http://coinflipbet.herokuapp.com/You are being given $25 to give 30 minutes of your time to playing a coin flipping game.
The coin you can flip is programmed to have a 60% chance of coming up heads and a 40% chance of coming up tails.
You can bet any amount of money in your balance, but not more, on heads or tails on each flip.
If your balance goes to 0, you cannot play anymore, but we kindly request you stay in the room until the 30 minutes has elapsed.
Of course there is some science on how much you should bet. You may (or may not) do it "scientifically".
BTW, I did follow the theory and ended up with the maximum allowed in about 20 minutes.
I've heard of this from a note on TDW. Quoting the author:
Ian McGugan wrote:Nothing sounds simpler than winning at such an outrageously rigged game. Yet, when it was played with real money in a controlled experiment, a surprising number of professional investors and finance students somehow managed to go bust. Full confession: I didn’t do so well myself.
Given the odds in the coin flip game, all of us can see it makes sense to favour heads. The problem is deciding how much of our bankroll we should risk on each flip of the coin. Choosing the right amount to wager is similar to deciding how much of your actual portfolio to devote to a promising stock or fund.
Then there are the inevitable ups and downs of the game. Throughout half an hour of coin flipping, you probably hit at least one sorry patch when you found your bankroll melting away despite your best efforts. When that happens, the temptation to do something – anything – to break the losing streak becomes nearly unbearable.
How unbearable? By the 15-minute mark, I was swearing at the screen. I had begun by betting $5 a flip on heads, but my first three tosses came up tails and quickly dragged me down to $10. I then sliced my bet in half, then in half again, but I couldn’t get any traction. I wound up with the distinctly unimpressive total of $3.85.
At least I wasn’t alone. The two creators of this experiment, Victor Haghani of Elm Partners and Richard Dewey of Pimco, found 28 per cent of their test subjects went bust when playing the game with real money. A full third of their test subjects wound up with less money than their starting amount.
The results are startling because all 61 subjects in the initial experiment were either young money managers or university students in economics. They all had the training to play the game intelligently, but most of them flopped.
Bettors sabotaged themselves in many ways – by overbetting, by underbetting, by shifting bets erratically (the latter was probably my own undoing). Amazingly, two thirds of the test subjects bet on tails at some point despite the miserable odds against that outcome. And nearly a third of them gambled everything on a single coin flip at least once.
To my mind, the single most valuable insight is that it’s discipline that counts in investing, not brilliant investing ideas. The subjects in the coin-flipping contest knew that betting on heads was a great proposition, but most failed to reap a reasonable reward because they didn’t stick to a simple, consistent strategy that realistically balanced risk and reward.