Much has been made of Berkshire Hathaway's underwriting of Quicken Loans' $1 Billion NCAA Tournament contest. In terms of advertising, it's been a little bit of genius. Frankly, the only downside from Quicken's perspective is probably the fact that Warren Buffet's received more publicity than anyone involved in the scheme. That the Oracle of Omaha got paid several million dollars to underwrite an insurance policy for something that's simply not going to happen while also reaping substantial goodwill and publicity is yet more proof of the man's gift for wealth creation.
Like most (if not all) of you, I've entered the bracket. And like my occasional attempts to play the lottery, I'm well aware that I won't win. As I've said before, the entertainment value inherent in thinking about what I'd do with lottery winnings makes the $5 investment well worth it. In the case of the Billion Dollar Bracket, it doesn't even cost anything. Why wouldn't I give it a (long, long, long) shot?
No, I'm not going to win. Neither are you. But I'm intrigued by a thought experiment that the Quicken/Yahoo bracket contest has provoked. I first saw it on Andy Glockner's Twitter feed (@andyglockner), but it's seen broad play since. As Glockner contemplated it:
As the mathematically inclined in our midst would tell us, a 60% chance at the $1B yields an expected value of $600 million. Rationally, we know that $600m > $25m, which suggests that we should choose to roll the dice.
I'm here to tell you that 90% of Americans would take the bird in hand. I'm one of them. $25 million is life-changing, I'm-never-working-another-day-at-something-I-don't-love, set-my-family-up-for-generations money. (Even if it's actually only $13 million post-tax, you could put blow $3m on hookers and booze and still sock $10m away to earn $500k a year in interest with relative ease.) Different people obviously have different thresholds - I've got simple tastes, as you know.
Choosing to take the risk on on the big payday (even assuming a $1m consolation prize) yields a 40% chance of spending the rest of your life wondering what might have been. The psychological impact of that seems a heavy burden. But so does the regret that would follow if your team won the final game, which would mean you essentially made a $575m mistake.
I guess for me, at some point, enough is enough. Call it a $575m stress-reduction premium. And give me my money.