Problem Set #3 clarification…

I just received an email from a Finance 4335 student who asked the following question pertaining to Problem Set 3 (due Thursday, September 19):

Q: On question 1 in problem set #3 it states that there is a 25% probability of losing $100. Does that imply that there is a 75% probability of winning $100?

Here’s my answer:

A: In this problem there are only two possible outcomes – in the loss state, the net worths of Messrs. Moe, Larry and Curley declines from $120 to $20 with probability .25. In the no loss state, their net worths remain intact at $120 with probability .75.

Now on Netflix: ‘The Pursuit’

Foreward by Dr. Garven: This is a highly informative and compelling documentary from the American Enterprise Institute which explains how free-market capitalism has pulled two billion people out of poverty since 1970. Here’s the summary:

“Professional musician turned intrepid economist Arthur Brooks travels around the globe in search of an answer to the question: How can we lift up the world together, starting with those at the margins of society? His journey takes him through the chaotic streets of Mumbai, a town in Kentucky left behind by the global economy, a homeless shelter in New York, a street protest in Barcelona, and a Himalayan Buddhist monastery. Along the way, he discovers the secrets not only to material progress for the least fortunate, but also true and lasting happiness for all.”



AEI’s ‘The Pursuit’ is now available on Netflix. Here’s what it taught me about free-market capitalism.

Matt Winesett | AEIdeas

Since 1970, the percentage of the world’s population living on starvation’s edge has decreased by 80 percent. That’s about two billion people pulled out of poverty, over six times the number of people who currently reside in the United States.

I learned that this weekend while watching “The Pursuit,” an AEI documentary now available on Netflix that follows Arthur Brooks around the globe in search of the answer to one question: How did this happen? Read more.




Arthur C. Brooks
Former AEI President
Arthur C. Brooks is a former president of the American Enterprise Institute (AEI). He concurrently serves as a professor of the practice of public leadership at the Harvard Kennedy School and a senior fellow at Harvard Business School. He was president of AEI from January 1, 2009, to June 30, 2019.

Reminder to Apply: V&C 2019 Weekend Honors Program: Entrepreneurship & Human Flourishing

Foreward by Dr. Garven: I am forwarding an email from Ms. Kate Westrick, who is with the American Enterprise Institute. The Values & Capitalism Weekend Honors Program: Entrepreneurship & Human Flourishing, which is scheduled for November 8-10 in Austin, TX, is a fantastic opportunity and I hope that some of you will be able to participate!


Good morning,

I just wanted to send a quick reminder about the upcoming Values & Capitalism Weekend Honors Program: Entrepreneurship & Human Flourishing. This program is a fully-funded, intensive three-day seminar on business and entrepreneurship for 25 Christian undergraduate students. The program will take place from Friday, November 8 to Sunday, November 10 and will be held in Austin, Texas. The deadline is just ten days away!

Participants will take part in three core tutorials – a team-oriented problem solving exercise, a Harvard Business School case study, and a discussion about faith, personal identity, and failing by design. Students will also engage in several practicums on design thinking, business model canvassing, career design, and vocational mapping. Beyond these sessions, students will have the opportunity to hear from prominent Christian business leaders and participate in site visits to local businesses.

You can learn more about this program and apply here! The application deadline is September 23. See below for more details.

If you are a student, we encourage you to consider applying for this opportunity!

Kind regards,

Kate Westrick
Academic Programs Assistant



November 8-10 | Austin, TX

The Weekend Honors Program: Entrepreneurship & Human Flourishing is an intensive seminar on business and entrepreneurship for 25 Christian undergraduate students from colleges and universities across the country. Unlike a traditional academic seminar, the program will consist primarily of hands-on exercises that encourage entrepreneurial thinking and integrate questions of faith with business. Based in Austin, Texas, this program will take place from Friday, November 8 to Sunday, November 10.




