Five Things You Need to Know: Win the Battle, Lose the War
By Kevin Depew Oct 14, 2008 2:30 pm
Just like gamblers, some traders and investors are addicted to losing.
Kevin Depew's Five Things You Need to Know to stay ahead of the pack on Wall Street:
Win the Battle, Lose the War... The Phenomenon of Stu Ungar... Addicted to Losing... The Numbness of Winning... Gods of Wealth
Win the Battle, Lose the War
This is the very essence of gambling; many battles won, tickets cashed, pots raked in, pockets stuffed full of bills, all the while running in place as you slip inexorably toward destitution. I would like to tell you that it’s different, perhaps even as much as you might like to hear that it’s different, that the war can be won, that not all gamblers die broke, that the battles fought between the first post and the last pot matter in the end. But it is what it is. The truth is harsh.
Stu Ungar met the truth in a Las Vegas motel room in 1998, so far near the end of the Vegas strip he was practically off it. He was found dead in his bed, alone, with about $800 cash. But this was no ordinary steady bad-lucker. This was Stu Ungar, or Stuey the Kid, who had won back-to-back World Series of Poker titles by the time he was 27. It is estimated that Ungar won and lost about $30 million before meeting his end in that hotel room at the age of 45.
The Phenomenon of Stu Ungar
The Sunday New York Times in June 2005 ran a feature on the phenomenon of Stu Ungar. It made the front page of the Sunday Styles section. The newspaper at the same time began began a new “educational” feature on poker playing, similar to the Chess features, or Bridge features, that have run in newspapers around the country for years. Remember, this was 2005. Risk appetites were hot. I suppose it was about time poker entered the mainstream.
The reason the Stu Ungar story caught my eye then, and the reason I was reminded of it this morning, is because the article was able to draw a thin line between risk and ruin and even shade the line between the two with a bit of gambler’s wisdom. The thin line between risk and ruin is really just the faded, yellowed distinction between those who have already lost and those who still want to. According to the Times, “To his contemporaries, Ungar remains the ultimate gambler’s cautionary tale, the embodiment of hazardous risk. But to a wonky new generation of players, decked out in Oakley snowboarder sunglasses and iPods, schooled on Internet poker and striving for corporate sponsorship, Ungar is a renegade genius...”
A symbol of wasted talent - and reckless disregard - to some, Ungar is also a symbol of romantic rebellion - and reckless disregard - to others. Which category you fall into - wasted talent or romantic rebel - probably also describes your relationship with risk in general.
Addicted to Losing
I’m no stranger to a romanticized view of gambling and a tilted relationship with risk. When I was a kid my first job was on a golf course. I took lessons from the local golf pro - not in golf, but in making odds lines, taking bets on everything from Churchill Downs to the Cincinnati Reds to the British Open, and occasionally running them to the local liquor store to hand over to the bookie.
Later, my first "real" job out of college was working for the Daily Racing Form. Over the years I’ve met, literally, hundreds and hundreds of “professional” gamblers. But I can count on one hand the ones who were verifiable winners. Most were addicted to losing. After all, that’s the one addiction gambling feeds day in, day out - losing.
No positions in stocks mentioned.
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Reply
2008-10-14 14:55:06
It's not an addiction to losing its an addiction to almost losing. You have to win in order to stay in the game. The feeling of being almost out and rebounding is something to behold. I was in Morgan Stanley for the big loss on Friday and knowing that the whole company could disappear over the weekend was heightened by my experience with Lehman and Washington Mutual. Of course the Rally on Monday and into Tuesday was a great rush.
The thing is I wasn't playing Washington Mutual or Lehman thinking they were gonna lose. I was playing Washington Mutual on a thursday Knowing that the FED normally waits until friday to step in. I thought I had an edge but the government stepped in early and all was lost. I would of been out on friday if no progress had been made but the fed changed the rules. The gamble was acceptable to me as I saw the considerable upside of the bailout and a general feeling that Wamu was too big to fail. I had not anticipated A robbery of assets by fdic who sold them off at pennies on the dollar in an effort to insulate the fdic from risk while destorying the shareholders and the company.
Everything is a gamble to some degree or another but to say that people are addicted to losing is wrong. They are addicted to facing down loss and coming out ahead. Atleast thats what draws me.
The thing is I wasn't playing Washington Mutual or Lehman thinking they were gonna lose. I was playing Washington Mutual on a thursday Knowing that the FED normally waits until friday to step in. I thought I had an edge but the government stepped in early and all was lost. I would of been out on friday if no progress had been made but the fed changed the rules. The gamble was acceptable to me as I saw the considerable upside of the bailout and a general feeling that Wamu was too big to fail. I had not anticipated A robbery of assets by fdic who sold them off at pennies on the dollar in an effort to insulate the fdic from risk while destorying the shareholders and the company.
Everything is a gamble to some degree or another but to say that people are addicted to losing is wrong. They are addicted to facing down loss and coming out ahead. Atleast thats what draws me.
2008-10-14 14:58:58
Pricing risk
It seems to be a clear conclusion that the market, and in fact the economy, are not comprised of rational actors in the aggregate. In fact, in only very few cases are the actors rational, and then not for long.
This obvious fact blows 99% of all economic theorizing to smoldering bits.
This obvious fact blows 99% of all economic theorizing to smoldering bits.
2008-10-14 15:11:31
Pricing risk
Dean, one proof of this is that all the believers in efficient, rational markets now recite the mantra that limitless bazooka bailouts are necessary "because everything hinges on confidence".
In this bull market in irony, Mccain's aide was fired for calling a "mental recession". To a large extent, that is exactly what the Depression will be. The added comments about a "nation of whiners" may have sealed his fate, but we can let others debate that point.
In this bull market in irony, Mccain's aide was fired for calling a "mental recession". To a large extent, that is exactly what the Depression will be. The added comments about a "nation of whiners" may have sealed his fate, but we can let others debate that point.
2008-10-14 15:19:19
L R B
Have you heard about the Lonesome Loser?
Beaten by the Queen of Hearts every time.
Have you heard about the Lonesome Loser?
He's a loser but he still keeps on trying .Goodluck in the muck Minyan,JT
Beaten by the Queen of Hearts every time.
Have you heard about the Lonesome Loser?
He's a loser but he still keeps on trying .Goodluck in the muck Minyan,JT
2008-10-14 15:20:31
Pricing risk
Your "clear conclusion" is not at all clear to me. When people get up in the morning, go to work, earn a paycheck, pay a mortgage, save and invest for retirement, pay for kid's education, etc., that seems like rational actors to me, and that's the fundamentals of the economy. In the market, however, a different situation plays out. A fair market should be a guaranteed exchange. What has happened is that artifices (mortgages as securities) with unsupported derivatives (unfunded insurance) created and sold. That's not a fair market created by financial organizations, that's a shell game.
I have a small remaining principal on my mortgage, which is a small percentage of what I paid to build my house 12 years ago. I have put 10% of my gross income in savings/investments over my entire life. The recession is not the result of my actions. It's the result of people believing they (or the government) can spend what you do not have, or promise what you cannot pay, or allow someone to make a contract they cannot honor. All of those entail risk, because in life there are no guarantees. BUT, the risk needs to be low for everyone to protect the validity of the market.
I have a small remaining principal on my mortgage, which is a small percentage of what I paid to build my house 12 years ago. I have put 10% of my gross income in savings/investments over my entire life. The recession is not the result of my actions. It's the result of people believing they (or the government) can spend what you do not have, or promise what you cannot pay, or allow someone to make a contract they cannot honor. All of those entail risk, because in life there are no guarantees. BUT, the risk needs to be low for everyone to protect the validity of the market.
2008-10-14 15:44:31
Pricing risk
"Your "clear conclusion" is not at all clear to me. When people get up in the morning, go to work, earn a paycheck, pay a mortgage, save and invest for retirement, pay for kid's education, etc., that seems like rational actors to me, and that's the fundamentals of the economy."
Seems like the point about the game always changing was overlooked. The description defines a game that was rational at the outset, but taken too far, became drastically irrational and now appears to be over.
"A fair market should be a guaranteed exchange."
We can always hope, but that statement isn't rational either. Hope usually costs you money in my experience. You can't even get a guaranteed exchange from the grocery store it's not likely to occur in the capital markets.
I'm not arguing the morality or ethics of the matter. Many unethical and immoral acts occurred along the way, but they occur along all paths. Too many people believed they could win and in the end wanted to be playing the game more than they were concerned about losing. The divergence in income and house prices wasn't exactly a secret. Neither was it that in history that has never lasted.
