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Note it’s only a “sure loser” bet because Noah is factoring the opportunity cost of 37 Bitcoin into Balaji’s stake, which is not at all a conventional way of an

by fwlr 4y ago

Note it’s only a “sure loser” bet because Noah is factoring the opportunity cost of 37 Bitcoin into Balaji’s stake, which is not at all a conventional way of analyzing a bet. If we do permit the unconventional analysis, I’ll instead note that Noah failed to analyze Medlock’s opportunity costs. (I’m no economist but it also seems like an incorrect analysis of opportunity cost? For one, this is not Balaji’s only opportunity to buy Bitcoin. This million dollars only counts if it prevents Balaji buying as much Bitcoin as he wants to - i.e. if it costs him the opportunity to buy 37 Bitcoin, which it can only do if he spends all of his other money buying Bitcoin first and would have liked to spend this million as well, but cannot because it’s in escrow. Again, I’m not an economist and Noah is, so maybe I’m wrong here, feel free to correct me.) Fundamentally it seems like Noah’s claim is actually “if you think Bitcoin will go to $1M, there are other ways you could have made more money than taking this bet, like investing in Bitcoin instead”. That doesn’t make this bet a sure loser, it makes betting a bad way of making money relative to other methods like investment. But we already knew betting is bad and mostly about reputation. I don’t get it. A more conventional analysis says Balaji put in $1M and Medlock put in $27K and if the total value of the pot rises above $2M then Balaji takes it all, while if the total value of the pot stays below $2M then Medlock takes it all. These are the terms of the bet, and this is a really bad bet for Balaji because it seems very unlikely the pot will go over $2M, but it’s not a “sure loser”, just an extremely likely loser. In fact, if Bitcoin were to go to $10M instead of $1M, Balaji walks with $11M; if Bitcoin to $100M then Balaji sees $101M; if $1B then $1.001B, etc. Medlock’s return is meanwhile forever capped at $1,999,999. If you leaned on this angle of analysis - maybe by pointing out that Bitcoin is iconic for its massive fluctuations and thus implausible outcomes like going from $30K to $10M are still strictly more plausible for Bitcoin than almost any other asset you could name - you could argue that Balaji has the better side of the bet! (You’d be wrong, but still more right than Noah’s “sure loser” claim.)

houston_Euler 4y ago
Let me explain: The reason opportunity cost matters is because he could have done something with the money, like buying bitcoin, instead of putting it up for a bet. Balaji claims to believe that Bitcoin will be worth $1 million dollars in 90 days. Also, Balaji has $1 million dollars in his bank account. In 90 days, we can pretend there are three outcomes for Bitcoin's value: a. It's worth $1 million+ b. It's worth between 0 and $1 million c. It's worth zero. If Balaji bought 37 bitcoins today with his $1 million, the value of his assets at the end of 90 days in those three scenarios would be: a. Over $36 million b. Between zero and $36 million. c. Zero Instead, here are the outcomes under the bet he made: a. $2 million b. Zero c. Zero Assuming he is being sincere in his belief, every other outcome in the price of bitcoin makes his bet suboptimal to just purchasing Bitcoin, outside of Bitcoin falling to zero, which is why it's been called a "sure loser" bet.
- fwlr 4y ago
  Alright, so my analysis was correct, good to know. I stand by my claim that Noah is analyzing the bet in a very unorthodox manner, in order to claim it’s a “sure loser” when it’s actually just a bad bet and not what people would usually think of when they hear “sure loser” and “mathematically no way to make money”.

by fwlr 4y ago

houston_Euler 4y ago

Let me explain: The reason opportunity cost matters is because he could have done something with the money, like buying bitcoin, instead of putting it up for a bet. Balaji claims to believe that Bitcoin will be worth $1 million dollars in 90 days. Also, Balaji has $1 million dollars in his bank account. In 90 days, we can pretend there are three outcomes for Bitcoin's value: a. It's worth $1 million+ b. It's worth between 0 and $1 million c. It's worth zero. If Balaji bought 37 bitcoins today with his $1 million, the value of his assets at the end of 90 days in those three scenarios would be: a. Over $36 million b. Between zero and $36 million. c. Zero Instead, here are the outcomes under the bet he made: a. $2 million b. Zero c. Zero Assuming he is being sincere in his belief, every other outcome in the price of bitcoin makes his bet suboptimal to just purchasing Bitcoin, outside of Bitcoin falling to zero, which is why it's been called a "sure loser" bet.

fwlr 4y ago
Alright, so my analysis was correct, good to know. I stand by my claim that Noah is analyzing the bet in a very unorthodox manner, in order to claim it’s a “sure loser” when it’s actually just a bad bet and not what people would usually think of when they hear “sure loser” and “mathematically no way to make money”.