Probability theory Odds Betting Commentary

Blaise Pascal, Pierre de Fermat probability

Probability theory

• Pascal and Fermat corresponded
• over “the problem of points,” that is,
• how to fairly divide the stakes of a game
• if the game were left unfinished.
• They were the first to realize
• that fairness depends on the number
• of possible outcomes left in the game.
• Fermat drew a tree of all possible outcomes,
• and counted how many outcomes
• led to each player winning.
• Pascal showed how to calculate the number of outcomes
• and introduced the notion of expected value,
• the weighted average of all possible outcomes.

Odds

• One’s odds are the ratio
• of the probability of an event happening
• to the probability of it not happening.
• You might have a one in five odds
• of reading this,
• given that you noticed it at all.

Betting

• My advice: Retire early and beat the odds.
• With a lifetime annuity or traditional retirement plan,
• the company should end up paying you to live longer;
• however, the law of large numbers is against you
• and they are banking on that. Actuarial tables say
• you will die before you’re eighty-five.
• Go ahead and defy them, and don’t forget
• quality is as important as quantity. Defy them; live a long and happy life.
• You’ll be in trouble only if everyone does it.