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In 1956 two Bell Labs scientists discovered the scientific formula for getting rich. One was mathematician Claude Shannon, neurotic father of our digital age, whose genius is ranked with Einstein’s. The other was John L. Kelly Jr., a Texas-born, gun-toting physicist. Together they applied the science of information theory—the basis of computers and the Internet—to the problem of making as much money as possible, as fast as possible.
Shannon and MIT mathematician Edward O. Thorp took the “Kelly formula” to Las Vegas. It worked. They realized that there was even more money to be made in the stock market. Thorp used the Kelly system with his phenomenonally successful hedge fund, Princeton-Newport Partners. Shannon became a successful investor, too, topping even Warren Buffett’s rate of return. Fortune’s Formula traces how the Kelly formula sparked controversy even as it made fortunes at racetracks, casinos, and trading desks. It reveals the dark side of this alluring scheme, which is founded on exploiting an insider’s edge.
Shannon believed it was possible for a smart investor to beat the market—and Fortune’s Formula will convince you that he was right. William Poundstone is the bestselling author of ten nonfiction books, including Labyrinths of Reason and The Recursive Universe, both of which were nominated for the Pulitzer Prize. In 1956 two Bell Labs scientists discovered the scientific formula for getting rich. One was mathematician Claude Shannon, neurotic father of our digital age, whose genius is ranked with Einstein's. The other was John L. Kelly Jr., a Texas-born, gun-toting physicist. Together they applied the science of information theory—the basis of computers and the Internet—to the problem of making as much money as possible, as fast as possible.
Shannon and MIT mathematician Edward O. Thorp took the "Kelly formula" to Las Vegas. It worked. They realized that there was even more money to be made in the stock market. Thorp used the Kelly system with his phenomenally successful hedge fund, Princeton-Newport Partners. Shannon became a successful investor, too, topping even Warren Buffett's rate of return. Fortune's Formula traces how the Kelly formula sparked controversy even as it made fortunes at racetracks, casinos, and trading desks. It reveals the dark side of this alluring scheme, which is founded on exploiting an insider's edge. "Fortune's Formula may be the world's first history book, gambling primer, mathematics text, economics manual, personal finance guide and joke book in a single volume. Poundstone comes across as the best college professor you ever hand, someone who can turn almost any technical topic into an entertaining and zesty lecture."—The New York Times Book Review "Seldom have true crime and smart math been blended together so engagingly"—The Wall Street Journal
"An amazing story that gives a big idea the needed star treatment . . . Fortune's Formula will appeal to readers of such books as Peter L. Bernstein's Against the Gods, Nassim Nicholas Taleb's Fooled by Randomness, and Roger Lowenstein's When Genius Failed. All try to explain why smart people take stupid risks. Poundstone goes them one better by showing how hedge fund Long-Term Capital Management, for one, could have avoided disaster by following the Kelly method."—Business Week "Poundstone, a two-time Pulitzer Prize nominee, takes us from chalkboard to stock market and back as he explains the 'Kelly formula' for gambling through the lives of those who developed and exploited the system. It is a rollicking tale about money, mathematics and greed."—Bloomberg "A dazzling array of math geniuses, rogues, swindlers, Nobel Prize winners, gun-toting physicists—all massaging the formulas that give them an edge in creating fortunes."—George J. W. Goodman (aka "Adam Smith"), author of The Money Game and Supermoney "This is a wonderful tale of how mathematics got married to gambling and went off to honeymoon in Las Vegas, before finding ultimate happiness in the biggest casino of all—the world financial markets. Poundstone has produced a rogues' gallery of mobsters and mathematicians, kneecappers and handicappers, card sharps, professors, systems players, numbers runners, and number crunchers—the best 'investment advisers' you can find. Anyone interested in playing the markets should buy this book and read it immediately."—Thomas A. Bass, author of The Eudaemonic Pie and The Predictors "The true story of the intertwining lives of financial legends, mathematical geniuses and crooked mobsters. Who would you expect to win an intellectual battle between professional gamblers and Nobel Prize winners? This book confirms what I'd long suspected, that the successful gambler knows more about managing money than the most PhD-laden investment banker. Poundstone's book explains that knowledge, and you'll be surprised by its elegance and simplicity. A fascinating book, both a cracking good yarn and a practical guide for investment success."—Paul Wilmott, mathematician, bestselling author, and editor of Wilmott magazine "From bookies to billionaires, you'll meet a motley cast of characters in this highly original, 'outside the box' look at gambling and investing. Read it for the stories alone, and you'll be surprised at how much else you can learn without even trying."—Edward O. Thorp, author of Beat the Dealer and Beat the Market "What a fantabulous book! Fortune's Formula provides a deep but crystal-clear understanding of information theory, card-counting schemes, plunging necklines, mean-variance mapping, junk bonds sold short and gambler's ruin, all part of an epic suspense tale crowded with eccentric geniuses and cold-blooded killers. You'll never follow a horse race, push forward a casino chip or enter a market the same way again. Read this and weep for the edge you only thought that you had, then read it again for a real one."—James McManus, author of Positively Fifth Street ...
