Forwarded: Are you trading or gambling?
We are in a moment in human history, where people are extremely inclined to invest in stock markets. This desire is reflected in the traffic surge on platforms and tools that allow common people to invest their money into financial instruments, such as stock brokerages.1 This trend brings in a lot of inquiries about “optimized” ways of dealing with unforeseen events, making bets, and the financial consequences.
It’s extremely intriguing to understand how people deal with the uncertainty in their lives. When making decisions and betting (putting Skin In the Game) on uncertain events, everyone struggles to define that thin line between gambling and educated guesses. It is important to acknowledge that such definitions are very subjective - shaped by many cultural, societal, and other opaque elements. Note that it is almost often convenient to characterize decisions that lost as gambles and attribute successes to “education and skill”.
This exposure to financial/personal randomness is not something new that humans face in this day and age. Discussions around chance, luck, and fortune have been omnipresent in our societies in the form of epics and stories - we have the great Mahabharata where the Pandavas bet and lost it all. Then there are ideas of prophecies, destiny, and morality associated with randomness that only increase the difficulty with decision-making.
Combine money, chance, decision making, and “skill” into a game and you have a recipe for hooking people in. When people perceive things in quantifiable amounts, it’s even easier to trick our brains into unreasonable decisions. Also, beware of comparing real-world problems to games - things are a lot more opaque in reality than we would like to believe.
This week’s article talks about 2 important mathematical concepts that we should try to be mindful of when making bets: