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Take Buffett's Billion
- pyrrhotech 13y agoBuffett will definitely pay. It's less than 1.2% of Berkshire's cash on hand. And only about 0.24% of Berkshire's book value. Roughly the amount his personal wealth fluctuates each day. source: http://finance.yahoo.com/q/ks?s=BRK-A+Key+Statistics http://finance.yahoo.com/q/ks?s=BRK-A+Key+Statistics
- kristopolous 13y agoI've thought about the fluctuation thing. Say I was to misplace $1 ... I probably wouldn't notice. $100 would probably catch my eye, but is that only because my total wealth is a few orders of magnitude above that? The question is if I commanded say, $10 billion, could I just as carelessly misplace say, $10,000 as I currently can with $1.
- ryanSrich 13y agoI think so, yeah. I noticed it when I started making more money when I got a full-time salaried job. Before I'd quickly notice a couple dollars missing from my account or I'd really rely on that $50 for gas. Now I could get gas 3-4 times per week and I wouldn't even notice. I'd imagine if I was worth billions I could easily not notice 10, 20, 30k missing. Then again Buffet is notorious for being frugal so perhaps he would notice.
- arg01 13y agoProbably depends how frugal you are. I'd expect for a lot of people it would come to carelessly misplacing $10,000. Especially in the sense of being happy to change the money in to a frivolous good that you forget about or believing you'd just left it laying around the house and will find it later.
- grecy 13y agoOf course. Think of it as a percentage of your income, or wealth that you're OK with being unable to account for. Let's say that figure is 1% of your income.. so you make $50,000 per year, and somewhere $500 goes missing. No biggie. That 1% figure is the same if you're McDonald's or Buffet, it's just that 1% of their income is a very big number. It's still only 1% though, so it's equally as unimportant to them as your 1% is to you.
- eru 13y agoThough 1% of McDonald's income pays for quite a few people to take it very seriously. (Even if McDonald's, the corporation, does not.)
- judk 13y agoI would love to see the paperwork they use to attempt to prevent defection by the winner if any.
- pbhjpbhj 13y agoDefection? I'm probably missing something about the context - people will defect from USA if they win and authorities will want to prevent it?
- Zircom 13y ago>This term is also applied, often pejoratively, to anyone who switches loyalty to another religion, sports team, political party, or other rival faction(themself). In that sense, the defector is often considered a traitor by their original side.
- everettForth 13y agoThe expected value of an entry is something like ten cents assuming you know a lot about basketball. This is like saying, "let's all work together to hack ten cents into eleven cents" (except we're doing something secret to do the hacking, which we won't tell you, but trust us. ps we love Nate Silver) Edit: Actually, Now that I think about it more, the people who made this are probably concerned with too many teams using the same statistical techniques, and choosing the same bracket. Assuming several teams find this "highly likely" bracket, and it wins, those teams would all share the prize. This way, the organizers can choose their favorite bracket, and help ensure that other brackets aren't going to share the prize with them.
- judk 13y agoThe "highly likely" bracket is still only going to have astronomically small odds.
- Zimahl 13y agoYeah, "highly likely" is all fun and games until a college like George Mason comes in a destroys every single bracket.
- jonknee 13y agoYea, I don't think there are too many "highly likely" brackets anyway--the first couple rounds are brutal. There are definitely "highly likely" Final Four's, but just one very minor upset on day 1 will ruin a perfect brack.
- bradleyjg 13y agoIf you figure that the selection committee knows something about basketball and at least to a first approximation tries to slot teams correctly, it's relevant that the five seed has only beat the 12 seed 2/3s of the time and it gets worse from there. So you are already down to less than 20% odds of guessing the five seeds in the first round.
- jsun 13y ago
- ghshephard 13y agoThe very first thing that comes to mind when I read this - why on earth would anybody honor their agreement with $500mm on the line? I'm a pretty honorable person, but I'll admit - I'd be highly tempted to just take the money and ignore the pool.
