Rolling the dice? ??

Ever heard the expression “roll of the dice”? ??

If you have, you’ll know it means you are about to make a risky attempt to achieve something. To be successful, you’ll need luck on your side.

The problem with ‘luck’ is that it implies unpredictability. And this is where us humans tend to get it all wrong.

Several centuries ago there was a French chap by the name of Blaise Pascal.

A mathematician and philosopher, Pascal experienced a pretty heavy religious vision in 1654 (which he subsequently scribbled down and sewed into the inside of his jacket).

Being a mathematician, his vision led to an epiphany.?

The upside of believing in God (high chance of reaching heaven) was huge versus not believing in God (high chance of ending in hell):

In layman’s terms, it is better to bet that God does exist, because it increases the probability of a positive outcome.

And, talking of dice, it can be used to explain a very simple way to help with your decision making. This is known as EV (not that EV); Expected Value.?

If I have a die, a 6-sided cube. 1 through 6 written on the sides. I tell you that for just ￡1, you can have a chance at winning ￡10. Here’s how the game works:?

You pick a number (let's say five) and hand me a dollar.

I roll the dice.?

If it’s 5 I give you ￡10. Otherwise you lose your ￡1.

Should you take that bet? ??

Of course! And that is because of the EV of the outcome.

The numbers 1, 2, 3, 4, and 6 would have a value of -1 because we paid a dollar to roll the dice, and we would lose that dollar.?

The number 5 however would have a value of 9 (not 10, because remember we paid a dollar for the bet).

Let’s add up all the values: 1, 2, 3, 4, and 6 are -1, so we’re at -5.

But then we add 9 for the value.

So EV is calculated by -5 (the risk) +9 (the value). This equals a very healthy 4 or in other teams +EV (a positive value).

This is how professional gamblers and poker players make money. They can lose 100 gambles in a row, but if their EV is positive they know in the long run they will turn a profit. ??

The significance of this is that rolling a dice is not as chaotic and random as it might initially seem. Seemingly chaotic events can actually be quite predictable.

So what is the lesson?

There are no certainties in life. All you as a wise retailer can do is try to make a +EV play in life and hope for the best outcome.

The retail fuel market can be chaotic. Make sure when you ‘roll the dice’ that you assess whether your decisions are plus or minus Expected Value.