
Warren Buffett offers $1 billion for perfect March Madness bracket  - alphaoverlord
http://www.forbes.com/sites/kellyphillipserb/2014/01/21/warren-buffett-offers-1-billion-for-perfect-march-madness-bracket/
======
dreeves
From [http://messymatters.com/the-perfect-
bracket/](http://messymatters.com/the-perfect-bracket/) :

"accounting for team strength, the chance that each of the 63 tournament games
is won by the favored team is a mere 1 in 70 billion".

Which implies an expected payout (a billion dollars times the 1 in 70B chance)
of 1.4 cents.

~~~
joosters
In other words, you could recreate Buffett's $1 billion offer by placing a 1.4
cent bet on the first game, and rolling your winnings on to each successive
game. What's more, you're free to stop at any point and take some or all of
your winnings home. (Which you would have to do anyway; you'll never be able
to place the multi-million dollar bets near the end.)

Hopefully this will put paid to all the crazy comments about match fixing...
Buffett is 'giving' you 1.4 cents, and that's inspiring people to talk about
organising a massive match fixing conspiracy? Get real!

~~~
gibybo
He's giving you 1.4 cents if the games are random. If they aren't random, like
with match fixing, then he's giving you $1 billion. That leaves plenty of
money to bribe the relevant refs and players.

~~~
joosters
You missed my point. Buffett's offer is _irrelevant_ to the subject of match
fixing. If he had never made this $1 billion promotion, you could still
achieve the same payout by placing a bet for just over a cent.

All this talk of match fixing is just noise; sure, it could be an interesting
topic of discussion, but it is completely unrelated to Buffett's offer.

Unless you really think people out there weren't going to try and fix matches,
but suddenly they change their mind now they've been given a free 1.4 cent
bet.

~~~
gibybo
Sorry, I did miss that. It is an excellent point.

------
jamespitts
It is amazing how many people think that they can outwit Warren Buffett and
his inner circle of actuarial geniuses :-) He probably has a part of his brain
that runs the Kelley Criterion in his sleep, so long as there is enough Cherry
Coke in his system.

[http://en.wikipedia.org/wiki/Kelly_criterion](http://en.wikipedia.org/wiki/Kelly_criterion)

~~~
qznc
If I were a US resident, I would just submit a random bet. A nearly-zero
chance for a billion for a few minutes of my time and no cost. There is
nothing to outwit here.

~~~
zen_boy
The expected value for this bet is $1,000,000,000/4,294,967,296 ~= $0,23.

Say, it takes 10 minutes to make the bet. That would compute to the average
gain of 6*$0,23 = $1,38/hour.

This disregarded the $100,000 paid to the top 20 as well as the possible
psychological effects from making such bet, such as a positive outlook on life
for the duration of the bet, etc.

~~~
adventured
The $0.23 definitely doesn't properly value the effect of how few actual
chances a person has in a lifetime to make a billion dollars, much less for
such a trivial amount of time and effort (average American watches three hours
of tv per day).

There have been four $580m+ lottery wins in the US in the last 18 months
(powerball & mega millions). $2.4 billion split among eight people. The odds
were beyond absurd, and yet these people still won. Granted, I like my odds
better in the lottery than Buffett's wager.

~~~
gibybo
>The $0.23 definitely doesn't properly value the effect of how few actual
chances a person has in a lifetime to make a billion dollars

You're right, it probably over values it due to the marginal utility[1] of
money and the non-zero value of the risk premium[2]

You have as many chances at winning a billion dollars as you want. All you
have to do is make lots of smaller bets strung together. It may seem
impossible to string 30 winning red/black roulette bets (starting with a
dollar), but actually the odds of winning a billion dollars that way are
roughly the same. Technically speaking Casinos don't have the capital to
support the super large bets, but you could easily transition into 50/50 bets
in the equities markets. There is enough capital there to give you a shot at a
trillion dollars. All you have to do is take it.

[1]
[http://en.wikipedia.org/wiki/Marginal_utility](http://en.wikipedia.org/wiki/Marginal_utility)
[2]
[http://en.wikipedia.org/wiki/Risk_premium](http://en.wikipedia.org/wiki/Risk_premium)

~~~
adventured
You don't have many (zero?) opportunities to trade 10 minutes of your day for
a chance at a billion dollars. Particularly without spending any meaningful
amount of money or taking on any meaningful amount of risk. The substantial
problem with the stock market and casino versions, is you'll have to
constantly put your ever larger winnings at risk with each cycle upward. This
introduces an extraordinarily massive risk factor - to real assets - to the
equation, that you're not accounting for.

