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Warren Buffett offers $1 billion for perfect March Madness bracket
- confluence 13y agoEV = Probability X Payout = (1/(4.29 X 10^9)) X (5 X 10^8) = 0.11 cents per bet. Assuming equivalence of payments and probability FTA. EV cost with 10^7 possible entries: (1/(4.29 X 10^9)) X (5 X 10^8) X (10^7) = $1.1m Ignoring secondary prizes and solvency costs. I read some more details about the insurance policy here: http://www.latimes.com/business/la-fi-buffett-basketball-bet-20140122,0,7653962.story http://www.latimes.com/business/la-fi-buffett-basketball-bet... > Miller, the Duke professor, came up with his 1-in-1-billion probability through an equation that placed games into categories ranging from close games that could go either way to near locks. Based on his finding, Buffett would need to charge a premium of about $10 million to break even against his expected results, Miller said. > "If I were Warren Buffett, anything over $10 million, I would probably do it," Miller said. "If $1 billion were going to ruin me, I wouldn't. But it's not going to ruin Warren Buffett." > Buffett said his company is big enough to survive such a hit. "We've lost more money in a given event before," Buffett said. "Hurricane Katrina probably cost us $3 billion. "We will put more at risk in a given insurance transaction than anyone in the world. But we have more capital than anyone in the world." > Berkshire Hathaway investors can take comfort in some news Buffett disclosed Tuesday. He said he would probably strike a deal — at significantly less than $1 billion — with anyone who gets deep into the tournament without missing a game. > "If you get to the Final Four with a perfect bracket, I may buy you out of your position," Buffett said. "I'll make you an offer you can't refuse." Buffett appears to be channelling Vito Corleone in that last statement right there: http://www.youtube.com/watch?v=SeldwfOwuL8 http://www.youtube.com/watch?v=SeldwfOwuL8 So assuming the new 1 in a 10^9 chance figure, we get: EV cost: (1/(10^9)) X (5 X 10^8) X (10^7) = $5m Now the previous time Buffett made this kind of a bet was here: http://en.wikipedia.org/wiki/Pepsi_Billion_Dollar_Sweepstakes http://en.wikipedia.org/wiki/Pepsi_Billion_Dollar_Sweepstake... That had an EV cost of ~$1m as well (http://www.bloomberg.com/news/2014-01-21/buffett-makes-millions-selling-500-to-1-monkey-linked-derivatives.html http://www.bloomberg.com/news/2014-01-21/buffett-makes-milli...), and he got paid a ~$10m premium from Pepsi for that risk. So I'm guessing the same is true in this case. That is a 10x EV cost premium, with a range of ~$10m-$50m. I highly doubt that Quicken is willing to pay so much, so it'll be biased towards the lower end of the range. At the end of the day this is essentially a ~$10m-20m advertising project which uses free distribution through news/blogs/PR releases/forums/TV/radio/word of mouth/mind share, in addition to getting access to private consumer data when people sign up for the competition (email/address/name/age/etc). Hopefully Quicken will have more luck and consumer buy in than Pepsi had in 2003 (http://www.psychologytoday.com/blog/the-decision-tree/201306/the-time-pepsi-offered-billion-dollars-and-nobody-cared http://www.psychologytoday.com/blog/the-decision-tree/201306...). I doubt it though. The more likely outcome here is that Buffett made himself a cool ~$10m-20m in one day for doing very little work, since he doesn't pay for any of the operational costs of the competition. > Jay Farner, Quicken's president and marketing chief, said his company would benefit from the contest in two ways — news coverage and access to the email addresses of millions of potential customers. Anyone who enters the contest will have the option of receiving email offers from Quicken, he said. Source: http://www.latimes.com/business/la-fi-buffett-basketball-bet-20140122,0,7653962.story http://www.latimes.com/business/la-fi-buffett-basketball-bet...
- txttran 13y agoProbability is 1/2^63 (each match eliminates 1 team, 63 matches to leave one champ). Or 1/(9.22 x 10^18)
- gibybo 13y agoThis would only be true if every game was an exact 50-50 toss up and the games were not dependent on each other. In reality, many of the matches are skewed to one side or the other (some heavily so) and certain teams have strengths and weaknesses that work better and worse against various other teams.
- eru 13y agoThey can probably get it insured for $2m, then.
