Tuesday, May 1, 2007

I lost $5

After Clearing out my previous blog posts , wiping out actually , I didnt know where to start. So for a smooth little opener , a little excerpt from the book I am readingJohn Allen Paulos – The mathematician plays the stock market Another chink in our cognitive apparatus is Richard Thaler's notion of "mental accounts," mentioned in the last chapter. "The Legend of the Man in the Green Bathrobe'' illustrates this notion compellingly. It is a rather long shaggy dog story, but the gist is that a newlywed on his honeymoon in Las Vegas wakes up in bed and sees a $5 chip left on the dresser. Unable to sleep, he goes down to the casino (in his green bathrobe, of course), bets on a particular number on the roulette wheel, and wins. The 35 to 1 odds result in a payout of $175, which the newlywed promptly bets on the next spin. He wins again and now has more than $6,000. He bets everything on his number a couple more times, continuing until his winnings are in the millions and the casino refuses to accept such a large bet. The man goes to a bigger casino, wins yet again, and now commands hundreds of millions of dollars. He hesitates and then decides to bets it all one more time. This time he loses. In a daze, he stumbles back up to his hotel room where his wife yawns and asks how he did. "Not too bad. I lost $5.".