750) or Team D (for $375). Then no matter what happens, I’m guaranteed the $750 or $375 (instead of gambling all or nothing for the $1500 or $750).
But what do I do about Team B, the team that could ruin everything? How do I hedge against this? The question now becomes do you want to flip for a month’s rent, or do you want a quarter of it guaranteed? And now I’m beginning to feel a bit more foolish. IF I were to hedge against team B, I could lay $375 on them and guarantee myself exactly that much (no more, no less) no matter how the tourney played out. Seems pretty boring compared for the chance to win $1500. Hedging usually is. Thoughts?