Game 3, and we get somewhere

So, games 1 and 2 were basic money lending games. Game 1, though simple to follow, was actually a sloppy nightmare behind the scenes. Paul always made 57 and Bottle always made 11. Bottle could make a million dollars, but Paul would always make 5+ times more. 

Game 2, much more difficult to follow on paper, was actually a very simple interest plan. Paul wanted a fixed rate of return, which in turn capped Paul's profit and resulted in a gradual transfer of liability. Each round cost less for Paul, so he made less profit, until Bottle didn't need Paul's money anymore. 

Now though, i have to try to show you a simple compound interest game. I don't mind saying that's much tougher. We have to know how compound interest works, and we have to place that formula in an actual real world context. Let's give it a shot. 

The formula for compound interest is: 

P (1 + r/n)^(nt), where P is the initial principal balance, r is the interest rate, n is the number of times interest is compounded per time period, and t is the number of time periods. 

Let's define our scenario (the numbers are arbitrary, by the way. We simply want to watch it play out no matter where it ends up): Paul says to Bottle "i'll give you $2,000, i only want 3%, compounded monthly, but i want a lump sum payment in 5 years." Bottle has absolutely no idea if that's a good idea or a bad idea, so he has to figure it out. Where do we start? 

We start by plugging in our numbers. 

P = 2,000

R = .03

N = 12 (12 months in a year)

T = 5 

2,000 (1 + .03/12)^(12×5) 

Plug that into your calculator and you get: 

2,323 

We assume Bottle is doing whatever he needs to do with that 2,000 (it's his working capital and he wants to make 2,323 from actually selling the book), let's see how many books Bottle has to sell. 

2323/15=155 books, or 31 books a year. That might seem insignificant, but remember it's only 1 book, and we don't know Bottle's actual situation. If only Bottle's closest friends buy it, then he shouldn't do it at all. If he has thousands of potential buyers a month, then it may or may not be worth it, but he's probably better off just borrowing a couple hundred from an actual friend (provided that friend offers Bottle a fair deal like in game 2). 

As you can see, we had to inject some real world criteria into this 3rd game, because it happens over time, and involve 20 times the money of our earlier scenarios. The longer the time, or the more money involved, the more difficult it will be to determine if the goal is achievable, because that interest will keep compounding every month. 5 years is relatively short, 25 years is a different story. In this actual scenario, with this actual book, it's not a good idea for Bottle to court small investors, but only Bottle can actually make that decision. 

Now, as the narrator, i've shown you a few lending scenarios and how they function. If i were to make a pedantic point of the whole thing, it would be this: if the vast majority of people can't do this for small numbers in a hypothetical sandbox like i have, then it is completely unethical to force them to make those choices about things that will affect them for decades, like cars, houses, career paths, insurance policies, higher education. People need to understand the systems their governments and banks use to make these kinds of financial decisions at large, and they need access to that ability to learn at all stages of life without the constant shock that greed is the primary motivation behind every major decision that affects the things they can't control. Education is not optional. It's not acceptable for any nation to deprive any of its citizens access to that education, the same way that's it's not acceptable to deny basic health and emergency services to people who cannot afford them, the same way it's not acceptable to discriminate based on gender or ethnicity or any other stereotype. I realize that i am merely the narrator acting like the world's dad, but Paul doesn't think he is particularly smart, Bottle doesn't think he is particularly good at anything, yet I think they have more integrity, determination, and inventiveness in their toenail clippings than many of the so-called most financially successful people in the world. Does that make us the Id, Ego, and Superego, respectively? I don't know, but i am probably more surprised than you that that's where we ended up. 

Thanks, Narry, i think Bottle, i mean I, can take it from here. That was quite the adventure, but i suppose we did learn something after all. I'm bizarro Stuart freakin' Smalley on the inside. Cheers.