Behemouth, i’m not sure the coin flip example is completely wrong, perhaps the fair thing to say would be that its open to interpretation, but Elizer can clarify his thinking for us.
Elizer seems to be saying that the market price will be around 50%, fair value is 91%, and you should bet heads on that basis, and should expect to capture an edge of 41%.
Another alternative is that the market price could be above 91%, say 95%, and in that instance you should bet on tails, and expect to capture only a 4% edge.
We could informally test this … we could ask/email 20 people if given they know a coin is baised and given that it just landed heads 9 times in a row, how many heads in 100 tosses will the coin produce. Their responses could become the market price, if that number averages out to say 90 heads, then the market price is 90% for example, and then we could see if a bet on heads or tails would be more appropriate. I am not sure of the final answer, but I think its unlikely that the market price will be near 50⁄50.
Behemouth, i’m not sure the coin flip example is completely wrong, perhaps the fair thing to say would be that its open to interpretation, but Elizer can clarify his thinking for us.
Elizer seems to be saying that the market price will be around 50%, fair value is 91%, and you should bet heads on that basis, and should expect to capture an edge of 41%.
Another alternative is that the market price could be above 91%, say 95%, and in that instance you should bet on tails, and expect to capture only a 4% edge.
We could informally test this … we could ask/email 20 people if given they know a coin is baised and given that it just landed heads 9 times in a row, how many heads in 100 tosses will the coin produce. Their responses could become the market price, if that number averages out to say 90 heads, then the market price is 90% for example, and then we could see if a bet on heads or tails would be more appropriate. I am not sure of the final answer, but I think its unlikely that the market price will be near 50⁄50.