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Comment by bluedevil2k | Hacker News Reader

A friend and I today discussed if you had a perfect bracket after the great 8 round, going into the Final 4, would you, and for how much, sell a stake in your bracket to hedge your money?

The numbers, though it's a "billion $" bracket, that's actually $25M over 40 years, or an optional $300M single payout. In the US, you could expect about 55% of that after taxes, so $165M. There are 3 games left at the Final 4 game.

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In an interview, Warren Buffet suggested that if someone was perfect at the Final Four, he'd offer to buy them out for the EV (or even half the EV). If you aren't already rich, you'd be an idiot to not take his offer. It pays for Warren Buffet to buy someone out for their EV, because that minimizes HIS risk.

Even if the person refused the offer, Warren Buffet could go to Vegas and bet on the last couple of games, as a hedge.

Even if you're perfect at the sweet 16 (which has never happened), with 15 games left (assuming each is a coinflip), your EV is 1/2^15 ~ 1 in 32000, so your bracket is only worth $300M/32000 ~ $9k.

Assuming each is a coinflip is not a reasonable assumption.

I think it's even worse than a coin flip. At least with a coin there's a reasonable assumption that the odds are 50% both ways. Flipping the Duke/Mercer coin, though, you have have a maybe 95% of landing on Duke, which causes significantly more than 95% of people to put their money down on that, whereas with a normal unweighted coin you'd expect ~50% of people to bet on each side.

There is no way to hedge $100M+ on sports bets. Nobody will take that kind of action, even if he spread it around to every single book.

I personally think if I was offered $10M as a settlement, I'd take it.

He can start hedging in the Sweet 16 (assuming only 1 perfect bracket exists), where he only has to bet $20k-$100k on each game.

If Buffet only offered half the EV, it's likely you could sell your stake to another investor/insurance company/etc at something closer to the EV (maybe 90%+), so I think Buffet would have to offer close to that as well.

You could probably even find someone to sell a partial stake to which would get you set for life and still allow you to ride the bet to the end.

I would imagine most people would hedge at least one round earlier. A perfect bracket going into the elite 8 would have an expected value of ~1M after tax. Nobody would ride it past then. Of course, you end up running a 1/128 chance of being the unhappiest winner of a million bucks ever.

I actually think that if anyone had gotten through this weekend clean (48/48) the expected value is 9k pretax, and I think most would take that.

If these four teams are equally competent. Then you have 50% chance to choose each of three correct (2 final four games + 1 title games correctly). So the chance to win it all is (1/2)^3 = 0.125. Your expected return is $1B * 55% * 0.125 = $68.75M.

Or if you prefer a single payout, $300M * 0.125 = $37.5M. So considering inflation for $68.75M is over 40 years, maybe your expected return is between 37.5M to 50M (idk about 50M, I made it up)? Of course the reality is how much you would sell it very much depend on your conviction of how likely your guesses on final 3 games may be correct.

I'd argue that your chance of winning the bracket (or, at least, a valuation of it) is much higher than that given your ability to predict all of the matches prior.

(I don't think this would qualify as gambler's fallacy, though I'm welcome to counterarguments.)

Regardless, I think it would qualify as gambler's fallacy for the person buying your stake!

>> I'd argue that your chance of winning the bracket (or, at least, a valuation of it) is much higher than that given your ability to predict all of the matches prior.

I believe the chance to win given you win all but three are higher than 12.5%. But MUCH higher? I am not quite sure. There are too many games this year can go either way, and predicting these games right is more on luck than technique analysis. Though winning all these previous prediction did gave you the credit in your expertise, but I am not quite sure about MUCH higher statement.

Like I have said "Of course the reality is how much you would sell it very much depend on your conviction of how likely your guesses on final 3 games may be correct.". As tournaments goes on, your feeling about we will win it all will change. Say Louisville will all the team 100-0 in previous game, yet you predicted them to lose at final four, you are more likely to sell your stake at a cheaper price than not.

It would also depend on what the situation was then. If you predicted this crazy team to exceed all expectations and make it to the final four and then lose, they could well be a significant underdog.

Buffet's offer of a buyout would be great. If not, at some point I would start betting big at vegas against my picks so I at least made some money if one busted my bracket.

Of course I am more likely to win the lottery (even though I don't play it) than I am to have to put my plan into action.

The single payout amount is $500 million (not that it matters any more).

https://www.quickenloansbracket.com/rules/rules.html

Math says you'd be willing to sell a 50% stake for $10M. Sad to think that compared to the "billion $" headlines.

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