- callmeed 13y agoIs there something that $1B buys you that $500M doesn't?
- sachinag 13y agoYes. A sports team in one of the major American sports leagues.
- zevyoura 13y agoActually, the bottom 11 teams in the NBA are all worth less than $500 million according to Forbes[0] [0]http://www.forbes.com/nba-valuations/ http://www.forbes.com/nba-valuations/
- callmeed 13y agoActually, a minor league baseball team is considered a much better investment (plus they're cheaper). http://www.forbes.com/sites/chrissmith/2012/06/08/billionaires-like-warren-buffett-profit-from-minor-league-baseball-ownership/ http://www.forbes.com/sites/chrissmith/2012/06/08/billionair...
- benburleson 13y agoNot necessarily, but you could get two of each something.
- nimblegorilla 13y agoI imagine they'll have people sign a binding agreement to participate.
- 13y ago
- Steko 13y agoThe 60 odd coaches should get together and rig the whole thing for 15+ million a piece.
- nols 13y agoSurprisingly not worth it for many, most of these coaches have seven figure salaries and are employed for years or even move on to the higher pay in the NBA, they wouldn't want to jeopardize that. Plus some of the higher paid coaches wouldn't go along with it because it's too risky. Use Duke's coach as an outlier, he earns $7 million a year and has been with the team for thirty years, good luck getting him to risk that career for twice his annual salary.
- stefan_kendall 13y agoCalipari makes 5.2 last I checked, and he's tied into advertising all across kentucky.
- mildavw 13y agoOr the players for $1M. That's a much bigger bump for them.
- philwelch 13y agoVs. their future NBA earnings?
- valleyer 13y agoThe vast majority of players in the NCAA tournament have effectively zero chance of ever playing, much less starting and making millions, in the NBA. Consider the automatic bids that go to conference winners, the benchwarmers and walk-ons at even the top tier schools, etc. Remember, only 60 people are drafted into the NBA every year (not counting the rare players that enter through the D-league). Edit: So, "yes" is my response to your question
- 13y ago
- kristopolous 13y agoI like to imagine Buffet personally knocking a key player's knees in if it appears that someone is getting too close to winning -- like some Adam West Batman villain. "Let me show you why the first three letters of my name spell 'War'."
- solarmist 13y agoCute, but pretty much the opposite of how he seems to be in person.
- awhitty 13y agoYou have a weird definition of cute.
- solarmist 13y agoIn my mind he was kind of a 60's Penguin like character. Cute; very campy.
- kristopolous 13y agoHere he is in the 60s (http://www.youtube.com/watch?v=REhg_bv7srM http://www.youtube.com/watch?v=REhg_bv7srM), clearly his Bruce-Wayne-like cover identity. /s
- solarmist 13y agoI was more thinking of 2010's Buffett as a 60's Batman Penguin character.
- isleyaardvark 13y agoHe did say this: Buffett said he would be willing to strike a deal with anyone who gets deep into the tournament with a perfect bracket. “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. I will accept your phone call, you better believe it.” http://www.latimes.com/business/money/la-fi-mo-warren-buffett-billion-dollar-bet-ncaa-basketball-20140121,0,1345560.story#ixzz2riAi5CzV http://www.latimes.com/business/money/la-fi-mo-warren-buffet...
- jessaustin 13y agoThe likelihood of Buffett actually paying this prize is even lower than that of someone actually winning it.
- qq66 13y agoIf someone wins, Buffett will pay, as he's insured away his risk (admittedly with a company he owns).
- nevi-me 13y agoHow does insuring away his risk work?
- kevhsu 13y agoIf the chance of anyone winning is y and the prize is x, you can pay the insurer (x*y)+z dollars to pay out the x dollars in the event that someone wins. I'm sure z is probably tied to x in some way, but just know that z is the money that turns into the insurer's revenue in the long run. You're basically paying the expected value(cost?) of the prize, plus a fee to the person who's insuring you. That way a billion dollar contest will not actually cost you a billion dollars, even in the event that someone wins.
