Online Stock Trading

(At the end of this article is an update)

So far only two people have signed up and it ends tonight. The next person who signs up has a 33% chance of winning. Which brings me to a good point: “is it worth signing up?” A little surprised that more people haven’t signed up for it (it’s easy to do, just leave a comment), I decided to present this like a gambler would. If you play a lottery that costs you $10 to enter, and you have a 50% probability of winning, and if you win you earn $30 upon winning, should you play it?

The way to determine the answer is to create an “expected value.” The way to do that in this case is to determine that in long run (with the 50% chance of winning and $30 pot) you would win $15, on average in the long run. Because it only costs you $10 to enter, you would, on balance always make a profit. You will always (again in the long run) make $1.50 for every $1 you spend.

In casinos, most games will lose you a nickel for every dollar. Spend $1, get $0.95 back. In state-run scratch off tickets, it’s much, much worse.

But what of this Starbucks card? $10, no entry fee. This one’s a little different because the likelihood of winning decreases as more people enter. At what point does it become not worth it? It’s free to enter, and so far only two people have entered. The next person has a one-third chance of winning (assuming they don’t own a website and get a second entry). This means that they should expect a $3.33 payout for nothing. The next person after that, $2.50, them $2.00 (to match 25% then 20% chance of winning).

But because so few people have entered it, I must assume that there is some cost. So let’s say it’s the relative hassle of entering a comment. Also, let’s assume that if you were employed as a “comment enterer” the pay wouldn’t be that high (a teenager could do it). Pretending that comment entering could even earn you $8.00 an hour, then how much would entering a comment cost you? It takes 8 seconds to say “enter me” and hit submit—the cost would be less than two cents.

So, the third person who enters will lose two cents of their time, for $3.33 in expected winnings. That’s $3.33 earned in 8 seconds! As an hourly rate, that comes out to $1,494.67 an hour exactly. As more people sign up, the probability of winning decreases and so would the hourly rate, but even still the 25th person to sign up would earn, in the long run with a game like this, $172.32 an hour for their time spent submitting “enter me” to my post. At some point this earning power passes below the $8 an hour—it’s at 281. The 281st person would still make just over $8 an hour, but the 282nd person would make just less. Remember now, only two people have signed up.

Looking at it this way, how says you now? Here is the card giveaway post.

And for the geeks out there, here’s the expected value table.

(***Update: Since posting this, there are now 5 people signed up, 1 with a site post, for a total of 6 entries)