orality has been contracted to write for the Society of Actuaries newsletter. Tim Heng, Associate at Corality, has kicked off our article services with an article illustrating how the Markov Chain and financial analysis can help you outgun your family when playing Monopoly. If you want a head start during your next family gathering, keep on reading.
When people think of board games, they usually think of Monopoly. A Google Images search for ‘board games’ offers Monopoly boards (or boxes) in 6 out of the first 10 images presented. It’s definitely a staple of most family homes and, as anyone who’s played the game knows, it frequently results in fights and frustration and many hours intense playing. However, this doesn’t have to be the case as Tim Heng’s article ‘Actuarial Monopoly – bringing Markov home to the family’ explains.
Markov Chains are commonly used in insurance and biological science to model movements in populations – they assist in analysing the probabilities of future behaviours or movements to make predictions about a population. This sort of analysis can be used in financial modelling, and can be applied when looking at board games.
After discussing how the Markov Chain can be applied to the Monopoly board Tim illustrates how Monopoly players can profit from applying the Markov Chain. Smart players start by calculating the steady state and consider the income associated with different properties on the Monopoly board. The expected value can then be calculated as the probability of landing in the steady state, multiplied by the rental income of the property. This in turn represents the average income per property roll showing us the true value of the Markov Chain analysis.
So if you want a head start during your next family gathering, you know what to do.
Read Tim Heng’s article ‘Actuarial Monopoly – bringing Markov home to the family’
The Society of Actuaries is a professional organisation serving 22,000 actuarial members in the US, Canada and worldwide. The SOA’s professional interest sections publishes newsletters containing articles of specific interest to their members. CompAct is the Technology Section newsletter, published quarterly, containing articles, book reviews and other information useful for actuaries.