Not exactly rational.
Seems like the point about the game always changing was overlooked. The description defines a game that was rational at the outset, but taken too far, became drastically irrational and now appears to be over.
"A fair market should be a guaranteed exchange."
We can always hope, but that statement isn't rational either. Hope usually costs you money in my experience. You can't even get a guaranteed exchange from the grocery store it's not likely to occur in the capital markets.
I'm not arguing the morality or ethics of the matter. Many unethical and immoral acts occurred along the way, but they occur along all paths. Too many people believed they could win and in the end wanted to be playing the game more than they were concerned about losing. The divergence in income and house prices wasn't exactly a secret. Neither was it that in history that has never lasted.
Not exactly rational.
2008-10-14 16:02:16
Pricing risk
Rational actors balance risk and reward. But, having just been subjected to human error prevention training, I can assure you that the most horrendous errors are made by smart people of good will who just slip up because they are tired, or arrogant, or under pressure to meet expectations.
The aggregate of all these imperfect people exercising imperfect judgment with imperfect information about an imperfect system that keeps changing in ways that invalidate experience as a guide cannot possibly be rational.
The aggregate of all these imperfect people exercising imperfect judgment with imperfect information about an imperfect system that keeps changing in ways that invalidate experience as a guide cannot possibly be rational.
2008-10-14 16:09:08
L R B
OMG! FLASHBACK! FLASHBACK!
NOT LITTLE RIVER BAND!! NOOOOooooooooooooooooooo
(Cowering in the subway toilet...sweating....shaking...MUST.... HAVE ....POWER CHORDS....
They burned down the gamblin' house
It died with an awful sound
Funky claude was running in and out
Pulling kids out the ground
When it all was over
We had to find another place
But swiss time was running out
It seemed that we would lose the race
Smoke on the water, fire in the sky
NOT LITTLE RIVER BAND!! NOOOOooooooooooooooooooo
(Cowering in the subway toilet...sweating....shaking...MUST.... HAVE ....POWER CHORDS....
They burned down the gamblin' house
It died with an awful sound
Funky claude was running in and out
Pulling kids out the ground
When it all was over
We had to find another place
But swiss time was running out
It seemed that we would lose the race
Smoke on the water, fire in the sky
2008-10-14 16:10:00
Fixations
Generically, repeating the same behavior over and over again regardless of the results.
A family member was fond of saying "If I had my brains and your money, I'd be a millionnaire". Of course that's back when a million bucks was real money. He always had a get rich scheme going - always the same result and died broke (well, he had a few small, temporary wins).
In an attempt to appear rational, a person with a fixation typically explains that they were expecting different results from their latest effort.
It would be nice to have a level playing field but some people always have deeper pockets - and like they say, the house always wins. In this case the house is the gov't which changes the rules and / or prints more money when things are not going their way.
Those with fixations are hooked, the others may have been scared away from the game for a long time.... and the worst is not even over yet.
Many Congressional careers depend on fixations.
A family member was fond of saying "If I had my brains and your money, I'd be a millionnaire". Of course that's back when a million bucks was real money. He always had a get rich scheme going - always the same result and died broke (well, he had a few small, temporary wins).
In an attempt to appear rational, a person with a fixation typically explains that they were expecting different results from their latest effort.
It would be nice to have a level playing field but some people always have deeper pockets - and like they say, the house always wins. In this case the house is the gov't which changes the rules and / or prints more money when things are not going their way.
Those with fixations are hooked, the others may have been scared away from the game for a long time.... and the worst is not even over yet.
Many Congressional careers depend on fixations.
2008-10-14 16:20:52
Pricing risk
When the 100 year flood comes every year, it is beyond time to re-designate the swamp from field to wetland.
The overall error is that the rational actors USED to be the majority of the activity in the system. 'Smart' people found ways to exploit rational actions to the point that the exploiters became the majority actors, with 'solutions' always increasing the exploitation instead of moderating it.
You can't predict where a tornado is going to be if you are in the middle of a hurricane. The stability vs. instability references are all wiped out. When the majority of economic activity became 'services', then the money flew around without solid references from available resources, and anything could happen, but the one thing that seemed to always happen was that the supply of money/debt paper seemed to increase to meet the demand for it. That was the single reference point used by all players in the game. Local and federal governments, corporations, banks, etc. all planned for perpetual growth without anchoring their plans with real people, real jobs, or real energy supplies. The growth projections became the standard floor to stand on for every decision.