Friday, November 8

9:00 am Welcome and Introductions

9:30 am Tutorial I, Brian Brenberg

12:30 pm Tutorial II, Brian Brenberg

3:30 pm Practicum I, Haley Robison

7:00 pm Reception & Networking Dinner

Saturday, November 9

8:30 am Practicum II, Haley Robison

11:00 am Tutorial III, Brian Brenberg

2:00 pm Site Visit I

3:30 pm Site Visit II
6:00 pm Dinner & Conversation

Sunday, November 10

9:00 am Breakfast & Closing


Application Requirements

Candidates must submit:

  • An online application
  • A letter of recommendation
  • A personal statement
  • A resume
  • A transcript

Application Deadline:

Monday, September 23, 2019

Questions? Contact Kate Westrick

Also featured as one of “50 Things That Made the Modern Economy”: The Index Fund

Tim Harford also features the index fund in his “Fifty Things That Made the Modern Economy” radio and podcast series. This 9-minute long podcast lays out the history of the development of the index fund in particular and the evolution of so-called passive portfolio strategies in general. Much of the content of this podcast is sourced from Vanguard founder Jack Bogle’s September 2011 WSJ article entitled “How the Index Fund Was Born” (available at Here’s the description of this podcast:

“Warren Buffett is the world’s most successful investor. In a letter he wrote to his wife, advising her how to invest after he dies, he offers some clear advice: put almost everything into “a very low-cost S&P 500 index fund”. Index funds passively track the market as a whole by buying a little of everything, rather than trying to beat the market with clever stock picks – the kind of clever stock picks that Warren Buffett himself has been making for more than half a century. Index funds now seem completely natural. But as recently as 1976 they didn’t exist. And, as Tim Harford explains, they have become very important indeed – and not only to Mrs. Buffett.”

Warren Buffett is one of the world’s great investors. His advice? Invest in an index fund

Insurance featured as one of “50 Things That Made the Modern Economy”

From November 2016 through October 2017, Financial Times writer Tim Harford presented an economic history documentary radio and podcast series called 50 Things That Made the Modern Economy. This same information is available in book form under the title “Fifty Inventions That Shaped the Modern Economy“. While I recommend listening to the entire series of podcasts (as well as reading the book), I would like to call your attention to Mr. Harford’s episode on the topic of insurance, which I link below. This 9-minute long podcast lays out the history of the development of the various institutions which exist today for the sharing and trading of risk, including markets for financial derivatives as well as for insurance.

“Legally and culturally, there’s a clear distinction between gambling and insurance. Economically, the difference is not so easy to see. Both the gambler and the insurer agree that money will change hands depending on what transpires in some unknowable future. Today the biggest insurance market of all – financial derivatives – blurs the line between insuring and gambling more than ever. Tim Harford tells the story of insurance; an idea as old as gambling but one which is fundamental to the way the modern economy works.”

Stop Using 6-Digit iPhone Passcodes (Implications of Combinatorics for Personal Data Security…)

The article entitled “Stop Using 6-Digit iPhone Passcodes” clearly explains passcode security; even though the odds of guessing the right 6 digit sequence is (1/6)^10 = 1 in a million, a company called “Grayshift”  distributes software called “Graykey” which apparently can crack 6 digit passcodes in 3 days time (4 digits only take 2 hours)…

More on the St. Petersburg Paradox…

During today’s class meeting, we discussed (among other things) the famous St. Petersburg Paradox. The source for this is Daniel Bernoulli’s famous article entitled “Exposition of a New Theory on the Measurement of Risk“. As was the standard practice in academia at the time, Bernoulli’s article was originally published in Latin in 1738. It was subsequently translated into English in 1954 and published a second time that same year in Econometrica (Volume 22, No. 1): pp. 22–36. Considering that this article was published 280 years ago in an obscure (presumably peer-reviewed) academic journal, it is fairly succinct and surprisingly easy to read.

Also, the Wikipedia article about Bernoulli’s article is worth reading. It provides the mathematics for determining the price at which the apostle Paul would have been indifferent about taking the apostle Peter up on this bet. The original numerical example proposed by Bernoulli focuses attention on Paul’s gamble per se and does not explicitly consider the effect of Paul’s initial wealth on his willingness to pay. However, the quote on page 31 of the article (“… that any reasonable man would sell his chance … for twenty ducats”) implies that Bernoulli may have assumed Paul to be a millionaire, since (as shown in the Wikipedia article) the certainty-equivalent value of this bet to a millionaire who has logarithmic utility comes out to 20.88 ducats.

Finance 4335