The May Ball Casino

Whoever has the most chips gets a free ticket for next year’s ball. Barry has $700 and Susan has $300 and there is time for one more spin of the wheel.

Susan offers to split the value of the prize. Should Barry accept?

Someone who bets on Red or Black has an 18/37 probability of winning double his bet.

Someone who bets on the number being a multiple of 3 has a 12/37 probability of winning triple his bet.

Susan bet $300 on the multiple of 3. Barry bet $200 on Black. Was that his best response?

(see p. 29, DN book)

THE BID-ASK SPREAD

Suppose someone is trading common stock shares in Fastcleaners, Inc. He and the rest of the market, think the value of the stock is $41/share. Yet:

He bids $40/share to buy.

He asks $42/share to sell,

He wouldn’t buy for $40.50, or sell for $41.50. Why not? Why is there a spread?

A real example (Jan. 7, 2002):

6-09 coupon-date 6.38 yield Fannie Mae,

Bid: 104:25 (that is, 25/32)

Asked 104:29