## September 27, 2010

### A Mathematical Evaluation of Prize Bonds

Prize Bonds are injected by banks into the cash-stream of general public to gather-up finance. It's a monetary control measure exercised world-wide. General public give-up their money in hope to be lucky and get rich over-night. Ofcourse, with the added advantage to recover their cash-amount at their will. But thats not what generally happens. People generally keep their bonds with them for many years in hope of success someday.

The evaluation of Prize Bonds being fake or not! is an entirely different story. But since these bonds are operating for long while, lets just consider them to be 100 percent genuine. Ofcourse, the Government can fake a winner. But since there are prize bonds of numerous denominations that are announced on monthly or even bi-monthly basis and since there are many winners of the prize bond of the same denomination - it will require a lot of faking from the Government.

They have thus devised, which i would call, a more mathematical way of dealing with the human psychology. We all are highly motivated with something which we consider is achievable, even if it is a prize bond (in which the probability is highly stacked against us). Same is the case with prize bonds. If the Government can somehow keep us interested in buying the prize bonds and retaining them for a longer period of time - they will consider it a 'job well-done'.

To achieve this, prize bonds are alloted a long (usually 6 or 7) digit number. Now here is the trick. Actually it is not a trick, rather a flaw of our minds. When we compare our prize bond number with the winner's prize bond number, we fail to realize the real difference between the two numbers.

For example, if the winner's number is 654321 and our number is 754321. We think of it as a difference of one number. We think that we are just short by one number and if we had a 7 instead of a 6 at the beginning of our prize bond, we would have won.

But that is not the case. The real difference is actually a big big one. There is a difference of 100,000 (754321 - 654321) between the two bond numbers.

In reality the two bonds were worlds apart from each other. We were never ever near the winner. But this never changes our decision regarding the future holding of prize bonds and we generally maintain our holdings in prize bonds for a much longer period.

If we can done simple mathematics and learn probability in our school life, we can surely make much more prudent decisions.