Language is really interesting here. I've come to define gambling as putting money behind something where you don't have a real idea as to what the outcome will be, but it's not in your favor at all, so you do it anyway.
Sometimes I do this deliberately, just to break the spell and remind myself that more risk is necessary. Other times, I'll do it to learn about the process, but generally, gambling means you're going to lose (on average) more than you're going to win, and it's not an intelligent proposition in terms of risk/reward by definition.
With all that said, gambling is a good thing every now and then.
Yes it's not the colloquial definition of gambling, but rather the implication of gambling with uncertainty - in stark contrast to the absolute certainty of forecasting in our financial status quo.
I try to make sure I add a little uncertainty here and there, and you're 100% right, of course: the one thing that markets hate more than anything else is uncertainty! Even bad news is better than uncertain news, which is... well hey, it's silly.
Really great article, and a concept that I've given a lot of thought too, recently, as well. I've actually written an article that dives a little bit into how to think about valuing opportunities where the probabilities are well defined.
Another thing that I've been thinking about lately is the terminology we use. Betting on the outcome of a dice roll shouldn't be defined as risk at all because we can objectively determine whether the "buy-in" is favorable or not. So true risk should be reserved strictly for the unknown unknown.
So how do we classify the dice throw scenario if we don't want to use the word "risk"?
Well the standard descriptor for known unknowns would be "risk", defined as quantifiable uncertainty. Whereas unquantifiable uncertainty (unknown unknowns) would be colloquially recognized as "uncertainty".
Excellent post Aaron.
Language is really interesting here. I've come to define gambling as putting money behind something where you don't have a real idea as to what the outcome will be, but it's not in your favor at all, so you do it anyway.
Sometimes I do this deliberately, just to break the spell and remind myself that more risk is necessary. Other times, I'll do it to learn about the process, but generally, gambling means you're going to lose (on average) more than you're going to win, and it's not an intelligent proposition in terms of risk/reward by definition.
With all that said, gambling is a good thing every now and then.
Yes it's not the colloquial definition of gambling, but rather the implication of gambling with uncertainty - in stark contrast to the absolute certainty of forecasting in our financial status quo.
I try to make sure I add a little uncertainty here and there, and you're 100% right, of course: the one thing that markets hate more than anything else is uncertainty! Even bad news is better than uncertain news, which is... well hey, it's silly.
Really great article, and a concept that I've given a lot of thought too, recently, as well. I've actually written an article that dives a little bit into how to think about valuing opportunities where the probabilities are well defined.
https://riskpremiumresearch.substack.com/p/expected-value-primer
Another thing that I've been thinking about lately is the terminology we use. Betting on the outcome of a dice roll shouldn't be defined as risk at all because we can objectively determine whether the "buy-in" is favorable or not. So true risk should be reserved strictly for the unknown unknown.
So how do we classify the dice throw scenario if we don't want to use the word "risk"?
Well the standard descriptor for known unknowns would be "risk", defined as quantifiable uncertainty. Whereas unquantifiable uncertainty (unknown unknowns) would be colloquially recognized as "uncertainty".