- jffry 13y ago"I'll pay you $1 million now. If anybody wins the prize, you're on the hook to give them the other $999 million. If nobody wins the prize, you get to keep the $1 million." edit: And where I say $1 million, do some hand waving with the odds and figure out a number on which both parties agree
- jmccree 13y agoBuffet is the one (via one of Berkshire Hathaway's insurance companies) who is doing the insuring. Quicken loan is paying buffet/berkshire a, likely large, premium to pay the billion if someone wins. Given the odds are 1 in not gonna happen, it's likely an easy million or two for buffet, and free promotion. Buffet/Berkshire also insured the pepsi billion dollar prize thing a few years back.
- cschmidt 13y agoHas anyone read what happens if there are multiple winners? Do they split the prize? Is one winner chosen at random? Do they all get a billion? It really affects how you should play. For example, a common bracket might be to pick all the top seeds. In some sense that's the most likely outcome. But that may be a bad entry as there would certainly be lots of people who enter that. In a similar way, the worst possible lottery entry is 1 2 3 4 5 6 is the most common lottery entry, and hence the worst since if it did come up, you'd have to split the prize many ways. [1] [1] http://www.economist.com/news/britain/21573993-britons-love-gamblingand-are-rubbish-it-herd-mentality http://www.economist.com/news/britain/21573993-britons-love-...
- sudothinker 13y agoThey split the prize. "The winner will have the option of taking 40 annual payments of $25 million or a lump sum of $500 million. Multiple winners would split the money." http://www.latimes.com/business/la-fi-buffett-basketball-bet-20140122,0,7653962.story#ixzz2reH2xOKN http://www.latimes.com/business/la-fi-buffett-basketball-bet...
- maxerickson 13y agoI don't think an upset free bracket has ever happened. Some of that is because of the first round match ups; 7 plays 10 and 8 plays 9, and if the seeds are good, those games are toss ups.
- harryh 13y agoYes. The most likely outcome is still very unlikely.
- cschmidt 13y agoThat's true. But only a vanishingly small fraction of the possible brackets has come up in history. Similarly, the lottery ticket 1 2 3 4 5 6 has probably never won. Since all lottery tickets are equally likely, it still makes sense to avoid it, since if it did you have to do more sharing. (Similarly people tend to play their birthdays, so number that can be dates should be avoided.) It is more fun here, because all brackets are not equally likely. So you want to pick your most likely brackets, but only if you don't think others will be playing the same bracket.
- adam-f 13y agoImage of Warren Buffet courtesy of (i.e., served from) blackmbawomen.com. http://www.blackmbawomen.com/wp-content/uploads/2013/05/warren-buffett.jpg http://www.blackmbawomen.com/wp-content/uploads/2013/05/warr... Very classy tBB.
- bentcorner 13y agoI noticed that too, the pic is one of the first served up when you search for "warren buffet" in google image search.
- ck2 13y agoHe's insured if someone wins, it won't even be his money if I understand it correctly. All a rich person's game. Soak the insurance rates for the next people.
- rhc2104 13y agoBerkshire Hathaway (his company) is the insurer, not the insured. So he will lose money if someone wins (but earn a pretty good amount of money if no one does).
- startupfounder 13y agoBuffett is making big money on this deal, increasing his personal brand and here is how (my guess): Quicken is paying Buffett for the advertising exposure right before tax season. Quicken is also taking out prize indemnity insurance[0] from National Indemnity Company[1] which Buffett owns. Even if someone happens to beat the odds (which they won't) it's still a win-win for Buffett because he has stacked the odds in his favor. Its 40 annual payments of $25M or a single payout of $500M. Also, they are only allowing 10M people to register.[2] We should all take a note from his playbook on this one. [0] http://en.wikipedia.org/wiki/Prize_indemnity_insurance http://en.wikipedia.org/wiki/Prize_indemnity_insurance [1] http://en.wikipedia.org/wiki/National_Indemnity_Company http://en.wikipedia.org/wiki/National_Indemnity_Company [2] http://www.latimes.com/business/money/la-fi-mo-warren-buffett-billion-dollar-bet-ncaa-basketball-20140121,0,1345560.story#axzz2reJ7kr1a http://www.latimes.com/business/money/la-fi-mo-warren-buffet...
