Wednesday, August 27, 1997
The Parable of 10,000
Nickels
by
TMF AnnC
(Inspired by a tale in
Where Are the Customers'
Yachts? by Fred Schwed Jr.)
Imagine a country where the population is fascinated with money but financially unsophisticated and mostly ignorant of the laws of probability. (No, not here, I'm talking about the kind of place where a sizable proportion of the population can't balance their checkbooks, where millions play state-run lotteries, and where many families have let credit card debt rule their lives. That kind of place.)
Now, let's imagine that the national pastime there is a game called Flipping Nickels. It's an extremely simple game; two or more people flip a nickel. Heads wins, tales loses, and the winners are awarded the losers' nickels. Anyone can leave the game at any time, but winners rarely quit.
One day, a huge tournament was held with 10,000 entrants. The best flippers in the land shine up their favorite lucky nickels and gather in the main flipping arena. Each contestant is accompanied by an official to verify his flip. There is a hush as the 10,000 entrants position their nickels on the tips of thumbs worn flat by constant practice.
"Flip!" the referee calls and 10,000 nickels flash in the sunshine, seeming to hang for an impossible time at the top of their arcs before gravity called them to the tarmac. 5,000 heads-up nickels are returned to their owners. As the losers shrug and take their places on the sidelines, 5,000 tails are swept into the center of the ring to be divided among the winners.
"Flip!" the referee calls, and 5,000 nickels spring skyward. The officials bend over them as they land.
2,500 winners have won 4 nickels each. They could take their nickels and go home, but they are having such fun!
Flip!
1,250 winners have 8 nickels each. Hey, 3 in a row; this is starting to get interesting, they think.
Flip!
625 winners have each won 16 nickels each, and they are getting really excited. They have flipped 4 heads in a row. All that practice is really paying off!
Flip!
313 crushed losers slink from the field, just when it was going so well! During a break, some of the 312 winners dictate letters to their flipping coaches telling them how well their advice is working.
Flip!
156 winners have won 64 nickels apiece (with a few left over) and their family and friends start to gather around them, clutching each other with excitement, but careful not to disturb the player's concentration. One mother is heard to whisper, "I knew he could do it; he practices every night."
Flip!
78 losers stumble from the field. None is berated by a spouse or friend for staying in the game. They did their best and after all, they won 7 times in a row. How many people can do that?
Flip!
39 winners and the pot is up to 256 nickels each. "Wow," says a young player. "That's more nickels than I ever thought I could win!" He starts dreaming of a career as a professional nickel flipper.
Flip!
20 winners win 500 nickels each. One player quickly arranges to have his flips video-taped so that he can study his technique later. Another starts to hyperventilate; someone gives him a paper bag to breathe into. It helps.
Flip!
10 winners -- 1000 nickels each. The 10 losers shake their heads in disbelief as friends pull them back into the audience, murmuring about rotten luck and offering to take them out for a beer later to ease the pain.
Flip!
5 winners -- 2000 nickels each. The five losers are stunned. One starts to cry.
Flip!
2 winners -- 5000 nickels each. One loser simply sinks to the ground, staring at the first tail he has flipped in 12 tries. Another is helped to the arena exit where an ambulance driver administers oxygen. The two remaining contestants stare at each other across a small stretch of tarmac. One is sweating, the other cool and sophisticated -- except for the tic above his right eye. This is it. The big one. The final step toward glory. The audience is hushed, scarcely daring to breathe.
Flip!
One head -- one tail. The loser collapses with a pitiful moan. Our winner grabs the nickel, kisses it and swings his wife off of her feet. As he heads for Disney World, the reporters and failed contestants gather around, begging for his secret. Now, he's a nice guy, so he tells them just how he did it -- tested the wind each time, felt for the exact location along the rim that always resulted in a perfect heads up. "Now, pay careful attention, guys," he says, "practice and study, and do it exactly like I tell you. Then next time you can ALL win 10,000 nickels."
Note: For those of you who think it is unfair that the losers had to give up all their nickels because of one bad toss, I suggest you study the economics of commodity investing, selling puts and calls, and short selling, especially combined with margin investing.
Note to the mathematically inclined: Please don't e-mail me to point out that the probability of a series of such evenly matched flips is extremely low. We both know that the principle is intact. You want a 16 page Fribble, I'll deal with all contingencies.
Ann Coleman