Two words and I rest my case:
"Sustainable Growth"
The overall error is that the rational actors USED to be the majority of the activity in the system. 'Smart' people found ways to exploit rational actions to the point that the exploiters became the majority actors, with 'solutions' always increasing the exploitation instead of moderating it.
You can't predict where a tornado is going to be if you are in the middle of a hurricane. The stability vs. instability references are all wiped out. When the majority of economic activity became 'services', then the money flew around without solid references from available resources, and anything could happen, but the one thing that seemed to always happen was that the supply of money/debt paper seemed to increase to meet the demand for it. That was the single reference point used by all players in the game. Local and federal governments, corporations, banks, etc. all planned for perpetual growth without anchoring their plans with real people, real jobs, or real energy supplies. The growth projections became the standard floor to stand on for every decision.
Two words and I rest my case:
"Sustainable Growth"
2008-10-14 16:22:34
A long time ago, before I was even old enough to gamble, I watched John Patrick's "So You Wanna Be a Gambler" video series on how to win at Blackjack, Craps, etc. I don't remember whether to bet the pass line or take the odds, but I do remember the one lesson he always drilled home - money management. Be disciplined, pocket some winnings as you go along and quit when you lose a set amount.
Jack Schwager from Market Wizards fame basically came back with the same conclusion after interviewing the world's best traders. There is no holy grail. The only real secret is money management.
Thing is, that's the hardest rule to follow. Good money management means admitting your wrong, that your system doesn't work, that the market is "irrational," that you are outmatched, etc., etc.
Stu Ungar, Jesse Livermore, W.D. Gann, Vic Niederhoffer, Richard Dennison...the names can be interchanged between the gamblers and traders who have blown out their accounts numerous times. Whether it's a statistically improbable run of bad cards that wipes out your bankroll or tripling down on an investment that can't fail, it's always the same mistake. Most gamblers and traders eventually all fail the "are you disciplined enough to stay in the game?" test.
Jack Schwager from Market Wizards fame basically came back with the same conclusion after interviewing the world's best traders. There is no holy grail. The only real secret is money management.
Thing is, that's the hardest rule to follow. Good money management means admitting your wrong, that your system doesn't work, that the market is "irrational," that you are outmatched, etc., etc.
Stu Ungar, Jesse Livermore, W.D. Gann, Vic Niederhoffer, Richard Dennison...the names can be interchanged between the gamblers and traders who have blown out their accounts numerous times. Whether it's a statistically improbable run of bad cards that wipes out your bankroll or tripling down on an investment that can't fail, it's always the same mistake. Most gamblers and traders eventually all fail the "are you disciplined enough to stay in the game?" test.
2008-10-14 16:24:08
The markets are irrational they cannot be timed or predicted(I have tried for 50 years it doesn't work). This means that markets can only be traded(gambled). One can only guess on the risk to reward, it cannot be accurately predicted at best only a guess.
Everyday millions buy tickets in the lottery knowing they are not going to win, but the are hoping they beat the high odds(risk).
Trading(horse trading) has been around for a very long time, it was once called bartering(trading one thing for another). The only succesful traders are the ones who accurately predict the selling price of a item, then they know what a good buying price will be for them to make a profit. This is not gambling, but the foundation of business.
Your bet on any stock is that others will see value in the stock and create a demand which will cause the price to rise. Then by guessing when to sell you can make a profit. If others beat you at this game you lose. Before computers this could take a day or so, today it takes less than a minute.
As with gambling, are the odds stacked against you, of course they are. You will, by the odds always lose. Sure, if you are fast on your feet and beat others you can win(the best way is insider trading). The challange is to beat the others(like in poker).
There is real truth in the old saying"You spend your money and take your chances". Hoping luck is with you and you win. The ulitmate is the "whomever dies with the most toys wins".
Clyde
Everyday millions buy tickets in the lottery knowing they are not going to win, but the are hoping they beat the high odds(risk).
Trading(horse trading) has been around for a very long time, it was once called bartering(trading one thing for another). The only succesful traders are the ones who accurately predict the selling price of a item, then they know what a good buying price will be for them to make a profit. This is not gambling, but the foundation of business.
Your bet on any stock is that others will see value in the stock and create a demand which will cause the price to rise. Then by guessing when to sell you can make a profit. If others beat you at this game you lose. Before computers this could take a day or so, today it takes less than a minute.