- solarmist 13y agoThis sounds very much like Buffet, but I doubt Buffett's being paid directly for it (He protects his image and reputation very carefully and wouldn't sell it out for any amount), just his insurance company for the premium. It sounds like he just came up with the idea for fun.
- startupfounder 13y agoOf course Buffett isn't getting paid directly, but if you look at the 2010 SEC filing[0] he owns 32.4% of the voting shares and 23.3% of the value of those shares. In my book Buffett and Berkshire are synonymous. You are right that he is having fun with this, who wouldn't? [0] http://www.sec.gov/Archives/edgar/data/315090/000119312510153511/dsc13da.htm http://www.sec.gov/Archives/edgar/data/315090/00011931251015...
- pmorici 13y agoOn the topic of reputation Buffet was once quoted as saying, "It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently." So while he no doubt guards his reputation carefully if you follow him at all you'll notice he is also very much a sales man and often promotes his businesses and products. Berkshire's annual stock holders meeting is like a Berkshire brands convention and Buffet himself encourages people to take the opportunity to patronize the businesses. In that sense I don't find this surprising at all.
- hacknat 13y agoForget the game theory the odds are still insane. edit Also consider that statistically significant deviations away from the huge list of ideal brackets they come up with are likely to happen. That's the nature of March madness, usually at least one bottom seed flips a top seed or two. Guessing which one will do so is a fools errand. So even if lots of people participated in this the idea that they would all be increasing their odds of winning could be an illusion.
- mightybyte 13y ago> usually at least one bottom seed flips a top seed or two No, a #16 seed has never beaten a #1 seed since this format was started in 1985.
- pbhjpbhj 13y agoWhat's the tax on a 1 billion prize?
- harryh 13y agoThe current top tax bracket in the US is 39.6% so if you took the 500M all at once (instead of paid out over 40 years) you'd end up with just over 300M after taxes.
- pbhjpbhj 13y agoHow many seconds will the Quicken Loans website last on March 3? How long is there to submit entries. How long will it take, will it be bot-able in a reasonable time?
- narsil 13y agoThere's probably a captcha or something similar to prevent bots. The number of entries is capped at 10M, and I don't think the time the contest is open will be the prevailing constraint, given all the publicity.
- codyb 13y agoI thought of this too but no one at work wanted to spend a bunch of weekends hacking away :/. I figured it would just be a fun way to learn and apply a bunch of machine learning and pattern recognition concepts. I'll probably still try to do that. Signed up though.
- nsiemsen 13y agoMatt Levine who writes for Bloomberg is a great daily read. He posted about this about a week ago and it provides a good overview of how this type of thing is priced/insured. 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...
- kolbe 13y agoAnd his analysis is almost embarrassingly bad. I cannot fathom how someone who worked in investment banking at Goldman could be so far off in how to price this.
- gmays 13y agoSo...would you take the $500M or $25M/yr for 40 years?
- mightybyte 13y ago$500M up front, without a doubt.
- gmays 13y agoSame here. The $25M/year is a great insurance policy to keep you from doing something stupid and blowing it all, but I'd definitely take the ~$300M or so up front after taxes.
- kondro 13y agoYou would have to do something monumentally stupid to blow $500m. Or even $300m.
- rurounijones 13y agoOne jumbo jet please!
- thaumasiotes 13y agoYou can say this, but the phenomenon is quite common. There is no shortage of people doing monumentally stupid things.
- gmays 13y agoI agree, but you'd be surprised. Trusting the wrong people to manage it for you is a great way to start. Getting a god complex and becoming involved in high cost ventures in business you don't understand is a great way to finish.