~~~
gibybo
>This introduces an extraordinarily massive risk factor - to real assets - to
the equation, that you're not accounting for.

No it doesn't. It's identical, except that rolling your bets gives you the
additional option which can only be considered more valuable.

And interestingly in this case, Buffet will actually provide the same
opportunity if it comes to it. If you get the first couple rounds of the
bracket correct, Buffet will be right there with a check offering to buy you
out of your position.

~~~
rahimnathwani
Upvoted.

If I had (only) 500m USD the chance of me letting it ride with 2x return and
50% chance of winning is precisely zero.

So, with the roulette example, I would never win 1bn USD. From what you say
about Buffet's early buy-out, the same may apply in this case.

------
rahimnathwani
If you are the first person to write a bot to automatically submit entries,
you could submit most/all of the allowed 10 million entries.

OK, maybe your IP would get banned, but what if you have access to a botnet
and, therefore, lots of IP addresses?

OK, maybe they have a captcha, but what if you trick your botnet victims into
filling in the captchas during their normal web browsing sessions, by
pretending to be a google bot-detection page?

OK, so you win, but the address is a random address that isn't yours. How much
would you have to give the person whose address it really is, to pretend you
live there? Half? Still not bad.

~~~
mattlutze
1 entry per household.

~~~
rahimnathwani
See the last paragraph. I am assuming you could use random, real addresses,
and split the winnings 50/50 with the real resident.

------
fuddle
Buffet also insured a Billion dollar lottery created by Andrew Warner of
Mixergy fame.. [http://youtu.be/j6RSaqf9NsI](http://youtu.be/j6RSaqf9NsI)

------
losvedir
How are the odds calculated as 1 in 4,294,967,296?

Completely random is 1 / 2^63 (1 in 9,223,372,036,854,775,808 or about ten
million times worse). Granted, they're not completely random, but it seems
like to get the odds they're saying you can take a LOT of the game outcomes
for granted. I don't follow March Madness that closely, so maybe that's the
case? Just seems odd for a tournament to have so many nearly guaranteed
outcomes.

~~~
gibybo
The article decided the odds were: 32 teams, each with a 50% chance of
winning, so the odds must be 1 in 2^32!

It's obviously wrong, of course, but journalists aren't typically known for
their statistical math backgrounds. Interestingly, this article claims you can
actually get the odds even lower, to about 1 in 1 billion:
[http://www.latimes.com/business/la-fi-buffett-basketball-
bet...](http://www.latimes.com/business/la-fi-buffett-basketball-
bet-20140122,0,7653962.story) using some more sophisticated team/player data.

~~~
jrs235
The journalist also ignored reality when calculating taxes owed too. They used
the $1 billion up front but they reported it'd be $25 million per year for 40
years (or one time payout of $500 million).

------
soup10
This is weird, besides the great odds straight up. It's extremely vulnerable
to match fixing.

~~~
hkmurakami
How many teams out of the 64 does someone realistically have to bribe in order
to have a good shot at getting the $1B?

~~~
velik_m
Just a few refs...

~~~
runevault
A few? There are a lot of refs involved in the tournament...

------
fsk
No, odds of a perfect bracket are closer to 1 in 2^47 than 1 in 2^63. The
reason is that a coinflip makes too many stupid picks, such as a #16 seed
beating a #1 seed. If you use the Sagarin ratings to generate a simulated
bracket, the odds of a perfect bracket are approximately 1 in 2^47.

If you're trying to win the perfect bracket challenge, you can do much better
than flipping a coin for each pick. Instead, flip a biased coin, with the
higher seed favored based on Sagarin rating.

[http://www.realfreemarket.org/blog/2013/03/16/what-are-
the-o...](http://www.realfreemarket.org/blog/2013/03/16/what-are-the-odds-of-
a-perfect-ncaa-tournament-bracket/)

[Picking mostly favorites is also a stupid strategy if you're trying to win,
because, if you do win, you're likely to be tied with others and split the
prize.]

------
e12e
"It’s not business income. Well, probably not. There are folks who enter
games, contests and sweepstakes for a living (remember that Julianne Moore
movie?) but that’s some serious dedication to the cause. Assuming that you did
enough research and really dedicated yourself to winning, you could possibly
treat it as your business (or more likely, a hobby). If you did, you would
report your winnings (of course) but could also deduct any reasonable expenses
associated with winning."

