Tuesday, November 06, 2007

A Puzzle and A Joke!

Try to answer this puzzle: A man (or a woman; in this case please replace all the *he* with *she*) has to guess the number which will result by throwing 2 unbiased, perfect dices. There are 11 possible numbers (from 2 to 12) that could come by using 2 dices and he is given 11 chances. He has to guess correctly (luckily) at least once otherwise, he will be killed. In the first ten chances, he simply says 11 and in all the chances the resulted number is 10. So, he has only one chance remaining. So, what will you guess for the 11th chance if you are in his shoes? Guessing which number could save your soul?

The answer is, if you want to take some more time, you can very well think and read further. The next statement will be the answer. Okay? Ready? The answer is, whatever is the number he guesses, he has 1\11 chances of saving his soul. This is because, the result from tossing a dice is 100% random and each and every time, it is tossed, it is a separate and unique event which has no connection with the previous results.

I do not know why, but nowadays, I am little or even more interested in share market. May be it is because my time is becoming bad or because it is becoming worse. This puzzle has a 100% valid connection with share markets. If the market goes up continuously 10 days, we can not be sure that will go up on the 11th day. We can not predict how it will go even within a single day or a single hour or a single minute. For, if anyone could predict that or control that, he\she will or will soon have an own aeroplane. Share market is like a black hole which contradicts a lot of concepts. Calculation, Brilliance, Analysis, Luck, etc. concepts are devoid in share market. For me share market is like a pet lion. It could be your pet for years and years and one day it could kill and eat us.

Lets come to the joke part (it is VVPJ (very very PJ [poor joke])). I and my dad was discussing about a company's share.
My Dad: "We have 500 shares of that company but it does not seem to increase. If a share lingers in a particular price, it is an indication for a break out. Either it could go up rapidly or go down rapidly. But I guess it will go up, but could not say when"
I: "I could say easily dad. If we sell all the shares, it will go up the next minute"
That is all. The joke is over. It was to mean that, we have had a lot of bitter experience that, the moment we sell a share losing the hope, the next minute it will increase and go up rapidly.

I think I will post some more blogs about this lovely killing beast. You may click here to see my first blog about share market. Keep watching both my blog and the market.


Random varibale said...

A good post. But I don't know whether you read about it or intuitively guessed about the randomness. Either ways it is pretty cool. The earlier case of the puzzle that you discussed is one of independent events. Thats is, the earlier 'n' events ( of tossing a die) has no impact on the n+1 th event. Hence you can deduce the objective probability of the chances of his survival is 1/11. But this is strictly within the objective framework, which is only one of the schools of thought. If you look at it from the victim's point, there is a whole lot of difference. There is a difference between objective probability and subjective probability. If the victim has seen that the number 10 has occurred in the last ten times, it alters the probabilistic distribution perceived by the victim.
Now coming to the stock market, it is a similar process, but not the same process. One can try and model the stock market price process as a 'Random walk'. That is, if you consider the price of a share as a random variable (taking a value from a probabilistic distribution), there may not be any organised rule set to predict the value that the variable is going to take in the next period. Just in the same way you cannot predict a drunk man's choice of a path in a park. It is going to be random. However, they tame this and try predicting by modeling it as a Weiner process or a stochastic process like Brownian motion(The same one that we studies, where the particles follow a random path in a fluid), which is what the most modern financial mathematics does.
So are u trading?

amudhan said...

Dear Mr. Random Variable,
Your explanations are really good. As I had told, I am not even a novice regarding share market and I am just saying whatever I know. I need experts like you to correct me. I went through the wiki for RandomWalk and WeinerProcess but understood nothing :( got only vague ideas. I have not started trading yet.

prabakaran C said...

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