- kondro 13y agoThe $25m/year is pretty bad value. Even at earnings of only 3% above inflation, that's still $1.6B after 40 years. When you factor in the risk that a 30 year old might be dead after 40 years (about 20% if I'm reading this AU life table correctly), I would prefer the $500m upfront.
- kqr2 13y agoActually, Buffett already did something similar with the Pepsi Billion Dollar Sweepstakes: http://en.wikipedia.org/wiki/Pepsi_Billion_Dollar_Sweepstakes#Insurance http://en.wikipedia.org/wiki/Pepsi_Billion_Dollar_Sweepstake...
- kyle_t 13y agoDid anyone else's email address get auto submitted without having to hit submit?
- cl8ton 13y agoHere is your mathematical odds of doing a perfect NCAA bracket. http://www.youtube.com/watch?v=O6Smkv11Mj4&feature=share http://www.youtube.com/watch?v=O6Smkv11Mj4&feature=share
- euphemize 13y agoBuffett won't have to pay a billion dollars. As he mentions in one of the articles linked, at the end: "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." http://www.latimes.com/business/la-fi-buffett-basketball-bet-20140122,0,7653962.story#ixzz2rekrReI2* http://www.latimes.com/business/la-fi-buffett-basketball-bet...
- marquis 13y agoSomething like offering $500,000,000 up front? There's no question I'd take the $25 mil offer, put it in a trust and seriously mess with the world (in a nice way).
- soup10 13y agoHaha, that would be so awesome. Presumably buffet is betting that you're going to take a lesser cash prize to avoid the risk of losing in the final 4. But at that point, if the buyout offer is huge but you are still +ev to stay in, you can probably turn the tables on him and get a big insurance company or investment bank(or a conglomerate of them) that has the bankroll to buy you out and see the matches play out.
- euphemize 13y agoIndeed. I have trouble imagining many people turning down whatever his offer would be at the final four though.
- sireat 13y agoI wonder how much would he offer if you get to Final Four. If you get to Final Four as an individual without FU money, then Buffet would probably offer a 50 million single payment and you would probably take it as it would still be a life changing event (see Kahneman's research). However, if a syndicate such as the one in the link gets to the Final Four then Buffet would probably have to offer something closer to $125 million.
- hayksaakian 13y agocorrect me if I'm wrong, but couldn't you just generate every possible combination of brackets and "assign" to each participant the top most statistically likely combinations? or is this precisely what they're doing?
- Encosia 13y agoSounds like that's what they're doing.
- gojomo 13y agoInteresting idea, but rather than assigning picks, might be nearly as good to simply have members of the cooperating group register their picks, so that they can avoid wasteful duplication. Then, when someone proposes a duplicate, suggest to them either the minimal-change-for-uniqueness, or the-best-yet-unclaimed from the pool analysis. In fact they could offer both to appeal to a wider range of participants, and perhaps offer a software tool (like a bookmarklet) to make the dup-check/autosuggest as easy as possible.
- maerF0x0 13y agoonly for US citizens, boo.
- n3m6 13y agoIs there a way to access data on players, teams and coaches? Including micro-stats like passes, assists? Possibly, last 5 years?
- spikels 13y agoLet me see if I got this straight: There are 2^63 possible outcomes, that's 9,223,372,036,854,775,808, Buffet is allowing only 10,000,000 guesses and if more than one entry has the same prediction they split the prize. So I guess the idea here is to collaborate and both pick the more probable outcomes while avoiding duplication. If the outcomes were truly random even without duplication the probability of anyone winning is only 1 in 922,337,203,685. And without cooperation I bet the will be tons of entries very close the always pick the top seed strategy. Assuming duplicate entries could be avoided the trick would be to pick the 10,000,000 most likely outcomes. Hmm...
- thatthatis 13y agoThis is fantastic if only because it prevents me from spending half a day doing the statistics myself to get to: it is reasonably possible to get the odds down around 1 in 1,000,000,000. Is it worth an EV of $1 to participate in this? Nope. On to the next thing.