Well, it's a shame 1 billion probably wouldn't be enough to buy up all the 63
teams - and leave some winnings for the effort...

------
midas007
Given no information, the expectation of randomly guessing is around $ 0.16
USD.

But I suspect Voltaire and friends will find a way to win this. (The odds of
rigged games just went up 300%.)

------
TheBiv
When I first saw this, I thought "really cool" and then I thought about the
time that my friends and myself would spend towards developing "the perfect"
bracket.

I can't really decide if it's a good use of time bc time is not fungible
(easily replaced) or whether or not I am contributing to something that values
luck over hard work.

Or maybe I need to get some sleep and get off HN! :)

------
confluence
EV = Probability X Payout = (1/(4.29 X 10^9)) X (5 X 10^8) = 0.11 cents per
bet.

    
    
      Assuming equivalence of payments and probability FTA.
    

EV cost with 10^7 possible entries: (1/(4.29 X 10^9)) X (5 X 10^8) X (10^7) =
$1.1m

    
    
      Ignoring secondary prizes and solvency costs.
    

I read some more details about the insurance policy here:
[http://www.latimes.com/business/la-fi-buffett-basketball-
bet...](http://www.latimes.com/business/la-fi-buffett-basketball-
bet-20140122,0,7653962.story)

> _Miller, the Duke professor, came up with his 1-in-1-billion probability
> through an equation that placed games into categories ranging from close
> games that could go either way to near locks. Based on his finding, Buffett
> would need to charge a premium of about $10 million to break even against
> his expected results, Miller said._

> _" If I were Warren Buffett, anything over $10 million, I would probably do
> it," Miller said. "If $1 billion were going to ruin me, I wouldn't. But it's
> not going to ruin Warren Buffett."_

> _Buffett said his company is big enough to survive such a hit. "We've lost
> more money in a given event before," Buffett said. "Hurricane Katrina
> probably cost us $3 billion. "We will put more at risk in a given insurance
> transaction than anyone in the world. But we have more capital than anyone
> in the world."_

> _Berkshire Hathaway investors can take comfort in some news Buffett
> disclosed Tuesday. He said he would probably strike a deal — at
> significantly less than $1 billion — with anyone who gets deep into the
> tournament without missing a game._

> _" If you get to the Final Four with a perfect bracket, I may buy you out of
> your position," Buffett said. "I'll make you an offer you can't refuse."_

Buffett appears to be channelling Vito Corleone in that last statement right
there:
[http://www.youtube.com/watch?v=SeldwfOwuL8](http://www.youtube.com/watch?v=SeldwfOwuL8)

So assuming the new 1 in a 10^9 chance figure, we get:

EV cost: (1/(10^9)) X (5 X 10^8) X (10^7) = $5m

Now the previous time Buffett made this kind of a bet was here:
[http://en.wikipedia.org/wiki/Pepsi_Billion_Dollar_Sweepstake...](http://en.wikipedia.org/wiki/Pepsi_Billion_Dollar_Sweepstakes)

That had an EV cost of ~$1m as well
([http://www.bloomberg.com/news/2014-01-21/buffett-makes-
milli...](http://www.bloomberg.com/news/2014-01-21/buffett-makes-millions-
selling-500-to-1-monkey-linked-derivatives.html)), and he got paid a ~$10m
premium from Pepsi for that risk.

So I'm guessing the same is true in this case. That is a 10x EV cost premium,
with a range of ~$10m-$50m. I highly doubt that Quicken is willing to pay so
much, so it'll be biased towards the lower end of the range. At the end of the
day this is essentially a ~$10m-20m advertising project which uses free
distribution through news/blogs/PR releases/forums/TV/radio/word of mouth/mind
share, in addition to getting access to private consumer data when people sign
up for the competition (email/address/name/age/etc).

Hopefully Quicken will have more luck and consumer buy in than Pepsi had in
2003 ([http://www.psychologytoday.com/blog/the-decision-
tree/201306...](http://www.psychologytoday.com/blog/the-decision-
tree/201306/the-time-pepsi-offered-billion-dollars-and-nobody-cared)). I doubt
it though. The more likely outcome here is that Buffett made himself a cool
~$10m-20m in one day for doing very little work, since he doesn't pay for any
of the operational costs of the competition.

