The May Ball Casino

1
The May Ball Casino
Whoever has the most chips gets a free ticket
for next years ball. Barry has 700 and Susan
has 300 and there is time for one more spin of
the wheel. Susan offers to split the value of
the prize. Should Barry accept? Someone who
bets on Red or Black has an 18/37 probability of
winning double his bet. Someone who bets on the
number being a multiple of 3 has a 12/37
probability of winning triple his bet. Susan
bet 300 on the multiple of 3. Barry bet 200
on Black. Was that his best response? (see p.
29, DN book)
2
THE BID-ASK SPREAD
Suppose someone is trading common stock shares
in Fastcleaners, Inc. He and the rest of the
market, think the value of the stock is
41/share. Yet He bids 40/share to buy. He
asks 42/share to sell, He wouldnt buy for
40.50, or sell for 41.50. Why not? Why is
there a spread? A real example (Jan. 7, 2002)
6-09 coupon-date 6.38 yield Fannie Mae,
Bid 10425 (that is, 25/32) Asked 10429