Forwarded by group friends Gambler’s Ruin is a basic concept in probability theory.
The general idea is that a gambler should not rush to compete with the casino. Gamblers cannot compete with casinos in terms of resources, unless they have unique skills. Otherwise the winner will always be the casino and the gambler will go bankrupt sooner or later.
Give a simple example:
David versus Goliath. David has a higher skill level than Goliath, but Goliath has more resources.
Let's say David has $2,000 and Goliath has $10,000.
David's winning rate is 55%, and Goliath's winning rate is 45%.
In each game, the loser must spend 1,000 yuan until one of the parties goes bankrupt and is eliminated.
To make the opponent bankrupt, Goliath only needs to win 2 games and David needs to win 10 games.
Is David’s slightly higher winning rate enough to overcome the 1:5 financial disadvantage and win?
Mathematicians calculated that David only had a 36% chance of winning, and Goliath had a 64% chance of winning.
Therefore, David, who has a slight advantage in skills but few resources, has a very low winning rate.
But if David's skill level is much higher than Goliath's, and he has an 80% winning rate, then he has a 94% probability of winning.
From the gambler's bankruptcy theorem, we can derive some life principles:
1. Try to use probability analysis as much as possible in life, business and investment to improve your decision-making ability.
2. If the other party has more resources than me, we should evaluate whether we have an absolute advantage in capabilities. If you only have a 50% winning rate, never accept the challenge rashly.
3. Small, low-cost attempts can increase the possibility of success.
For example, in the case of David Goliath, if each game was worth 100 yuan instead of 1,000 yuan, and all other conditions remained unchanged, David's probability of winning would increase to 98%!
Amazon’s Bezos understands this. He is willing to experiment on many innovative projects with limited investment. If he fails, he will suffer little loss, but if he succeeds, he will gain huge profits. In the same way we invest, we might as well boldly buy innovative stocks with large room for appreciation but limited decline in small amounts.
4. If possible, avoid zero-sum games.
Gambler's Destruction is a zero-sum game, either you lose or you win.
Changing a condition, if the winner gets 2 yuan and the loser only loses 1 yuan, in this positive-sum game, both parties may gain something or at least survive, allowing the game to continue indefinitely.Players will even pay to participate in such a positive-sum game.
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