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Our Electoral System is Fundamentally Flawed, But There’s a Simple and Fair Solution
At least five U.S. presidential elections have been won by the second most popular candidate. The reason was a “spoiler”—a minor candidate who takes enough votes away from the most popular candidate to tip the election to someone else. The spoiler effect is more than a glitch. It is a consequence of one of the most surprising intellectual discoveries of the twentieth century: the “impossibility theorem” of Nobel laureate economist Kenneth Arrow. The impossibility theorem asserts that voting is fundamentally unfair—a finding that has not been lost on today’s political consultants. Armed with polls, focus groups, and smear campaigns, political strategists are exploiting the mathematical faults of the simple majority vote. In recent election cycles, this has led to such unlikely tactics as Republicans funding ballot drives for Green spoilers and Democrats paying for right-wing candidates’ radio ads. Gaming the Vote shows that there is a solution to the spoiler problem that will satisfy both right and left. A system
called range voting, already widely used on the Internet, is the fairest voting method of all, according to computer studies. Despite these findings, range voting remains controversial, and Gaming the Vote assesses the obstacles confronting any attempt to change the American electoral system. The latest of several books by William Poundstone on the theme of how important scientific ideas have affected the real world, Gaming the Vote is a wry exposé of how the political system really works, and a call to action. William Poundstone is the bestselling author of ten nonfiction books, including Labyrinths of Reason and The Recursive Universe, both of which were nominated for the Pulitzer Prize. At least five U.S. presidential elections have been won by the second most popular candidate. The reason was a “spoiler”—a minor candidate who takes enough votes away from the most popular candidate to tip the election to someone else. The spoiler effect is more than a glitch. It is a consequence of one of the most surprising intellectual discoveries of the twentieth century: the “impossibility theorem” of Nobel laureate economist Kenneth Arrow. The impossibility theorem asserts that voting is fundamentally unfair—a finding that has not been lost on today’s political consultants. Armed with polls, focus groups, and smear campaigns, political strategists are exploiting the mathematical faults of the simple majority vote. In recent election cycles, this has led to such unlikely tactics as Republicans funding ballot drives for Green spoilers and Democrats paying for right-wing candidates’ radio ads. Gaming the Vote shows that there is a solution to the spoiler problem that will satisfy both right and left. A system called range voting, already widely used on the Internet, is the fairest voting method of all, according to computer studies. Despite these findings, range voting remains controversial, and Gaming the Vote assesses the obstacles confronting any attempt to change the American electoral system. The latest of several books by William Poundstone on the theme of how important scientific ideas have affected the real world, Gaming the Vote is a wry exposé of how the political system really works, and a call to action. “Poundstone always writes with the premise that thinking can be entertaining. His latest book, Gaming the Vote, clearly reasoned, well-researched, and often amusing, deals with the crucially important question: How best does a government ‘by the people’ decide what to do? He does not find a definitive answer, but he shows why it is so difficult and prepares the citizen to face the question responsibly.”—Rush Holt, U.S. House of Representatives (NJ-12) "Americans’ most recent encounter with 'the spoiler effect' was in 2000, when Ralph Nader diverted enough votes from Al Gore in Florida, at least one poll suggested, to tip the election to George W. Bush. By Poundstone’s reckoning, four other presidential races were probably skewed by minor-party candidates—'an 11 percent rate of catastrophic failure,' he writes . . . Poundstone, the author of 10 previous books, has the popular science writer’s knack for wrapping difficult material in enticing anecdotes. How can you not be seduced by a book that uses the Hot or Not Web site to illustrate range voting?"—Mick Sussman, The New York Times Book Review
