Probability, small business and the government shutdown

I have a meeting scheduled for Washington, D.C. that includes federal employees and government contractors. Many of these people are not working now and the building where it is supposed to take place is closed. I had to decide whether or not to buy my plane ticket today and take advantage of the three-week advance purchase. The cost for a non-stop ticket from LA to DC was $320. The same ticket, bought with two-week advance notice was $580. So, what do I do?

If I know for sure that the government would stay shut down, I would calculate the loss from the ticket like this:

– $320 * 1   + $260 * 0 =   – $320

I would have  a 100% chance of losing the $320 on my non-refundable ticket and a 0% chance of saving $260 so I would be out $320 and therefore it would be a dumb idea to buy the ticket. On the other hand, if the government is for sure going to open up again, then my profit would be calculated like this

-$320 *0 +  $260 * 1 = $260.

The problem is, I do not have a crystal ball telling me what is definitely going to happen. What I do know is that a little bird told me the meeting will be cancelled if the government is still shut down in nine days, since it is not the sort of thing that could be pulled together (or cancelled) at a moment’s notice. I also know that my two probabilities in this case are mutually exclusive, either the government is shut down or it isn’t .

Since I stand to lose more than gain, if the odds are 50-50 I’m actually better off NOT buying the tickets

-320* .5  + 260*.5 =   -160 + 130 = -30

At a 55% probability of the government being open in the next nine days, I break even (well, I’d be out $1).

-320 *.45 = $144   ,  260 *.55 = $143

That’s not all, though. If we fly into DC we have to stay somewhere for a couple of days before we can fly home. That’s another $1,000 for two rooms for two nights (because two of us are sharing a room). So, my possible savings is 3 x 260 or $780 for three people but my possible loss is 3 x $320 plus $1,000 or $1960

With the equation

Profit or loss expected =  -1960* (shutdown probability) + 780*(not shutdown)

My break even point turns out to be 71.5%.  If there is only a 28.5% probability of a continued shutdown, my expected loss is 90 cents.

I can’t help but wonder how the shutdown is affecting the travel industry. We put off buying the tickets until the 11th hour – literally. I bought the last ticket past 11:30 pm on exactly 21 days before the departure date. I think there is probably less than a 28% chance the government will still be closed in nine days. On the other hand, I did factor in that our staff could meet in Washington with each other, and since we live in three different cities, that would be productive. If the government opens within the next three weeks, which seems more than a 28% probability, even if we don’t have the meeting originally planned, it will still be possible for us to get some work done. The Perfect Jennifer informs me that the Library of Congress has a lot of historical material that is unique and valuable for our game. She was in Washington doing research for us last year. There is also the fact that this was a meeting we did not have the option of skipping or re-scheduling.

Given my calculations, I wondered how many other businesses, small and large, are delaying travel and other government-related expenses, or canceling it altogether. Hopefully, everything will get worked out for me, although I feel bad for those other businesses, the hotels, restaurants, airlines that are not getting the business these weeks, and the people who work for them.

If it doesn’t work out, I will be pretty pissed off, because not only will I be out the money, but I don’t care what Jennifer says about the joy of historical research with primary documents, I’d much rather be home writing the next levels of the game or doing analyses for a client or writing a lecture on survival analysis. On top of that, we pay a lot of taxes – and just shut the hell up about you’re trying to save “hard-working taxpayers”. You know why you don’t see me at some idiot tea party rally waving a confederate flag? Well, in addition to the fact that I’m not an idiot, I’m right here in my office working hard so I can pay taxes, salaries and the electric bill. And if I pay out money on this trip for no real reason and then have to pay all over again to actually come out here for the meeting that was cancelled, then that will be LESS money I am paying in taxes because I will have LESS profit to pay taxes on. Not only is this stupid shutdown costing people money – including, potentially, me – but it is also reducing the tax revenue those people would pay.

Tell me again how this is supposed to be helping small business or the deficit?

Oh, well, since we will have Dr. Erich Longie with us, Maria suggested that if the government is still shut down, we can all go lobby to change the name of the Washington Redskins.

 

local_offerevent_note October 16, 2013

account_box AnnMaria De Mars

One thought on “Probability, small business and the government shutdown”

  • Couple suggestions:

    Check momondo.com. If you are not tied up to a specific airline, you can often find acceptable rates closer to your departure date and remove some of the risk out of the equation.

    For instance, momondo.com lists a direct flight by AlaskaAir at $293, departing 2 weeks from now. While there is no guarantee the same will be true in 9 days, the odds are good that you will be able to wait for confirmation .

    If you book hotel rooms through an online service like agoda.com, many hotels offer free cancellation with a fairly short notice. This factor removes the cost of hotel reservations entirely from the risk assessment since you can get your money back if the meeting ends up being cancelled..

    Nb: I have no experience with AlaskaAir, I have no idea if they are any good.

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