Tag Archives: simulation

Simulating Probabilities – The Monty Hall Problem

Psychology vs. Probability

Anyone old enough to remember the Monty Hall problem from the old TV Show Let’s Make a Deal? It’s a classic probability problem – but despite its simplicity, it can be hard to understand what choices to make to maximize your odds of winning.

This is the problem:

You are a contestant on a game show. The host displays three doors. One has the brand new car behind it while behind the other doors have goats behind them. Here’s a beautiful image of all possible options you would have: Continue reading

Price Volatility – Basic Brownian Motion

The Situation

You are a consultant who has been hired by a business that sells one commodity product. On December 31st the price is $100 per unit. The business owner wants to know what to expect by the end of January.

Your client gave you the message:

  • Prices are based off the the sales the previous day
  • Roughly 95% of the time, the price will be +/- $10 compared to the day before

With only a few minutes to make the call, how would you decide on what to expect for the end of January? Continue reading