I was watching the mlb.tv broadcast of the Yankees spring training game against the Red Sox. In between innings they had local ads on and one of them was for a furniture store in Boston. The offer was intriguing, if the Red Sox won the world series several types of furniture would be retroactively free. I’m assuming the store owner has insured away his entire liability on the deal, but there are three interesting things involved.
1. How would the insurance company value the Red Sox chances of winning the world series? Would they simply use the Vegas odds which would give them their percentage, or would they use some other system?
2. Over at Marginal Revolution they’ve been discussing Knightian Uncertainty so if one knew how Bostoners viewed the Red Sox’s chances of winning the world series one could tell if they reacted differently to this then a simple flat percentage off.
3. One could find out (if there was enough data, unfortunately the sale only lasts until April, 16th) how customers changed their attitude towards the sale based on a Red Sox win or loss. If the Red Sox happened to have an injury in that time period you could get a good idea of how much the market valued that player.