Applying Gambling Theory to New Orleans
- 1
- Add a Comment
In 2003, a mathematics student speculated that, with a laptop and a simple statistical program, it would be possible to win at least a million dollars in Las Vegas in eight hours. The person would need to have a hundred dollars to start. If that person was in a rush and wanted to increase the risk / reward ratio, there was a high probability that over ten million dollars could be won in slightly over five hours. This mathematical model will not be tried in Las Vegas. The gambling industry see this type of mathematical decision making as cheating. And the gaming establishment seriously frowns upon this type of statistical approach and guards against it vigourously.
That is just one example how statistics and probability theory can be very lucrative. Whole industries are built upon the understanding and use of probability theory. For example, the insurance industry is essentially a probability game. The insurance policy pays out if you die. However, the statistical tables say that you should reach a certain calculated age. By that time, your insurance policy has generated profit, even with the payout upon your demise. Sometimes, of course, the probabilities are wrong but as long as that error rate remains in the manageable range, the industry thrives. The insurance industry is based on gaming theory.
It seems that New Orleans is taking a risk too upon survival and upon probabilities:
“…For the foreseeable future, New Orleans will be surrounded by levees unable to protect against another storm like Katrina.
When the Army Corps of Engineers finishes $14.8 billion in post-Katrina work, the city will have what are defined as 100-year levees.
Under that standard, experts say that every house being rebuilt in New Orleans has a 26 percent chance of flooding again over a 30-year mortgage; and every child born in New Orleans would have nearly a 60 percent chance of seeing a major flood in his or her life.”
link: New Orleans is sinking into same levee mistakes
Basically, New Orleans is taking a gamble. The Army Corps of Engineers is not saying that the devastation of Katrina will not happen again because of the lessons from that disaster. The Army Corps of Engineers is offering a probability statement.
Gambling establishments sometimes lose. The insurance industry sometimes has policies that cost the insurers money. And basically, the message to New Orleans is that, at this level of protection, a Katrina-like catastrophe will happen again. It is just difficult to say when it will happen again.
New Orleans still remains vulnerable to a weather phenomenon like Katrina. So much for the lessons of history - and welcome to gambling theory.
Catherine Forsythe
One Comment
Tim
August 24th, 2008
at 10:06pm
Correct, but how is this New Orleans’ fault? The Corps, a federal agency, is following the law passed by Congress and signed by the president to provide levees and floodwalls that will enable the city to qualify for the National Flood Insurance Program, a federal program. NFIP only recognizes two conditions: 100-year protection or none. So if there is gambling going on here, the “house” has set up the game and established the odds, not the players.
And incidentally, communities across America are built behind levees designed to profice 100-year protection. So it’s not just New Orleans–we’ve got ourselves a national epidemic!
Peace,
Tim