- IgorPartola 13y agoWhat's the point? If Buffet wins, no need to pay insurance premiums. If he loses, his insurance would cover 0.2% of his loss.
- jessedhillon 13y agoBuffet pays the $2M premium, and the insurance company will pay out the $1B in case of a winning outcome. Otherwise how is it even insurance?
- gibybo 13y agoBuffet (or rather, Berkshire Hathaway) IS the insurance. Quicken is paying the premium to one of Buffet's insurance companies.
- ghshephard 13y agoThe idea is you pay $2m, and if you lose, the insurance covers the $1B (or $500m if in one lump sum)
- soup10 13y agoThis is weird, besides the great odds straight up. It's extremely vulnerable to match fixing.
- hkmurakami 13y agoHow many teams out of the 64 does someone realistically have to bribe in order to have a good shot at getting the $1B?
- confluence 13y agoI'm sure the contest contract has a clause making it void if match fixing is detected. I'm sure if there was a pay out, an investigation would occur to make sure it was legit, and if it wasn't, the feds would be brought in.
- Ryel 13y agoI wonder if Nate Silver is disqualified..
- shawn-furyan 13y agoI don't think that bracket submission interface supports the inclusion of error bars, so I'm sure Nate is welcome :)
- xzel 13y agoI'm disappointed by the 1 per household and million entry limit. I would really like to see someone hit it.
- TheBiv 13y agoWhen I first saw this, I thought "really cool" and then I thought about the time that my friends and myself would spend towards developing "the perfect" bracket. I can't really decide if it's a good use of time bc time is not fungible (easily replaced) or whether or not I am contributing to something that values luck over hard work. Or maybe I need to get some sleep and get off HN! :)
- JAFTEM 13y agoMy brain had a hard time processing "billion" with a "B" in the title. Anyway, it says your odds are a 1 in 4.2 billion for correctly picking the winning 63 games. What that basically means is that we're going to find out if time traveling exists sometime in March.
- gibybo 13y agoOr uncaught match fixing :) The article is very wrong about 1 in 4.3 billion being the odds though. That's just 1 in 2^32 which isn't even close to the correct math for figuring the odds. Accounting for skilled handicapping, the consensus seems to be 1:1 billion odds. Maximum 10 million entries, so there's roughly a 1 in 1000 chance we'll have a legit winner (well, that would be assuming everyone played with near optimal strategies).
- fuddle 13y agoBuffet also insured a Billion dollar lottery created by Andrew Warner of Mixergy fame.. http://youtu.be/j6RSaqf9NsI http://youtu.be/j6RSaqf9NsI
- rahimnathwani 13y agoIf you are the first person to write a bot to automatically submit entries, you could submit most/all of the allowed 10 million entries. OK, maybe your IP would get banned, but what if you have access to a botnet and, therefore, lots of IP addresses? OK, maybe they have a captcha, but what if you trick your botnet victims into filling in the captchas during their normal web browsing sessions, by pretending to be a google bot-detection page? OK, so you win, but the address is a random address that isn't yours. How much would you have to give the person whose address it really is, to pretend you live there? Half? Still not bad.
- mattlutze 13y ago1 entry per household.
- rahimnathwani 13y agoSee the last paragraph. I am assuming you could use random, real addresses, and split the winnings 50/50 with the real resident.
- midas007 13y agoGiven no information, the expectation of randomly guessing is around $ 0.16 USD. But I suspect Voltaire and friends will find a way to win this. (The odds of rigged games just went up 300%.)
- dreeves 13y agoFrom http://messymatters.com/the-perfect-bracket/ http://messymatters.com/the-perfect-bracket/ : "accounting for team strength, the chance that each of the 63 tournament games is won by the favored team is a mere 1 in 70 billion". Which implies an expected payout (a billion dollars times the 1 in 70B chance) of 1.4 cents.
- tlarkworthy 13y agoso if you come up with the best strategy and figure a way to submit an 70 billion entries for 1c each around that optimal guess, you could net 2.8 million
- AdamTReineke 13y agoExcept they're limiting entries to the first 10 million.
