Utility and the Lottery

This passage is taken almost exactly from the professor's lecture.

Logically, it makes no sense at all to play the lottery. You spend $1
to buy a ticket, and the chance of winning is so low it really is a
waste if money. But the downside (wasting a dollar) is defined and
relatively negligible.

So why do we play if the logical choice, based on statistics us that
we are wasting money? Because the choice to buy a lottery ticket is
made with our hearts, not our heads. Although the downside of the
lottery is defined as, at most, losing $1, the upside has unlimited
potential (what ever the total jackpot is for the date of the drawing).

So, the utility of playing the lottery, better thought of as "risk and
reward" is very small risk ($1), and very high reward.

But what if we changed the game? What if we had everyone write thier
name, address and phone number on the back of every ticket. We played
the lottery like normal and everyone with the winning numbers split
the prize (just like the current system). THEN we put all the other
tickets into a huge roll cage and drew one ticket.

The night after the lottery winner was chosen, whoevers name was
written on the back, the government hunted down and put in front of a
firing squad to be killed, in network TV.

Do you think that would change peoples view of the $1 lottery ticket
purchase?not the upside is the jackpot an the downside is the loss of
$1 AND the small chance your name will be drawn and you will be killed.

I bet the risk and reward would be viewed very differently by those
who chose to play the lottery. This defines Utility.

First Project Eyeopening Results

I see no reason to lie about my first project. It wasn’t pretty…

I described the project here and I came into the room with some decent confidence about my income statement and my journal entries. I left the room feeling pretty good about the journal entries and the T-Accounts. Here is the big problem, my Income Statement had the correct net income amount... not really a problem unless... (as in my case) I was all over the place to get to that number, just random coincidence, I guess.

Anyway, we went over the entire project in class, which took a while with so many people petitioning the professor to justify the way they labeled their accounts. When she specifically mentioned that the account names weren’t really that important as long as they were consistent from transaction to transaction. Though she was adamant that Inventory was not Supplies, as Inventory was directly involved in the creation of the final product, so I feel like that is important to remember.

All in all, it was an eye opening project, slapping me in the face with how much more information I need to learn before the first test next week. I don’t feel great about it at all. Thankfully we went over the project in class and got a chance to make changes prior to turning it in, pretty much ensuring a very good grade.

Sometimes doing a project, like this, and going over it in class to correct it definitely helps in learning and retention.

Financial Accounting First Project

So, this weekend was the first real test for me when it comes to the evening MBA program really grabbing at my time.

The first project is due today in Financial Accounting.  It is a Harvard Case Study, called the Chemalite, Inc Company.  We read a company description of the significant operating events that happened over the course of a year.

We are to do the Accrual Accounting journal entries for each transaction. Then do a "T-Account" for the Cash based transactions.  Finally, based on the information we have, we are to make an Income Statement and a Balance Sheet for the first year start-up company, Chemalite, Inc..

All in all, not incredibly difficult, just time consuming.  I feel I have a pretty good grasp on the dual journal entry concept, the T-Account creation, and the formation of an Income Statement.  I admittedly struggled with the creation of the Balance Sheet.  We will go over the project in class and then  turn it in.  It accounts for 15% of the final grade in Financial Accounting.  Lindsay was very supportive as I spent a solid hour and a half to two hours completing the Statement and T-Account portion of the project, as accurately as I could.  It too me an additional hour making the journal entries, I was pleased with the completion of the project and my beautiful girlfriends patience.

I will follow up tomorrow on how close to accurate my project turned out.

Normal Distributions are Distributed Normally

Normal Distributions are Distributed Normally

If you have enough people or samples in any set of data, when measuring a variable it will always take on the characteristics of a Normal Distribution. What does that mean? Think Bell Curve.

I know everyone hates that thing, but it really does serve a purpose. Let's talk about test scores:

In a class of 60 students there is an average for the test score (out of a max of 100%) of say 75%. And there is a Standard Deviation of 8%. So if you look at a bell curve, 68% of the class would score between 83% (75% + 8%) and 67% (75% - 8%). This range of 67% to 83% is the distance from one standard deviation less than the average to one standard deviation greater than the average.

Most of the class average 68% will lie in the above range.

Two standard deviations away from the mean is...

59% to 92%: which means that 95% of the class scores between these two scores. Which makes a lot of sense if the teacher gave a fair test.

However it is unlikely very many people will score above 99% or bellow 51% on the test (3 standard deviations). In fact only about 2% of the class will get a score out side of the three standard deviation range.

So, what does this mean? Look at your GMAT scores for business school. Each time a test is administered, there is a sample of scores. So, on the day I took my GMAT I got a 610. There I no way to know what that means relative to everyone that has ever taken the GMAT, because there are differences and abnormalities from test year / month to the next test year / month.

How do schools help decipher your score? They use the percentiles. Every single time the percentile is understood to mean the same thing. How many people scored less than you did on the test? Based on YOUR sample. I scored 610. What does that mean? I was in the 92 percentile. So 92% of the people taking the test, around the same time as I did, scored less than I did.

This number 92% actually mean something. Some people say... I got a 610 too, but that is irrelevant. If they scored in the 70% percentile they technically did worse, because more people did better than they did.