As with gambling, are the odds stacked against you, of course they are. You will, by the odds always lose. Sure, if you are fast on your feet and beat others you can win(the best way is insider trading). The challange is to beat the others(like in poker).
There is real truth in the old saying"You spend your money and take your chances". Hoping luck is with you and you win. The ulitmate is the "whomever dies with the most toys wins".
Clyde
2008-10-14 16:48:37
Pricing risk
And so we come to the inevitable conclusion that the game is rigged.
Always has been, always will be.
We puny little peons can only hope to profit from the fallen scraps brushed off the table by the big boys, the players. We are the fleas on the elephants back.
Oh sure, we can learn trading rules and use discipline to improve our odds. That's why I love Black Jack. You have an actual chance above and beyond cosmic good luck.
But the bottom line is that we're small time players simply waiting for the next crumb to fall on the floor before we pounce. We carry no weight in this game. The elephants do.
Always has been, always will be.
We puny little peons can only hope to profit from the fallen scraps brushed off the table by the big boys, the players. We are the fleas on the elephants back.
Oh sure, we can learn trading rules and use discipline to improve our odds. That's why I love Black Jack. You have an actual chance above and beyond cosmic good luck.
But the bottom line is that we're small time players simply waiting for the next crumb to fall on the floor before we pounce. We carry no weight in this game. The elephants do.
2008-10-14 16:56:12
Thomas
That re-enforces probably the true holy grail.I remember Mr Harrison stating you cannot win the race unless you are around to finish.Thanks for bringing that back around.That is a very sacred rule of the game even when the house fixes some of the outcomes.Minyan,JT
2008-10-14 20:32:10
Government as addict
I thought the column was highly profound in depicting the US government as a burnt out gambler with nothing to lose. As one who has played poker for decades, I see a parallel with players who have lost their reserve stake, forced to go all in on a last big hand.
2008-10-14 20:50:57
Stu Ungar, Poker, Gambling
While Stu Ungar's poker skills are believed to be legendary by most, there are a few players who think he was not above cheating. I seem to remember playing him once, his ability to read what his opponents held was awsome. Still in one hold'em hand where there was Ace King King on the board, I bet at the end with nothing, out of desperation. Stu folded, showing me pocket Aces, saying "obviously you have Kings full", which his Aces full would have beaten. Sure puzzled all of us at the table.
It's not a good idea to base one's gambling philosophy on popular ballads. Indeed most gamblers lose in the long run: the vig (equivalent to commissions & bid-ask spread in speculation) may eat them up slowly or the standard deviation (risk) may blow them up fast. But I have known a few poker players that managed to overcome these obstacles and die winners. One was Bill Duarte, aka Boston Billy, who died last year. He always played within his (considerable) bankroll and relied on a form of the "greater fool theory", saying: "It's not my good play that wins, but the amazing number of people who just hand me their money at poker." All the permanent poker winners I've known seem to shun publicity, preferring to make their money in an unassuming manner.
It's not a good idea to base one's gambling philosophy on popular ballads. Indeed most gamblers lose in the long run: the vig (equivalent to commissions & bid-ask spread in speculation) may eat them up slowly or the standard deviation (risk) may blow them up fast. But I have known a few poker players that managed to overcome these obstacles and die winners. One was Bill Duarte, aka Boston Billy, who died last year. He always played within his (considerable) bankroll and relied on a form of the "greater fool theory", saying: "It's not my good play that wins, but the amazing number of people who just hand me their money at poker." All the permanent poker winners I've known seem to shun publicity, preferring to make their money in an unassuming manner.
2008-10-14 23:46:38
Deep Purple, Little River Band, Stu Ungar
Kevin,
Great article.
Not much big picture thinking out there, thanks for the perspective.
Interesting to summarize the responses too, paints a good picture.
To me the big gamble is societal upheavel from too many people gambling and not following the rules. At some point there's gonna' be a gunfight.
Great article.
Not much big picture thinking out there, thanks for the perspective.
Interesting to summarize the responses too, paints a good picture.
To me the big gamble is societal upheavel from too many people gambling and not following the rules. At some point there's gonna' be a gunfight.
2008-10-15 00:57:47
Great Article (and Thoughts on "Rational Actors")
Thanks for that slice of perspective...