- joosters 13y agoIn other words, you could recreate Buffett's $1 billion offer by placing a 1.4 cent bet on the first game, and rolling your winnings on to each successive game. What's more, you're free to stop at any point and take some or all of your winnings home. (Which you would have to do anyway; you'll never be able to place the multi-million dollar bets near the end.) Hopefully this will put paid to all the crazy comments about match fixing... Buffett is 'giving' you 1.4 cents, and that's inspiring people to talk about organising a massive match fixing conspiracy? Get real!
- JanezStupar 13y agoDon't forget the tax.
- gibybo 13y agoHe's giving you 1.4 cents if the games are random. If they aren't random, like with match fixing, then he's giving you $1 billion. That leaves plenty of money to bribe the relevant refs and players.
- sytelus 13y agoThis seems to be ripe for attack through ML models. It should be easy enough to create models and test it out on previous years to see its accuracy. May be some of us can do ensembles of models with bunch of best predictions (Netflix style!). Any idea where to get data sets for previous games?
- dreeves 13y agoI'd bet that the strategy of always picking the favorites is about the best you can do.
- ghshephard 13y agoIf you had any success doing that on a full on march madness bracket, you could probably make a lot more than a Billion dollars (over time, don't be greedy) - betting on the sports betting scene, which is a (great) deal larger than $1B/year.
- Houshalter 13y agoThe odds of winning are 1 in 4,294,967,296 at random guessing. If your system can do 100 times better, that reduces it to 1 in 42,949,672. Or an expected utility of a measly 23 dollars, so don't waste too much time on it.
- deleted 13y ago[deleted]
- adestefan 13y agoSays every naive sports gambler.
- rfergie 13y ago"it should be easy" is always the killer
- jamespitts 13y agoIt is amazing how many people think that they can outwit Warren Buffett and his inner circle of actuarial geniuses :-) He probably has a part of his brain that runs the Kelley Criterion in his sleep, so long as there is enough Cherry Coke in his system. http://en.wikipedia.org/wiki/Kelly_criterion http://en.wikipedia.org/wiki/Kelly_criterion
- qznc 13y agoIf I were a US resident, I would just submit a random bet. A nearly-zero chance for a billion for a few minutes of my time and no cost. There is nothing to outwit here.
- zen_boy 13y agoThe expected value for this bet is $1,000,000,000/4,294,967,296 ~= $0,23. Say, it takes 10 minutes to make the bet. That would compute to the average gain of 6*$0,23 = $1,38/hour. This disregarded the $100,000 paid to the top 20 as well as the possible psychological effects from making such bet, such as a positive outlook on life for the duration of the bet, etc.
- adventured 13y agoThe $0.23 definitely doesn't properly value the effect of how few actual chances a person has in a lifetime to make a billion dollars, much less for such a trivial amount of time and effort (average American watches three hours of tv per day). There have been four $580m+ lottery wins in the US in the last 18 months (powerball & mega millions). $2.4 billion split among eight people. The odds were beyond absurd, and yet these people still won. Granted, I like my odds better in the lottery than Buffett's wager.
- gibybo 13y ago>The $0.23 definitely doesn't properly value the effect of how few actual chances a person has in a lifetime to make a billion dollars You're right, it probably over values it due to the marginal utility[1] of money and the non-zero value of the risk premium[2] You have as many chances at winning a billion dollars as you want. All you have to do is make lots of smaller bets strung together. It may seem impossible to string 30 winning red/black roulette bets (starting with a dollar), but actually the odds of winning a billion dollars that way are roughly the same. Technically speaking Casinos don't have the capital to support the super large bets, but you could easily transition into 50/50 bets in the equities markets. There is enough capital there to give you a shot at a trillion dollars. All you have to do is take it. [1] http://en.wikipedia.org/wiki/Marginal_utility http://en.wikipedia.org/wiki/Marginal_utility [2] http://en.wikipedia.org/wiki/Risk_premium http://en.wikipedia.org/wiki/Risk_premium
- Houshalter 13y agoAbout a 0.2% chance of anyone out of the 10 million winning it (assuming they all guess randomly which probably isn't true, meaning it's even higher than that.) That's an expected payout of $2,328,306 for Buffet.
- whizzkid 13y agoStory itself is not really interesting but a paragraph in the article got my attention; "The $1 billion will be paid in 40 annual installments of $25 million. Or if you don’t want to wait around that long, you can claim a lump sum payment of just half: $500 million." Interesting! Which one would be more effective if any of us would face this decision?
