silver russian roulette?

C

CFP

New Member
I just had this idea, no I would never do it but would you have a punt on this?

If there was a store that sold 1 oz silver bars cheaper than anywhere else, so at the moment silver is
19.79 an oz and pb is selling around the 24-25 mark.

If you could get silver at say 21-22 an oz you would definitely take it, right?

But what if there was a catch?

Would you buy silver for 2-3 dollars less an oz if the store you were buying it from put a fake silver bar in every 10-15 bars at random intervals?

The whole process would be transparent, you would receive your package of say 10 bars and there would be a note saying, "oh no, you got one fake silver bar!"
As well as a marked silver bar denoting that it was fake.

All transactions would be video taped during the packing process showing what lots got what real and fake bars so you know that the company isn't sending out 3 out of 5 fake bars
for example. People could also leave feedback showing how many fake bars they got. All the bars would be xrf'ed on video to add to the transparent process.

The whole process would also be arbitrary, you could buy 10 bars and get no fake bars or you could buy 10 bars and get 2 fake bars. Sometimes you would be up, sometimes you would
be down, my question is would you have a gamble and risk it?
 
If it's 21, yes. If it's 22 no.

Take the worst case scenario where you get a fake every 10 ounces:
You buy 10 ounces at 210 and you get one fake, so you have 9 ounces for that money.

To buy 9 ounces from the other seller you spend 24(best case)X9 = 216.

To have 9 ounces, you spend 210 with the first dealer and 216 with the second. Where would you buy from?

If it's 22, then you spend 220 with the first and still 216 from the second, so the second is better (assuming still best price from the second, otherwise if 25 gambling is still better)

Edit: of course probabilities work only on large numbers, so this works only when buying an extremely large number of ounces. If it's only 10 ounces it's better to stick with the second dealer. Also, probabilities assume that the game is fair (no cheating, pure random events).

Edit2: with only a few purchases the game is unfair because the maximum you can get per purchase is all the bars real and the minimum is 60% real so there is more downside than upside. Extremely unlucky and you lose around 40%, extremely lucky and you gain max around 10%.
 
btw, even with the kind of security measures you described, it's still to easy for the Russian roulette dealer to cheat. He can simply send each and every package with 90%+ real ounces to himself and the ones with less than 90% real ounces to actual customers.
Statistics ok, videotaping ok, feedbacks ok (of course he can send feedbacks himself with various fake accounts).

So, in real life I would not buy from that guy in any case.
 
So buying silver with an element of gambling?

Why even procure and supply the fake silver bars? When the vendor deliberately buys a fake silver bar they're directly supporting the fake bar industry.

The fake bars are like the 'old maid', a unwanted valueless placeholder. We can ditch it altogether.

Just issue a message at time of purchase, every single bar is assigned a purchase reference.

RNG is programmed with parameters to generate a decimal between 0.00-1.00. If the number you 'roll' is under or equal to 0.05, you miss out on that bar despite paying for it. Link the random number generator (RNG) to an independent 3rd party (random.org could do something like this) who'd continually make their log available online.

Example:
Bar Reference/RNG/YesNo
0010552/0.52/YES, have your silver!
0010553/0.09/YES, have your silver!
0010554/0.13/YES, have your silver!
...
0010559/0.03/NO, unlucky! No silver for you!

Now, lets take an expected value approach to this proposition bet:

Assumptions:
-the dealer can source his bullion for $2.0 over spot per ounce
-using CFP's example of spot at $19.79 spot, thats $21.79/oz.t
-dealer sells at $22/oz.t (ultra low margin operation) compared to market retail at $24/oz
-the 'no bar' percentage is 1/20 (5%)
-19/20 times when the buyer pays for a bar they'll get a bar at $2 under the prevailing market retail price
-1/20 times the buyer pays for a bar but get nothing

So from the buyer's perspective:
19/20*(24.0-22.0) + 1/20*(-22.0) = +$0.85 per oz bought, compared to buying from market retail

From the seller's perspective:
1/20*(+21.79) + 19/20*(22-21.79) = +$1.289 per oz sold

So this prop bet reduces the dealer to the mathematical equivalent to a low-margin seller.

In any operation where odds operating, like casinos and insurance companies, there is also a need to maintain a reserve to protect against short-term fluctuations.

Realistically? The dealer would likely have little incentive to run this operation. He'd be barely recouping his costs.

Maybe the competition prices would adjust, the novelty factor wears off, or metal prices will fluctuate beyond their ability to hedge.
 
Agreed. I didn't want to comment on the seller's point of view earlier, but I immediately thought that he would have to cheat in order to make this system convenient to him.

Good idea to try to solve the trust problem using a random generator + public ledger managed by an independent third party. Still not perfect because it shifts the trust requirement to the third party entity. Now if you could only distribute the ledger and numbers generation among all the participants in the game and make it open source.....
 
This is just about the most surreal thread I've read here.

Why would any seller offer this, or any buyer take it?
 
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