Negotiate the Best Price for a Mattress

This Christmas I am getting a mattress from my parents for Christmas. I know, I'm so grown up. I'm actually getting bunk beds...in the shape of race cars...with GI Joe sheets. I can't wait! Well, don't tell the mattress salesman that. Don't tell him that I know what type of mattress that I want and that I want it very badly. I went into the store with my BATNA which was to keep the mattress that I currently owned and not buying a new one. My reservation price was my race car bunk bed which I valued at no more than $300, the GI Joe sheets would just be icing on the cake. I started off by anchoring with $200 as what I was willing to pay for the bunk beds that were sold at full price at $500. I had seen some race car bunk beds in the newspaper for $300 so I knew this was a realistic price. He countered with $900. I then began talking to him, making plenty of references to $200 to create some cognitive dissonance in him. He started talking about a $400 price. We finally comprised on a $275 which was below my reservation price! After the sale I found out that the lowest the bed would sell for directly from the manufacturer was $250. We both got a $25 value out of the transaction. What an equitable split!

You Have to be a Creditable Poker Player

Instead of doing my Strategic Management take home quiz the other night I went to play poker at a friend's house. It was a good strategic move, I made over $100 in less than two hours! But what about the cost maximization of the $4,000 class...that's for another post I think. This is about being a creditable poker player.

Six of us were playing a tournament style Texas Hold 'em poker game in which each player gets two face down cards and there are 5 communal, face-up cards in the middle of the table where any player can use to make the best possible 5 card hand. We all started with the same amount of chips and the person with all of the poker chips at the end wins. I'm a conservative player, I only bet when I have the top pair or think they someone is bluffing me. I got three great hands in a row. The first hand I bet big and had a couple of people match but then end up folding, not seeing my two face down cards. I did the same on the second hand. Finally on the third hand others thought I was bluffing at all of the hands but did not want to commit any more money to the pot. So I told them that if they matched the current bet I would commit to not bet anymore the rest of the hand and show them my cards. I had to make my previous plays credible so my opponents didn't think I was bluffing the whole time. I made my commitment irreversible by turning over my cards before I was required to in the game and I made it visible to all the other players which made it credible. You always want to be a credible poker player and always keep your commitments in life.

The Game of Rating your Peers

I recently finished a class project which, like many group projects in graduate school, we were asked to rate our fellow group member's contributions to the final project. These numbers would be used to determine members in a group members' grades in that group. For the first time in a group, my group decided beforehand that everyone would rate each person in the group equally. We all made a promise to each other to make a more beneficial outcome for all parties. I liked this idea, coming from a military background in which I was used to working in a team. I knew that a team worked better if everyone was working for the good of the entire team instead of for themselves. Instead of fighting over how big each others' pieces of the pie were, we were all working toward growing the pie. We grew a very large pie and had a great group presentation! When it came to rate the other group members I went to write in each person equally, but then I saw something on the rating form that I had never seen before, we were asked to rate ourselves as well as everyone else in the group. I thought, 'What is there to stop my fellow group members from rating themselves higher than everyone else, knowing that all of the other ratings would be the same, giving them the clear advantage as leader of the group project, deserving of a majority of the points. No one had come up with any threats to try to deter members from deviating from the plan." I also learned integrity while in the Army so I did what I said I was going to do, rate everyone in the group the same; however, I thought, 'If I did this next time I would find a way to make sure members didn't deviate from the agreed collusion."

My first thought was to ask my other group members to see their ratings before handing them in. This would give transparency which would deter members from cheating There also could have been some form of punishment. We could have written a contract beforehand stating if any group member deviated there would be a quick response rule like everyone else in the group would rate them the lowest. As I walked to turn in my group rating without having any of these measures set in place I thought to myself, 'Here's to trust! I'm glad that presentation is done with...'

The BCS Stystem: Just Play the Game

The final BCS Rankings of the year have just come out and we now know who will be playing in the largest 5 college bowl games this season, including the National Championship. My undergraduate school was the University of Southern California. We started out number 4 in the BCS polls and never could break into the top two teams to go to the National Championship, and this isn't the first year it has happened. The topic of the BCS system of picking college football bowl appearances even concerns President Obama who said he would "throw his weight around" on the matter and just recently Congress began looking further into the issue. The way the numerical ranking are derived from:

1. The Harris Intercollegiate Football Poll (114 human panelists),
2. The USA Today Coaches' Poll (59 human panelists) and,
3. The average of six computer rankings (the highest ranking and lowest ranking for each team are discarded)

