Predicting the future with probability

When this war scenario was explained to me, I had one of those eureka moments: when a paradigm shift happens and suddenly an insight or a new way of thinking occurs.

It was readily apparent that being able to use probability to make a fairly accurate assessment of a future development within a scenario would be of great advantage in a competitive environment. Being able to build in sufficient redundancy, to take care of uncertainties, would be a major competitive advantage.

Before reading on, perhaps the reader might care to take a moment to look back to the introduction to the list of twenty-four initial assumptions that have to be made before designing an e-business strategy. Notice how many of them involve uncertainty. If probabilities can be used to lessen the effects of these uncertainties, then they might be used to significantly enhance an e-business strategist's ability to compete (this also explains why I've chosen to start this book with an examination of probability theory).

As any publisher will be quick to point out to an author, starting a book off with an arcane theoretical treatise is a certain turn off. Theory is boring and only becomes interesting when it can be used to practical advantage.

This is the problem I had when creating the CD-ROM book "How God Makes God". In that work - despite the cryptic title it is about game theory and business strategy - the whole subject matter was dependent upon having an intuitive understanding of probability and, as probability is largely counter intuitive. This presented a real challenge.

My own intuitive understanding of probability hadn't come about through the lectures I attended in probability theory. Neither had it come as a result of those interesting conversations I'd had in the component testing laboratories of the research establishment. A true appreciation of probability came after I'd left college. It happened through being the proprietor of a gaming club and subsequently spending some time as a professional poker player.

The theory certainly helps to put probability and chance into perspective and provides a sound basis for calculation, but, this is far short of true understanding. An instinctive awareness of the variety of different ways probability can take effect can only be obtained through the long term observation of empirical results: the experience of using probabilities in real life strategies. Gaming and poker tables gave me a unique opportunity to do just this.

I could look at a game of roulette in operation for a short while and make a pretty good estimate as to how much the house was profiting each hour. I could watch a gambler at one of the tables and be able to estimate how much he or she would lose over an evenings play. To most of the players at these tables, the practical certainty that the house always wins is not obvious, even though they may have had every opportunity to predict such results themselves from the theory.

Knowing, from my own long experience with probabilities, how difficult it is to understand probability, even when in possession of all the mathematical formulae, I had to come up with an unique way of explaining the concept to the readers of the CD-ROM book.

It then struck me that with a CD-ROM it was possible to give the readers the same practical experience of probability that had given me an intuitive understanding. I could create a roulette wheel and let the readers play games of chance to experience for themselves how probability can take such esoteric and deceptive forms.

I presented them with a fully functioning roulette wheel and a table upon which they could place bets. I provided them with a stack of money and invited them to try to work out a winning system. The simulation was such that the readers could slide money onto the table to make the bets, click a button to start the wheel and then a random number between one and thirty seven would be generated to simulate the functioning of a real life roulette wheel.

When the random number came up, the computer program would calculate the winnings and losings of all bets, and then deduct or add the sum result to or from the player's money.

After being given the opportunity to try for themselves to create a winning system, I then told the readers that I would give them the secret of the most effective roulette system possible, and offered a ten thousand dollar reward for anyone who could come up with something better.

The reader was then presented with a scene set in a nineteenth century railway carriage, where two passengers are on their way from London to a channel port where they could board a ferry to the European continent.

Here is the conversation they had that contains a description of the optimum system for playing roulette:

A free holiday in Monte Carlo

Are you taking the boat train to France?

I am, but I'm going on to Monte Carlo.

How exciting. I should love to go there to see all the fine hotels and the casino.

I go there every year.

You must be very rich.

No. I go there for a free holiday every year.

A free holiday?

Yes, I have a system for playing roulette and my winnings pay for my holiday.

How marvellous. Is your system a closely guarded secret?

No I'll tell you what it is if you want to know.

Yes please. I should love to be able to have a free holiday in Monte Carlo.

It's very simple really. I don't play to win a lot of money, I just play each day for the cost of the next day's living expenses.

How much is that?

Ten guineas. That pays for my hotel, three decent meals, some good wine plus a little extra for entertaining the ladies.

And you do this every day?

Every day of my holiday, and sometimes I stay there the whole summer.

What is your system then?

Every evening, I take a cab to the casino. On the way there, I write down a sequence of seven reds and blacks which I think will come up as the first sequence of seven spins in the evening's play.

Surely you cannot guess that?

Of course not, that is the key to my system. If I guess wrongly I win.

I don't understand?

When I go to the casino I get twelve hundred and seventy guineas worth of chips.

I haven't got that amount of money.

Neither have I, but, I borrow it from a friend.

I suppose I could do that if I had a fool proof system. How do you proceed once you have borrowed the money and then thought up this sequence for the first seven spins of the wheel?

For my first bet, I look at the first item of my sequence. If it is red, I bet ten guineas on the black. If black comes up, I win my ten guineas straight away, cash in my chips and leave for the day.

And if a red comes up?

I look at my sequence again and bet twenty guineas on the opposite colour of the second in my sequence. If I win I get back the money I have lost, plus ten guineas profit.

And you can finish for the day again?

Yes, and if it loses I bet forty guineas on the opposite to the next in my sequence.

What do you do if the zero comes up?

I treat it as the opposite colour to the colour I have bet on.

I see, every time you lose you double up on the next in the sequence, but, if you win just once you can leave with the next day's expenses in your pocket?

That's right, I'm not greedy. I quit as soon as I've had one win.

A single win?

That is why my system is so successful. I need to win only once in an evening.

But you could lose all of your money if you lost seven times in a row?

Yes, but what is most likely, me being able to guess the first seven spins of the evening or me winning a single bet?

So it isn't very likely you can lose?

No, it isn't very likely and I am such a bad guesser of those first seven spins of the wheel that I get a free holiday in Monte Carlo every year.

But you could guess right one day and lose?

Yes. I would lose a friend.

What friend?

The friend who lends me twelve hundred and seventy guineas every year to go to Monte Carlo for my holiday.

I don't think I would use your system. I would prefer to put all of my money on one single bet on the red.

After describing this optimum system for playing roulette. The reader of "How God Makes God" is then presented with the simulation of the roulette game and invited to try the system out for themselves and also try to work out a better system and so be able to claim the reward of ten thousand dollars.