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Rebrand Betting as a Guarantee

December 12th, 2013
ideas, betting  [html]

A: I hear the Red Sox are playing the Yankees again.
B: You "hear"? I keep talking about it!
A: Well, yeah. Sorry! Who's going to win?
B: The Sox, obviously. Though to be fair the bookies are giving them even odds.
A: Want to bet on it?
B: Sure. $10 that they win?
A: If the Sox win, how will you feel?
B: Awesome.
A: And if they lose?
B: Depressed.
A: So shouldn't you be betting me $10 that they'll lose?
B: Because then if they lose I'll at least have $10 and if they win I won't care about the $10, reducing my variance? That's logically correct, but it's also disloyal.
A: What if I sell you a guarantee that the Sox win? Like insurance?
B: Like I pay you $10 now, and if they lose you give me my money back? I'm not an idiot.
A: No, you pay me $10 now, and if they lose I'll give you double your money back.
B: Actually, that seems fair...

To bet implies you think something is going to happen, and that by your internal estimate of probabilities you expect to come out ahead. So when people talk about insurance as betting it seems strange: flood insurance is a bet that my house will flood? Why would I bet that my house is going to flood? That would be terrible! With gurarantees and insurance, however, people can take exactly the same financial positions but view them differently:

do nothing bet that Sox win bet that Sox lose buy guarantee that Sox win
Sox win $0, happy +$10, happy -$10, happy -$10, happy
Sox lose $0, sad -$10, sad +$10, sad +$10, sad
There's no difference here between "bet that Sox lose" and "buy guarantee that Sox win" but at least to my non-sports-betting ear only the first sounds disloyal.

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