If Everyone Is Happy, What’s The Problem?

We don’t always know how new things make the rounds. Sometimes they have been with us all along and we just became aware of them. A classic example is buying a new car and then noticing how many there are just like it on the highways. Logically we know that the act of our buying a car didn’t change the probability of seeing ones like it, but the explanation must be in our perceptions. Something like that might have happened with a clever scheme for making money which I first encountered in Coincidences, Chaos, and all That Math Jazz by Burger and Starbird. I’ve mentioned this book in a previous column. The clever scheme they describe has appeared several times in other guises.

To give priority its due, I did see this example there first, but since then I’ve had people swear that they heard of it or variations for years. I have no idea where it originated. The scheme goes like this (following Burger and Starbird): you get an email suggesting that a particular stock will go up next week, but no solicitation or recommendation is made. Next week the stock does go up and again an email arrives saying, “See I was right, but that might have been chance. Next week the stock will go down.” Again this happens. You start to get interested. You anticipate the weekly email. For nine weeks in a row the mysterious emails correctly predict the market and you have estimated that if you had been following their advice to buy or sell, you would have made a bundle.

Then you get the tenth week’s email and reality sets in. The usual email is different. It essentially says you have all the free advice you are going to get. If you want any more of these outstanding tips on how to invest, send $1,000 immediately to get next week’s prediction. To make it even more appealing, the mailer offers a money back guarantee; if the prediction is incorrect, they will wire the $1,000 back immediately with no questions asked. They have been right nine times in a row. That sounds pretty good. Besides it is no risk since you will get your money back if they are wrong. You would like to make some easy money. Do you go for it?

Before you answer, let’s take a look at where those emails came from. The first mailing went out to 1,024 people (or some multiple, but let’s keep it simple). They told half that the stock would go up and the other half that the stock would go down. The next week they only sent mail to the 512 winners from the week before (since they had the results in hand before the second mailing). The third week they have 256 winners, and forget the 256 losers. This pattern repeats each week. When the tenth week rolls around, only two of the original 1,024 recipients are left. If both put in $1,000, one gets a prediction the stock will go up and the other gets a prediction the stock will go down. One wins and the other gets his money back. The mailer keeps the other $1,000. Everyone is happy.

This clever scheme makes money for some and doesn’t take anything from anyone. What could be more fair?

Of course the operation of this scheme is less obvious if instead of stock predictions, the mailer is an astrologer telling fortunes, or a televangelist relating anecdotes about how followers have been shown good fortune after donating adequate sums to the cause. We have considered many variations on this faulty logic, but people still get taken in by it. But if everyone is happy, what’s the problem?

In response to the interest my original tutorial generated, I have completely rewritten and expanded it. Check out the tutorial availability through Lockergnome. The new version is over 100 pages long with chapters that alternate between discussion of the theoretical aspects and puzzles just for the fun of it. Puzzle lovers will be glad to know that I included an answers section that includes discussions as to why the answer is correct and how it was obtained. Most of the material has appeared in these columns, but some is new. Most of the discussions are expanded compared to what they were in the original column format.

[tags]coincidences chaos and all that math jazz,get rich quick scheme,edward b. burger,michael starbird,stock tip,predict[/tags]