Why do you think the link to investment strategy is silly? I just found this article last night and thought it was really useful, so if it’s giving me bad intuitions that would be good to know.
Isn’t real life somewhat like games #3 and #5 (the game doesn’t go on forever, but the “dealer” decides when you die quit), and applying the trick from game #6 really does help?
It’s silly because real investing doesn’t have consistent, known outcome probabilities, nor independent trials that multiply together that simply. Causal reasons outside the initial payout estimate hold FAR MORE sway than the casino-game-like toy problems would suggest.
No monetary activity in real life works like #3 - sure, you don’t know when you die, but you have MANY choices of what games to play while living, and you can change the games you play at will. In that sense, it’s a little like #5, but in reality there are a whole lot of non-monetary factors that matter, as long as your money is reasonably in range of your perceived peer group.
Game 6 shows the value of independent bets—you would achieve the same thing with one bet, run twice as often. The misleading part here is just how independent each bet (and each iteration of a bet-sequence) is. Sure, diversification of investments reduces variance, but this example is a pretty strange way to demonstrate it.
Why do you think the link to investment strategy is silly? I just found this article last night and thought it was really useful, so if it’s giving me bad intuitions that would be good to know.
Isn’t real life somewhat like games #3 and #5 (the game doesn’t go on forever, but the “dealer” decides when you
diequit), and applying the trick from game #6 really does help?It’s silly because real investing doesn’t have consistent, known outcome probabilities, nor independent trials that multiply together that simply. Causal reasons outside the initial payout estimate hold FAR MORE sway than the casino-game-like toy problems would suggest.
No monetary activity in real life works like #3 - sure, you don’t know when you die, but you have MANY choices of what games to play while living, and you can change the games you play at will. In that sense, it’s a little like #5, but in reality there are a whole lot of non-monetary factors that matter, as long as your money is reasonably in range of your perceived peer group.
Game 6 shows the value of independent bets—you would achieve the same thing with one bet, run twice as often. The misleading part here is just how independent each bet (and each iteration of a bet-sequence) is. Sure, diversification of investments reduces variance, but this example is a pretty strange way to demonstrate it.