Monkeys Throwing Darts
In addition to his rumination on luck, Samuel Goldwyn is believed to have sardonically remarked: “forecasts are difficult to make, particularly those about the future.” How prophetic he was. Gambling – the toss of a coin, roll of a dice, spin of a wheel, draw of a card, call or raise of a hand, scoring of a goal, rise or fall of a share price – is fundamentally about making forecasts about the future in environments of risk or uncertainty. Thus far, we’ve talked a lot about why we’re drawn to speculating on unknowns; we’ve talked about how we value them and how we rationalise them; we’ve even talked about why we want to control them. Now let’s turn our attention to whether we are actually any good at predicting them. Is the forecasting of unknowns for financial gain a game of skill or mostly a game of chance? Evidently, for pure gambling in casinos or on the lottery, the answer is fairly obvious: it’s a loser’s game, at least in terms of mathematical expectation, although our Palaeolithic pattern interpreter and belief engine manage to fool some of us into believing the contrary. Yet, for almost all of us speculatively gambling in markets of psychology – betting, poker, trading and investing – the evidence suggests we might just as well be monkeys throwing darts here too. Trying to make predictions based on where they land, as we will see, is just as good as anything else.
Next: Ginsberg’s Theorem