Re:Reasons the banking crisis isn’t a repeat of 2008
by Dylan16807 on Saturday March 25, 2023 @06:47AM
(#35301371)
> Alice makes regular, extremely leveraged hedge purchases - perhaps even 100:1 or more - and just ignores the steady outflow of her premia.
If Alice wins after 10 bets, with 200:1 return, and she bets the same percent each time, the absolute best she can get is an 8x return on her initial bankroll.
> The issue (using your analogy) is that Bob is exposed to profound, unseen risks that are deeply discounted in the marketplace - he is "picking up nickels in front of a steamroller" as Taleb puts it.
For Bob to be "picking up nickels" that means Bob is getting ripped off on the things he's right about. If "right until you're wrong" involves tiny little rights and an enormous wrong, then sure it's not very appealing. But that needs to be stated explicitly. Without a qualifier, I expect "being right" to be at least coin flip odds. Because who cares if you can predict something that's 95% likely to happen?
If Alice wins after 10 bets, with 200:1 return, and she bets the same percent each time, the absolute best she can get is an 8x return on her initial bankroll.
> The issue (using your analogy) is that Bob is exposed to profound, unseen risks that are deeply discounted in the marketplace - he is "picking up nickels in front of a steamroller" as Taleb puts it.
For Bob to be "picking up nickels" that means Bob is getting ripped off on the things he's right about. If "right until you're wrong" involves tiny little rights and an enormous wrong, then sure it's not very appealing. But that needs to be stated explicitly. Without a qualifier, I expect "being right" to be at least coin flip odds. Because who cares if you can predict something that's 95% likely to happen?