- adventured 13y agoTake the lump sum every time. The dollar has lost an immense amount of real value in the prior 25 years (tracked against almost anything of consequential value), and the Feds / Fed weren't being anywhere near as irresponsible as they have been lately. Taking annual payments puts you up against having to match that devaluation just to stay even. I don't like what might happen to the dollar in just 25 years, particularly in the era of massively heightened currency competition likely to put even more downward pressure on it (eg bitcoin and whatever comes next). Also, while it's possible tax rates will be lower in the future, I'd bet against that strongly given the bills we have coming due. I'd lock in today's tolerable tax rates, versus potentially ending up with Carter era 70% rates or 79% to 94% (1930s-1950s era). The only scenario I've seen that makes any sense, in which you shouldn't take the lump sum, is if you have some personal circumstances that go beyond the sheer math of the situation (eg you have an intense lack of personal control over spending, and think you would manage smaller annual sums better, although you can still borrow against annual payments and bury yourself; or perhaps if you have an estate that you want annual payments to go through to your kids, to prevent fighting over a larger lump sum; or if you actually think you can significantly beat inflation).
- corin_ 13y ago> The only scenario I've seen... The biggest one is the fact that the lump sum is less than the 40 year payments. If it was $500m now vs. $100m each year for 40 years you'd definitely chose the latter. Or if it was $500m now vs. $300m x2 years.
- TheCoelacanth 13y agoI have to disagree. In this case, the lump sum and the annuity are equivalent if you get a 4.2% return on investment. You aren't going to find a risk-free investment that gets a better return than that, so the only reason to take a lump sum is if you want to invest in riskier investments. The decision comes down to risk tolerance; there is no clear cut winner.
- e12e 13y ago"It’s not business income. Well, probably not. There are folks who enter games, contests and sweepstakes for a living (remember that Julianne Moore movie?) but that’s some serious dedication to the cause. Assuming that you did enough research and really dedicated yourself to winning, you could possibly treat it as your business (or more likely, a hobby). If you did, you would report your winnings (of course) but could also deduct any reasonable expenses associated with winning." Well, it's a shame 1 billion probably wouldn't be enough to buy up all the 63 teams - and leave some winnings for the effort...
- santialbo 13y agoSomeone needs a 64 bit calculator.
- losvedir 13y agoHow are the odds calculated as 1 in 4,294,967,296? Completely random is 1 / 2^63 (1 in 9,223,372,036,854,775,808 or about ten million times worse). Granted, they're not completely random, but it seems like to get the odds they're saying you can take a LOT of the game outcomes for granted. I don't follow March Madness that closely, so maybe that's the case? Just seems odd for a tournament to have so many nearly guaranteed outcomes.
- gibybo 13y agoThe article decided the odds were: 32 teams, each with a 50% chance of winning, so the odds must be 1 in 2^32! It's obviously wrong, of course, but journalists aren't typically known for their statistical math backgrounds. Interestingly, this article claims you can actually get the odds even lower, to about 1 in 1 billion: http://www.latimes.com/business/la-fi-buffett-basketball-bet-20140122,0,7653962.story http://www.latimes.com/business/la-fi-buffett-basketball-bet... using some more sophisticated team/player data.
- jrs235 13y agoThe journalist also ignored reality when calculating taxes owed too. They used the $1 billion up front but they reported it'd be $25 million per year for 40 years (or one time payout of $500 million).
- moneyrich4 13y agoanyone know where i can get data on the last 2 madnesses and the players? also for current season? ill write a little article about my theory =] with some code samples
- fsk 13y agoNo, odds of a perfect bracket are closer to 1 in 2^47 than 1 in 2^63. The reason is that a coinflip makes too many stupid picks, such as a #16 seed beating a #1 seed. If you use the Sagarin ratings to generate a simulated bracket, the odds of a perfect bracket are approximately 1 in 2^47. If you're trying to win the perfect bracket challenge, you can do much better than flipping a coin for each pick. Instead, flip a biased coin, with the higher seed favored based on Sagarin rating. http://www.realfreemarket.org/blog/2013/03/16/what-are-the-odds-of-a-perfect-ncaa-tournament-bracket/ http://www.realfreemarket.org/blog/2013/03/16/what-are-the-o... [Picking mostly favorites is also a stupid strategy if you're trying to win, because, if you do win, you're likely to be tied with others and split the prize.]