Psyprobs 2

I had presented two betting scenarios in Psyprobs 1: coin-tossing and poker. A friend of mine has mailed in with a fairly comprehensive analysis of the former and a suggestion that the poker problem is exactly the kind of bone a Prospect Theorist would chew on. I have reproduced his mail as is…save for a spelling error that wordpress red-flagged thrice over. And no, he cannot pass it off as a US-UK clash of ideologies.

“When you walked up to the table, you perhaps had some guess of what the p(heads) for the coin being used was. And of course, p(tails) = 1 – p(heads). Using p(heads) = p(tails) = 0.5 seems reasonable, given your trust in the precision of the mint as well as the credentials of bloke doing the tossing. And then, you recognise him – he’s Derren Brown, now you’re not quite sure. You are uncertain of the value of p(heads). We’re looking for a general enough way to solve this problem, so we want to describe everything so that replacing Derren Brown with the patron angel of innocent faces should just be a matter of blindly turning the crankshaft.
The way to do this would be to represent p(heads) with a Beta distribution, given by . Being a distribution, it will have a mean (i.e., the best guess right now) and a variance (i.e., the uncertainty in the best guess). When you were first picked from the audience, you condense your reading of the situation into a Beta distribution that will be the prior belief of p(heads). This will compactly represent how biased you think the coin is, how unsure you are about the parentage of the guy in front of you, etc.
At one end is complete uncertainty, you have no clue about p(heads) for the coin, this is represented by 1. The mean of this distribution is 0.5, but there is maximal doubt about this value, i.e., you think that p(heads) could be any value between 0 and 1 but your best guess is 0.5.
Alternatively, the coin comes with a certificate of authenticity, you know for sure that p(heads)=0.5. This could be represented by having 1000, or some suitably large number. The mean of this distribution is 0.5, and the variance (i.e., your uncertainty) is very low.
Or maybe, this coin can only come down heads, in which case you use ( read ‘a lot bigger than.’) All intermediate values of your prior belief in the fairness of the coin can be got by choosing and appropriately.
Now, the part of incorporating the new information – the guy across the table telling you that the last 100 tosses have been tails. Ignoring this information is wasteful, surely the most efficient thing to do is to use this information somehow. It’s easy when you trust this incoming information. Starting from a prior of , knowing and believing that 100 tails were just observed will lead to your view of the bias in the coin being .
This process we just went through has some nice properties. If you walked in with , it meant that you had no particular opinion, you could be convinced either way. After hearing about the 100 tails, you will now be , that is your best guess of p(heads) for that coin is . On the other hand, if you walked in completely confident that it is a fair coin represented by say , hearing about 100 tails will change this to whose mean is not too far away from the original mean of 0.5. That is, the new evidence has done little to change your mind.
This would be how to deal with uncertainty, but when you bring in money, things get a bit hazy. Given that your belief of p(heads) for the coin is given by , as a rational person, you would be ready to accept a bet where you are asked to pay h£ for a chance to win (h+t)£ if the next count toss came down heads-up. You would of course be ready to accept any bet that gives you better odds – i.e., asking you to pay less than h£ with a chance to win (h+t)£. Goes without saying that you shouldn’t accept any bet that gives you worse odds, but greed and foolishness are funny things.
But we’re all intelligent people. Which is why you refused the bet where Derren Brown asked you for £1.01 for a chance to win £2.00 on a coin-toss with a completely fair coin. But he’s got to put out a show on TV, so he gives you 2£ and you then proceed to enjoy the finer things with life with that money and get used to this rich lifestyle. He arrives at your door the following week and you are forced to return the 2 pounds to him. But he’s a nice guy, he gives you a chance to win the money back. He asks you if you’re in on a £1.01 bet for a chance to get the £2 if the next toss came up heads. The funny thing is, you would probably take the bet now. You see, Derren Brown has been reading about Prospect Theory.”

Psyprobs 1

The subtle and celebrated art of psychological warfare has been part of almost every war, battle, skirmish and brawl in history. These days they make bloodhounds bark into the faces of Guantanamo Bay prisoners and market it to kids as ‘PSYOPS.’ I am not going to burn effigies of bloodhounds like the politically aware would, but I will talk about the concept of Psychological Probabilities that I have been forced to explore since I started playing online poker. I have more questions than answers and the reader(s) will probably dismiss Psyprobs as just conditional probabilities in disguise. Consider the following scenario:
You’re engaged in a sophisticated game of strategy and chance where the bloke tosses a fair coin and you win if its heads and cough up the cash if its tails. You shift through your mental gears and conclude ‘50-50′ until the bloke throws a psychological spanner. “I should tell you that the last 100 tosses have all landed tails.” Wocha gonna do? Are you gonna remind yourself that a coin toss is an independent event and you have an even chance on the next toss regardless of prior (history?) Will you conclude that since a ‘balance’ has to maintained in the long run, a heads is just around the corner and double your bet? Or will you just figure it ain’t your day and pack it in? The fact is you’ve been given some extra information. How are you going to use it? Should it bother you that the coin landed 100 consecutive tails? Can (and should) this run of tails be factored into your decision making in a precise mathematical way? Sometimes, what seems to be a Psyprob scenario is just conditional probability in disguise. The classic Monty Hall Problem is an example. I will not go through the setup and solution. This Wikipedia entry does a good job.
I believe that the first example is just a standard coin-toss and the ‘extra’ information should not come in the way of your gambling fortune. The Monty Hall Problem is clear-cut conditional probability in action. Here’s yet another scenario which may require something more than conditional probability. Then again, maybe not. You decide.
So you’re playing poker heads-up. You’re dealt a pair of Kings. The flop (the first 3 of the 5 community cards) is a pair of 7s and a Queen. The suits are such that a flush isn’t a factor. You make a serious bet, your opponent goes all in. You figure maybe he has a pair of As and are ready to fold when he shows you one of his cards: a Queen. Agreed that there are two more cards to follow but, as it stands, can you work out the odds of your having the winning hand?
Well…he has the better hand if his other card is a 7 or a Q. Should this be the sole consideration when you calculate odds or should you think in terms of, “is he showing me the weaker/stronger card?” The former is conditional probability while the latter has Pysprobial undertones. Are both the approaches one and the same? It is tempting to say Yes! If he’s showing the weaker card you calculate the odds and add them to the odds if he’s showing the stronger card and it should tally with the conditional probability calculation. I suspect, however, that each component in this addition should be ‘weighted’ in some way to reflect the psychology of your opponent in showing the weaker/stronger card. Think about it. I’ll post some actual calculations later. All I know is that Stu Ungar wouldn’t have put up with this kinda rubbish.