> _Jay Farner, Quicken 's president and marketing chief, said his company
> would benefit from the contest in two ways — news coverage and access to the
> email addresses of millions of potential customers. Anyone who enters the
> contest will have the option of receiving email offers from Quicken, he
> said._

Source: [http://www.latimes.com/business/la-fi-buffett-basketball-
bet...](http://www.latimes.com/business/la-fi-buffett-basketball-
bet-20140122,0,7653962.story)

~~~
xenophanes
The payout is $500m though, plus false advertising.

~~~
prewett
The payout is $25 million over 40 years = $1 billion. If you would prefer a
lump sum, then you get less, because $25 million forty years from now will not
be worth as much as it is now (assuming positive inflation). This is pretty
standard.

~~~
joosters
The point being, they never need $1 billion to pay out either version of the
prize. Hence, the prize is NOT worth $1 billion. If you take the 40 year
version and claim $25 million each year, the remainder of the cash could be
invested such that it will cover all the payouts eventually. You need far less
than a $1 billion investment to do this.

------
whizzkid
Story itself is not really interesting but a paragraph in the article got my
attention;

"The $1 billion will be paid in 40 annual installments of $25 million. Or if
you don’t want to wait around that long, you can claim a lump sum payment of
just half: $500 million."

Interesting!

Which one would be more effective if any of us would face this decision?

~~~
adventured
Take the lump sum every time.

The dollar has lost an immense amount of real value in the prior 25 years
(tracked against almost anything of consequential value), and the Feds / Fed
weren't being anywhere near as irresponsible as they have been lately. Taking
annual payments puts you up against having to match that devaluation just to
stay even. I don't like what might happen to the dollar in just 25 years,
particularly in the era of massively heightened currency competition likely to
put even more downward pressure on it (eg bitcoin and whatever comes next).

Also, while it's possible tax rates will be lower in the future, I'd bet
against that strongly given the bills we have coming due. I'd lock in today's
tolerable tax rates, versus potentially ending up with Carter era 70% rates or
79% to 94% (1930s-1950s era).

The only scenario I've seen that makes any sense, in which you shouldn't take
the lump sum, is if you have some personal circumstances that go beyond the
sheer math of the situation (eg you have an intense lack of personal control
over spending, and think you would manage smaller annual sums better, although
you can still borrow against annual payments and bury yourself; or perhaps if
you have an estate that you want annual payments to go through to your kids,
to prevent fighting over a larger lump sum; or if you actually think you can
significantly beat inflation).

~~~
TheCoelacanth
I have to disagree. In this case, the lump sum and the annuity are equivalent
if you get a 4.2% return on investment. You aren't going to find a risk-free
investment that gets a better return than that, so the only reason to take a
lump sum is if you want to invest in riskier investments. The decision comes
down to risk tolerance; there is no clear cut winner.

------
xzel
I'm disappointed by the 1 per household and million entry limit. I would
really like to see someone hit it.

------
sytelus
This seems to be ripe for attack through ML models. It should be easy enough
to create models and test it out on previous years to see its accuracy. May be
some of us can do ensembles of models with bunch of best predictions (Netflix
style!). Any idea where to get data sets for previous games?

~~~
adestefan
Says every naive sports gambler.

~~~
rfergie
"it should be easy" is always the killer

------
Houshalter
About a 0.2% chance of anyone out of the 10 million winning it (assuming they
all guess randomly which probably isn't true, meaning it's even higher than
that.) That's an expected payout of $2,328,306 for Buffet.

------
Ryel
I wonder if Nate Silver is disqualified..

~~~
shawn-furyan
I don't think that bracket submission interface supports the inclusion of
error bars, so I'm sure Nate is welcome :)

------
santialbo
Someone needs a 64 bit calculator.

------
JAFTEM
My brain had a hard time processing "billion" with a "B" in the title.

Anyway, it says your odds are a 1 in 4.2 billion for correctly picking the
winning 63 games. What that basically means is that we're going to find out if
time traveling exists sometime in March.

~~~
gibybo
Or uncaught match fixing :)

The article is very wrong about 1 in 4.3 billion being the odds though. That's
just 1 in 2^32 which isn't even close to the correct math for figuring the
odds.

Accounting for skilled handicapping, the consensus seems to be 1:1 billion
odds. Maximum 10 million entries, so there's roughly a 1 in 1000 chance we'll
have a legit winner (well, that would be assuming everyone played with near
optimal strategies).