There is no store from which you can buy the wisdom that comes from realizing "risk" in a big way. In fact, as you point out, even experiencing it, you might not learn from it what you should...
However, if you know that the lesson is coming and you have the presence of mind to stop and take "stock" of your risk realization experience - then you have a chance of really learning from it as you clean up the debris created from this experience...
This is why we need recessions...
This is why we need banks to fail...
As discussed above, the actors are NOT "rational", but that does not invalidate most economic theories of capitalism.
It might change some of the nuanced BS that they try to squeeze from the margins of "rational actor" theories, but the bottom line is that capitalism is the "least bad system" for allocating resources amongst mutually greedy, poorly informed, often irrational human beings...
Since we don't own any other kind of human - a system that still functions under those circumstances is pretty good...
All the pundits and politicians trying to sell a "more perfect" and "more decent" market theory are doing just that - "selling something".
Don't buy it that garbage. It's worth less than the garbage you see for 3 easy payments of $59.99 on late night TV...
"Messy", "imperfect", "irrational", "unfair".
This is as good as it gets when the market is purring like a kitten and I assure you that even with all these words - its better than the alternative which is a political elite making the decisions for you... You won't like their decisions one bit...
Politics decides based upon your proximity to the political elite.
Money doesn't care who you know or who is holding it - only that you acquired it... The best system is the one that gives you as many ethical ways to do so as possible and rewards ethical behavior with transparency premiums...
There is no store from which you can buy the wisdom that comes from realizing "risk" in a big way. In fact, as you point out, even experiencing it, you might not learn from it what you should...
However, if you know that the lesson is coming and you have the presence of mind to stop and take "stock" of your risk realization experience - then you have a chance of really learning from it as you clean up the debris created from this experience...
This is why we need recessions...
This is why we need banks to fail...
As discussed above, the actors are NOT "rational", but that does not invalidate most economic theories of capitalism.
It might change some of the nuanced BS that they try to squeeze from the margins of "rational actor" theories, but the bottom line is that capitalism is the "least bad system" for allocating resources amongst mutually greedy, poorly informed, often irrational human beings...
Since we don't own any other kind of human - a system that still functions under those circumstances is pretty good...
All the pundits and politicians trying to sell a "more perfect" and "more decent" market theory are doing just that - "selling something".
Don't buy it that garbage. It's worth less than the garbage you see for 3 easy payments of $59.99 on late night TV...
"Messy", "imperfect", "irrational", "unfair".
This is as good as it gets when the market is purring like a kitten and I assure you that even with all these words - its better than the alternative which is a political elite making the decisions for you... You won't like their decisions one bit...
Politics decides based upon your proximity to the political elite.
Money doesn't care who you know or who is holding it - only that you acquired it... The best system is the one that gives you as many ethical ways to do so as possible and rewards ethical behavior with transparency premiums...
2008-10-15 11:04:22
Yep
Talking to a close friend about what's going on I suddenly realized people really don't know what's going on.
I have been so wrapped up in this, so aware and prepared that I take for granted that everyone else . . . by now gets it.
They don't . . . and won't until the last loan is denied.
Our government doesn't get it and the crazy thing is Paulson doesn't get it.
A brief study of his creds and you come away with "this guy is smart and really cares". But he may have been so sheltered by the phenomenal success of Golden that he never realized that everyone else was gambling.
Minyan Terry
I have been so wrapped up in this, so aware and prepared that I take for granted that everyone else . . . by now gets it.
They don't . . . and won't until the last loan is denied.
Our government doesn't get it and the crazy thing is Paulson doesn't get it.
A brief study of his creds and you come away with "this guy is smart and really cares". But he may have been so sheltered by the phenomenal success of Golden that he never realized that everyone else was gambling.
Minyan Terry
2008-10-15 11:07:58
congrats, all around
Kevin *knows* his stuff is worth of respect.. so this is for the rest of you: I am calling this discussion thread out as the Best Discussion Ever. Kudos, my Minyan brethren !!
2008-10-15 11:27:05
Stu Ungar, Poker, Gambling
I used to shoot pool for money in my younger days. I was never a great player but I did pretty well because I tried to only play people I knew I could beat while many other, much more talented players, seemed to win money from poorer players and then turn around and give it back to players even more talented than themselves.
The moral being that the race is not always to the swift, nor the battle to the strong but sometimes just to the person who acknowledges his own limitations.
