[xianshou]

The PoW camp example is interesting, but the way this article talks about risk and return makes no sense. The author gives an example of a lottery with a $1m prize, funded by selling 1 million tickets at $1 each, then introduces a "Mr. Behemoth" who can buy as many tickets as he wants. Since he can buy 600k tickets to win 400k, for a 66% return at 3:2 odds, or even 900k tickets to win 100k for an 11% return at 9:1 odds, the claim is that he "has complete control over risk and return."

...No? The expected value is 0 in either case.

.6 * 400 + .4 * (-600) = 0

.9 * 100 + .1 * (-900) = 0

The ability to slice a given risk-return profile into different pieces, or different amounts of leverage, is called "finance". But Mr. Behemoth in this case has the same expected return as everyone else, so the example has nothing to do with "control of supply and demand."

[timerol]

It was so close to a good example, too. Increasing the payout to $1.1M would make the example make so much more sense. It's positive EV for everyone, but only Mr. