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Geoff Hall: Re: Ok forget about millionaire
> Can you tell me how to arrive at this
> number.Can you give me a formula?ie if
> chance of winning is 40% and you get paid
> 3/1 what is edge.
> I just want a formula to arrive at my edge.
You are basically using the expected outcome of numerous trials in order to calculate your expectation of a single event.
So, for your example above, (40% win at 3/1), to calculate your edge :-
Let's say that you either keep $20,000 or can gamble and end up with either $10,000 (lose) or $60,000 (win at 3/1).
If you don't gamble then your expected amount is obviously $20,000.
If you do gamble then 60% of the time you will end up with $10,000 and 40% of the time you will end up with $60,000.
Now take, say, 100 trials :-
Not gambling = $2,000,000 (=$20,000 per single event).
Gambling = (60 X $10,000) + (40 X $60,000) = $600,000 + $2,400,000 = $3,000,000 (= $30,000 per single event).
So, gambling, in this example, will gain you an extra $10,000 from just keeping the $20,000 by not gambling.
Therefore your increase from $20,000 to $30,000, in expected return, gives you an edge of
10,000/20,000 X 100 = 50% edge. (increase/initial amount X 100)
Hope this helps
Geoff
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