2008-10-15 11:38:06
Great Article (and Thoughts on "Rational Actors")
"Capitalism is the least bad system".
That may be true until it isn't.
Any system is as good as it's sustainability. Total free market capitalism is awfully destructive of its own resources. As with any System, it needs a responsive feedback mechanism that keeps people aware of ALL of the costs of its products.
Government is a delayed response in general, especially democratic government. The more localized the response to action, the tighter will be the moderation of the peaks and valleys.
That's why I think the FairTax plan is a good idea: at least all government costs would be at the point of purchase, and in times of crisis, immediate changes can be effected by only changing one thing: the rate.
It should have been conditional of the bailout: since the whole bubble was caused by overconsumption.
That may be true until it isn't.
Any system is as good as it's sustainability. Total free market capitalism is awfully destructive of its own resources. As with any System, it needs a responsive feedback mechanism that keeps people aware of ALL of the costs of its products.
Government is a delayed response in general, especially democratic government. The more localized the response to action, the tighter will be the moderation of the peaks and valleys.
That's why I think the FairTax plan is a good idea: at least all government costs would be at the point of purchase, and in times of crisis, immediate changes can be effected by only changing one thing: the rate.
It should have been conditional of the bailout: since the whole bubble was caused by overconsumption.
2008-10-15 13:00:45
Stu Ungar, Poker, Gambling
David G -- If you were smart enough to play within your limitations, and pick your spots then you were indeed a great player, better than those that could beat you whom you wisely did not play, but who shot pool against guys who could beat them.
2008-10-15 13:03:41
Great Article (and Thoughts on "Rational Actors")
It's important to realize that capitalism is a system where not all actors have equal inputs. T. Boone Pickens gets a bigger input into the system than Kevin Depew, even though Kevin is arguably smarter and less self-interested, because T. Boone has a lot more capital to throw around.
The corollary is that if the system incentivizes behavior by heavyweight actors which tends to destabilize said system, the system will *always* display instability which is harmful to all or most participants.
CEO compensation packages that encourage, even slightly, a boss to 'bet his company' on a risk because the worst that can happen is that the boss will be forced to retire with a massive 'golden parachute' while success will be rewarded with vast wealth is one such malincentive. Anything that socializes losses while profits remain private is another such malincentive. Government corruption is a third.
The corollary is that if the system incentivizes behavior by heavyweight actors which tends to destabilize said system, the system will *always* display instability which is harmful to all or most participants.
CEO compensation packages that encourage, even slightly, a boss to 'bet his company' on a risk because the worst that can happen is that the boss will be forced to retire with a massive 'golden parachute' while success will be rewarded with vast wealth is one such malincentive. Anything that socializes losses while profits remain private is another such malincentive. Government corruption is a third.
2008-10-15 14:38:54
Pricing risk
that may be, but I grow the grass for the elephants, too.
What goes around, comes around, and I'm willing to cannibalize what needs to be cannibalized to build the things I need.
We can eat elephants, we just have to use the Blue Elephant Gun.
If they're pink elephants, then hold their trunk until they turn blue.
What goes around, comes around, and I'm willing to cannibalize what needs to be cannibalized to build the things I need.
We can eat elephants, we just have to use the Blue Elephant Gun.
If they're pink elephants, then hold their trunk until they turn blue.
2008-10-15 14:48:17
Great Article (and Thoughts on "Rational Actors")
I like that term, "malincentive"....
Let's spread it around some more.
The tax system is a malincentive which puts bean counters in charge of engineering companies, thereby preventing products from reaching completion and generating such wonderful inventions as the plastic potato peeler, the toothpaste pump which doesn't empty the tube, and pretty much any gadget that cannot be repaired.
The electoral college is a malincentive to voting in small population states.
Legislative committee assignments by seniority are a malincentive to voter who want to get rid of incumbents.
Cheap food is a malincentive to better health.
No Child Left Behind is a malincentive to independent thought.
This is kinda fun...I better go check on the chicken.
Let's spread it around some more.
The tax system is a malincentive which puts bean counters in charge of engineering companies, thereby preventing products from reaching completion and generating such wonderful inventions as the plastic potato peeler, the toothpaste pump which doesn't empty the tube, and pretty much any gadget that cannot be repaired.
The electoral college is a malincentive to voting in small population states.