Teams move up and down in the rankings a good deal depending on wins but more so on losses. In college football, teams in the National Championship game usually have either 1 loss or no losses. This year alone there are 5 teams without any losses, but only two will get to play in the National Championship game. The best way for teams to avoid this is to develop their conference schedule accordingly. The football season is a sequential game in which each team takes a turn each week playing another team. Each team has an opportunity to affect their ranking. This year there are 5 teams that went undefeated and three will not get to go to the National Championship. How can you avoid this and maximize your EMV...or BCS score. Universities can do this by setting their football game schedules. When deciding on whether to play an opponent or not schools must determine the probably that they will win the game and then what the payoff will be for the win. If it is an easy school then they may have a high probability of winning the game, but they don't gain much payoff in the BCS system rankings. On the other hand, they could schedule a more difficult team with a win with a higher expected payoff; however, they will have a higher probability of losing. Like stated earlier, even if you go undefeated you can not end up in the National Championship game! You must schedule the right amount of good opponents coupled with the best probability to give you your max EMV. EMV can take many things into account in college football scheduling such as the more difficult games earlier in the season can be advantageous because losses do not count against teams as do losses at the end of the season. Also, games scheduled during the day have a higher payoff because more people who vote on BCS see them. The BCS system is here to stay, you just got to play the game.

Winning can be a Curse

It's true, winning can be a curse. I'm not referring to winning the lottery and having more money along with more problems. I'm also not referring to winning a prize that is a negative price, I am talking about winning a contest be being the worst guesser.

This happened to a friend of mine, David, recently. He was moving from Fayetteville, NC and needed to sell his house. He was a residential real estate broker so he had a lot of knowledge on the subject of pricing his property. He had sold my house a couple of months prior. His home was a similar layout but the two lots our homes sat on were different significantly. However, he took his experience in selling my house and others in the area to set the asking price for his home. Within 48 hours of listing his property he had 3 different offers, with one of them actually being higher than the listing price! In this instance, getting a bid of higher than he listed the his house was a winner's curse.

Although technically a "winner's curse" is defined as a in a bidding situation, the winner with the highest bid is likely to pay more than the item is worth, but in this situation, David was the winning "bid" for the comparable houses in the area that were for sale at a higher price. David was listing his house price based off of the other like properties in area and his won quickly because it was priced too low. Why wouldn't David want to have his house under contract in 48 hours? Because these quick offers means that his listing price was obviously too low and he may not gotten his EMV. He got 3 bids at that price within 48 hours when the typical house is on the market for about 3 months!

So remember be careful when bidding and pricing items, even though you are a winner, you could be a loser, like my friend David.

Bill Belichick should have used Signaling to win the Sequential Football Game

New England coach Bill Belichick has been known for his in-game coaching as a great decision maker; however, this moniker recently came into question after electing to go for the 1st down on a 4th and 2 yards to go up by 6 points. Upon not converting 4th down, the Patriots turned over the ball, allowing the Colts to make the game winning drive in their come from behind win, 34-35. Brian Burke of the New York Times writes in his article:

With 2:08 left and the Colts with only one timeout, a successful 4th-and-2 conversion wins the game for all practical purposes. A conversion on 4th-and-2 would be successful 60 percent of the time. Historically, in a situation with 2:00 left and needing a TD to either win or tie, teams get the TD 53 percent of the time from that field position. The total win probability for the 4th-down conversion attempt would therefore be:

(0.60 * 1) + (0.40 * (1-0.53)) = 0.79 WP (WP stands for win probability)

A punt from the 28 typically nets 38 yards, starting the Colts at their 34. Teams historically get the TD 30 percent of the time in that situation. So the punt gives the Pats about a 0.70 WP.

The math makes sense, but does the strategic move in this game make sense? Football is essentially a sequential game in that as the offense lines up for a play, the defense chooses their defensive strategy. The statistics of whether or not to go for it on 4th down is known by both coaches; therefore, along with the historical data of the Patriots and Bill Belichick, the Colts knew that the Patriots would attempt to get the 1st down. So what should Bill Belichick have done to give his team a better probability of winning the game? By signaling. Bill Belichick could have called a fake punt as a signal to the Colts of the offensive play the Patriots were calling. In this play, the Colts would have set their defense to defend a punt, but the Patriots would have enjoyed the same statistical probability of converting the 4th down while reducing the Colts probability of not allowing the 1st down. The statistics of 70% and 79% chance of winning are too close to make a significant decision based on pure statistics alone. This game situation needs to be changed by an improper signal to attempt to change the Colts response to the Patriots move.