"William Poundstone's Gaming the Vote arrives amid unusually high reader interest in equitable voting. And Mr. Poundstone is a clear, entertaining explicator of election science. He easily bridges the gaps between theoretical and popular thinking, between passionate political debate and cool mathematical certainty."—Janet Maslin, The New York Times
"Gaming the Vote is about the problem of an election system that selects Candidate B when a majority would have preferred Candidate A. The book's author, William Poundstone, is not a political guy. He is a science writer. He writes not with a partisan's bile but with a technician's delight in explaining all the ways our democracy can give us what we don't want . . . This is a book that goes down easily. The reader who likes puzzles, math and politics will especially enjoy it . . . Poundstone is not a social scientist showing off but a storyteller."—Bruce Ramsey, The Seattle Times
“Poundstone always writes with the premise that thinking can be entertaining. His latest book, Gaming the Vote, clearly reasoned, well-researched, and often amusing, deals with the crucially important question: How best does a government ‘by the people’ decide what to do? He does not find a definitive answer, but he shows why it is so difficult and prepares the citizen to face the question responsibly.”—Rush Holt, U.S. House of Representatives (NJ-12)
“In 1948 economist Kenneth Arrow dropped a bombshell on political scientists. He proved that no voting system can be perfect. Poundstone’s eleventh book is a superb attempt to demystify Arrow’s amazing achievement, and to defend ‘range voting’ as the best voting system yet devised. His account is interwoven with a colorful history of American elections, from the corrupt politics of Louisiana to Ralph Nader as the ‘spoiler’ whose splitting of the Democratic votes helped elect George W. Bush. A chapter covers Lewis Carroll’s little-known valiant efforts to solve the voting problem. A raft of amusing political cartoons enliven Poundstone’s prose. There is no better introduction to the inescapable flaws and paradoxes of all voting systems than this eye-opening, timely volume.”—Martin Gardner, author of Are Universes Thicker than Blackberries? and more than 60 other titles
“Gaming the Vote is a witty, irreverent tour d’horizon of voting theories, voting theorists, and their quarrels. Unlike many academic brouhahas, the stakes here are high. Both citizens and politicians will delight in the tales Poundstone tells, but it won't always be easy to tell who’s right. Nevertheless, Poundstone cuts through a lot of the obfuscation and takes sides, which won’t please everybody.”— ...
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Prada stores carry a few obscenely expensive items in order to boost sales for everything else (which look like bargains in comparison). People used to download music for free, then Steve Jobs convinced them to pay. How? By charging 99 cents. That price has a hypnotic effect: the profit margin of the 99 Cents Only store is twice that of Wal-Mart. Why do text messages cost money, while e-mails are free? Why do jars of peanut butter keep getting smaller in order to keep the price the “same”? The answer is simple: prices are a collective hallucination. In Priceless, the bestselling author William Poundstone reveals the hidden psychology of value. In psychological experiments, people are unable to estimate “fair” prices accurately and are strongly influenced by the unconscious, irrational, and politically incorrect. It hasn’t taken long for marketers to apply these findings. “Price consultants” advise retailers on how to convince consumers to pay more for less, and negotiation coaches offer similar advice for businesspeople cutting deals. The new psychology of price dictates the design of price tags, menus, rebates, “sale” ads, cell phone plans, supermarket aisles, real estate offers, wage packages, tort demands, and corporate buyouts. Prices are the most pervasive hidden persuaders of all. Rooted in the emerging field of behavioral decision theory, Priceless should prove indispensable to anyone who negotiates. ...