Legislative committee assignments by seniority are a malincentive to voter who want to get rid of incumbents.
Cheap food is a malincentive to better health.
No Child Left Behind is a malincentive to independent thought.
This is kinda fun...I better go check on the chicken.
2008-10-15 15:31:14
Great Article (and Thoughts on "Rational Actors")
Hi, Dean. You comment reminded me of something that's been sticking in my craw - thanks for prying it loose.
"..the worst that can happen is that the boss will be forced to retire with a massive 'golden parachute' ..." ..AND a serious blow to the ego, AND a massive loss of status and power, and basically the end of an entire career. In the worst case, a life bereft of meaning.
That's a fairly punitive package, taken all-in-all.
"..the worst that can happen is that the boss will be forced to retire with a massive 'golden parachute' ..." ..AND a serious blow to the ego, AND a massive loss of status and power, and basically the end of an entire career. In the worst case, a life bereft of meaning.
That's a fairly punitive package, taken all-in-all.
2008-10-15 15:34:05
Great Article (and Thoughts on "Rational Actors")
minor correction - the Electoral College gives more power to a vote in a small-pop state than it does to that same vote in a large-pop state. Mathematically.
2008-10-15 20:50:40
Pricing risk
Maybe in fact they are being "rational" - in the sense of "underperformance anxiety", "keeping up with the Joneses", conforming, being greedy, being fearful, doing unto others before being done to ...
To figure out the rationality of the irrational maybe we'd better read more Freud.
To figure out the rationality of the irrational maybe we'd better read more Freud.
2008-10-17 22:32:23
KD
The force is strong in this one.
My brother, the race was won long ago, yet you keep one-upping yourself.
Something stuck sideways in my noggin'; not sure i know where the new rules to the game have moved to? What we considered the former 'boundaries', do they still exist? When you own not only the bank, and the printing press, but the factory making the monopoly games and the dude rewriting the rules on the box as we go...what's a few more $$? You think double digit inflation is even a 2 sec choice for the Beard and the Bald vs the alternative? (something like the last scene in fight club?)
Dude.
We agree inflation may be the eventual enemy...but, if the high-end projected write-down for all of it is (just) another $1.3T - what the heck man, make it 2T, suspend contractual law on worldwide CDS and heck, bail all the hedgies too - my bra' hasn't Uncle Sam made it clear he's crossed the Rubicon on that? I mean, Cortez has already done lit the ships on fire.
No turning back.
Is there anything they won't do? After all, its fiat.
Is the congress (or RoW?) in a position to ever say 'no' again?
Man.
Looks like the VIX may just get used to a 7 handle.
My brother, the race was won long ago, yet you keep one-upping yourself.
Something stuck sideways in my noggin'; not sure i know where the new rules to the game have moved to? What we considered the former 'boundaries', do they still exist? When you own not only the bank, and the printing press, but the factory making the monopoly games and the dude rewriting the rules on the box as we go...what's a few more $$? You think double digit inflation is even a 2 sec choice for the Beard and the Bald vs the alternative? (something like the last scene in fight club?)
Dude.
We agree inflation may be the eventual enemy...but, if the high-end projected write-down for all of it is (just) another $1.3T - what the heck man, make it 2T, suspend contractual law on worldwide CDS and heck, bail all the hedgies too - my bra' hasn't Uncle Sam made it clear he's crossed the Rubicon on that? I mean, Cortez has already done lit the ships on fire.
No turning back.
Is there anything they won't do? After all, its fiat.
Is the congress (or RoW?) in a position to ever say 'no' again?
Man.
Looks like the VIX may just get used to a 7 handle.
2008-10-18 12:13:40
it is addiction to OCCASIONAL winning
This is from a psychology 101 book in the behaviorist section.In an experiment, pigeons rewarded with birdseed each time they poke a lever, give up quickly when you stop rewarding them. If you reward them for only the 10th peck of the lever, then stop rewarding them...they peck many many times before stopping...You can say they are addicted to losing, but it is just a variation of positive reinforcement. in gambling the occasional win, especially a big one once in awhile, is enought to keep people at it....The people never realize they are being bird brains...Since this is scientific evidence, much of gambling, including retail options should be outlawed or have limiting regulations to stop victimizing people. Our morality is not scientific. Churches have bingo night. States say their scratch tickets are for a good cause.
2009-11-23 02:10:05
fitch
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