Why Craps Will Always Beat You

Statistically, it is impossible to obtain the expected average rolling one die .

Probability of rolling a “1” is 1 x 1/6
Probability of rolling a “2” is 2 x 1/6
Probability of rolling a “3” is 3 x 1/6…

If you multiply the probabilities of rolling all six sides together and add the results the expected average is 3.5(an impossible number to roll).

BUT… if you roll two dice the expected average is “7”, statistically you will roll a “7” more than any other number… why is this important?

Las Vegas has perfected this Statistical truth in a very popular casino game. Craps.

Rules of Craps – Copied and Pasted from Wikipedia:

“First, the shooter makes a "come-out roll" (First roll) with the intention of establishing a point. If the shooter's come-out roll is a 2, 3 or 12, it is called "craps" (the shooter is said to "crap out"), and the round ends with players losing their pass line bets.

“A come-out roll of 7 or 11 is called a "natural," resulting in a win for pass line bets.

“Either way, the come-out roll continues for the same shooter until a point is established. If the point numbers 4, 5, 6, 8, 9, or 10 are rolled on the come-out, this number becomes the "point" and the come-out roll is now over. The dealers will move an "On" button to the point number which identifies the point number to all players at the table. The shooter now continues rolling for either the point number or a seven. If the shooter is successful in rolling the point number, the result is a win for the pass line. If the shooter rolls a seven (called a "seven-out"), the pass line loses. A seven-out ends the round with the dice being passed clockwise to the next player who wishes to become the new shooter.”


Dice Roll Possible Dice Combination
Roll a 2 : 1-1
Roll a 3 : 1-2, 2-1
Roll a 4 : 1-3, 2-2, 3-1
Roll a 5 : 1-4, 2-3, 3-2, 4-1
Roll a 6 : 1-5, 2-4, 3-3, 4-2, 5-1
Roll a 7 : 1-6, 2-5, 3-4, 4-3, 5-2, 6-1
Roll a 8 : 2-6, 3-5, 4-4, 5-3, 6-2
Roll a 9 : 3-6, 4-5, 5-4, 6-3
Roll a 10: 4-6, 5-5, 6-4
Roll a 11: 5-6, 6-5
Roll a 12: 6-6

Rolling a 2, 3, or 12 to “crap out” is very unlikely, where as rolling a “natural” ( 7 or 11) is much more likely.

If you roll a point: 4, 5, 6, 8, 9, or 10 on the “come-out roll” then you are much much more likely to roll a 7 than one of those point numbers again.

So the Casino has the probability of winning on its side with this game. As our professor says, “no matter how many times the cute cocktail waitress blows on the dice or how many times you beg for new shoes, you can’t beat the statistical truth of the game.”

Interesting that this highly “unwinnable” game is one of the most popular in casinos.

“Las Vegas’ goal is to take all of your money while making you think you had a great time while they did it”.

MGT 6120 Day One

Yesterday was the first day of school in quite a while. Due to snagging the parking decal over lunch I was able to park and walk right into the building. I would be lying if I said that it wasn’t a very exciting time for me.

Dr. Turner was very open about her intentions for the class and about her experiences teaching Evening MBA students. We went over the syllabus for the class including the break down of the assignments. Ultimately, my thoughts currently reflect my original beliefs when I enrolled. It will be a big time commitment to do this MBA, but I believe it is very doable with the right attitude and lack of procrastination.

First day, we went over basic “undergraduate type” accounting; debits (DR) on the left and credits (CR) on the right. We talked about how not all assets are good assets (sometimes accounts receivable aren’t paid in full). Assets are listed on the balance sheet at the price paid for them, so they aren’t always an accurate sampling of current value. We went through the basic accounting formula:

Assets = Liabilities + Stockholders Equity:

We reviewed T-Charts to record the journal entries. Keeping in mind Debits on the left. Debits and Credits have different functions depending on which side of the equation they fall on.

Assets increase with DR and decrease with CR; so when you pay cash to compensate an employee salary there is two transactions for every journal entry., you Credit your cash and Debit Salary Expense.

Liabilities and Stockholders Equity increase with Credits. Two things are affected every journal entry, just have to figure out which two things.

This was basic day one material. We will not meet next week due to MLK Day, so there is three chapters of reading in the next two weeks.

Avatar at Phipps Plaza AMC

Lindsay and I went to see Avatar this Sunday. We looked at the show times and decided upon the 3:30 movie, since there was only 3:30 and 7ish. We had just enough time to leave our place, go to the gym, the mall, get food, and walked into the movie right as the show was starting. Everything was perfect.

We made it through 2 hours and fifteen minutes of the movie when someone passed out and they stopped the move, only to NEVER start it again. AMC gave us the shaft, we got through 2/3 of the movie (which I wasn't entertained) and never saw what happened at the end. They gave us free passes to see the movie again at a later time.

In this day and age, it is very hard to find the time to go to a three hour movie and transportation and get there early to get a seat. Needless to say I am pretty upset. I don't want to go to an AMC ever again. Very frustrating.

Lindsay and I rushed and never got to see the end, next weekend now we have to take our tickets and see the movie again, or more than likely, we will go to a better movie.

Dear James Cameron, I BEG YOU, please make a movie less than three hours long... this is a pattern, Titanic, Avatar, and the Terminator movies...