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At least five U.S. presidential elections have been won by the second most popular candidate, but these results were not inevitable. In fact, such an unfair outcome need never happen again, and as William Poundstone shows in Gaming the Vote, the solution is lurking right under our noses. In all five cases, the vote was upset by a “spoiler”—a minor candidate who took enough votes away from the most popular candidate to tip the election to someone else. The spoiler effect is more than a glitch. It is a consequence of one of the most surprising intellectual discoveries of the twentieth century: the “impossibility theorem” of the Nobel laureate economist Kenneth Arrow. His theorem asserts that voting is fundamentally unfair—a finding that has not been lost on today’s political consultants. Armed with polls, focus groups, and smear campaigns, political strategists are exploiting the mathematical faults of the simple majority vote. The answer to the spoiler problem lies in a system called range voting, which would satisfy both right and left, and Gaming the Vote assesses the obstacles confronting any attempt to change the U.S. electoral system. The latest of several books by Poundstone on the theme of how important scientific ideas have affected the real world, Gaming the Vote is both a wry exposé of how the political system really works and a call to action. William Poundstone is the bestselling author of ten nonfiction books, including Labyrinths of Reason and The Recursive Universe, both of which were nominated for the Pulitzer Prize. At least five U.S. presidential elections have been won by the second most popular candidate. The reason was a “spoiler”—a minor candidate who takes enough votes away from the most popular candidate to tip the election to someone else. The spoiler effect is more than a glitch. It is a consequence of one of the most surprising intellectual discoveries of the twentieth century: the “impossibility theorem” of Nobel laureate economist Kenneth Arrow. The impossibility theorem asserts that voting is fundamentally unfair—a finding that has not been lost on today’s political consultants. Armed with polls, focus groups, and smear campaigns, political strategists are exploiting the mathematical faults of the simple majority vote. In recent election cycles, this has led to such unlikely tactics as Republicans funding ballot drives for Green spoilers and Democrats paying for right-wing candidates’ radio ads. Gaming the Vote shows that there is a solution to the spoiler problem that will satisfy both right and left. A system called range voting, already widely used on the Internet, is the fairest voting method of all, according to computer studies. Despite these findings, range voting remains controversial, and Gaming the Vote assesses the obstacles confronting any attempt to change the American electoral system. The latest of several books by William Poundstone on the theme of how important scientific ideas have affected the real world, Gaming the Vote is a wry exposé of how the political system really works, and a call to action. “Poundstone always writes with the premise that thinking can be entertaining. His latest book, Gaming the Vote, clearly reasoned, well-researched, and often amusing, deals with the crucially important question: How best does a government ‘by the people’ decide what to do? He does not find a definitive answer, but he shows why it is so difficult and prepares the citizen to face the question responsibly.”—Rush Holt, U.S. House of Representatives (NJ-12) "Americans’ most recent encounter with 'the spoiler effect' was in 2000, when Ralph Nader diverted enough votes from Al Gore in Florida, at least one poll suggested, to tip the election to George W. Bush. By Poundstone’s reckoning, four other presidential races were probably skewed by minor-party candidates—'an 11 percent rate of catastrophic failure,' he writes . . . Poundstone, the author of 10 previous books, has the popular science writer’s knack for wrapping difficult material in enticing anecdotes. How can you not be seduced by a book that uses the Hot or Not Web site to illustrate range voting?"—Mick Sussman, The New York Times Book Review
"William Poundstone's Gaming the Vote arrives amid unusually high reader interest in equitable voting. And Mr. Poundstone is a clear, entertaining explicator of election science. He easily bridges the gaps between theoretical and popular thinking, between passionate political debate and cool mathematical certainty."—Janet Maslin, The New York Times
"Gaming the Vote is about the problem of an election system that selects Candidate B when a majority would have preferred Candidate A. The book's author, William Poundstone, is not a political guy. He is a science writer. He writes not with a partisan's bile but with a technician's delight in explaining all the ways our democracy can give us what we don't want . . . This is a book that goes down easily. The reader who likes puzzles, math and politics will especially enjoy it . . . Poundstone is not a social scientist showing off but a storyteller."—Bruce Ramsey, The Seattle Times
"Bill Poundstone writes good books. His second and fourth, The Recursive Universe and Labyrinths of Reason were nominated for Pulitzer prizes. His classic Prisoner's Dilemma is among the best books about game theory ever written for a popular audience, and his Fortune's Formula tells the story of a little known gambling strategy that works wonders in casinos, at racetracks, and on Wall Street. His latest, on voting theory, is among his best. Moreover, it appears at a time when the political process seems receptive to reform . . . Poundstone invigorates what would otherwise be an abstract discussion of voting procedures by drawing pertinent examples from the pages of history."—James Case, Siam News
“Poundstone always writes with the premise that thinking can be entertaining. His latest book, Gaming the Vote, clearly reasoned, well-researched, and often amusing, deals with the crucially important question: How best does a government ‘by the people’ decide what to do? He does not find a definitive answer, but he shows why it is so difficult and prepares the citizen to face the question responsibly.”—Rush Holt, U.S. House of Representatives (NJ-12)
“In 1948 economist Kenneth Arrow dropped a bombshell on political scientists. He proved that no voting system can be perfect. Poundstone’s eleventh book is a superb attempt to demystify Arrow’s amazing achievement, and to defend ‘range voting’ as the best voting system yet devised. His account is interwoven with a colorful history of American elections, from the corrupt politics of Louisiana to Ralph Nader as the ‘spoiler’ whose splitting of the Democratic votes helped elect George W. Bush. A chapter covers Lewis Carroll’s little-known valiant efforts to solve the voting problem. A raft of amusing political cartoons enliven Poundstone’s prose. There is no better introduction to the inescapable flaws and paradoxes of all voting systems than this eye-opening, timely volume.”—Martin Gardner, author ...
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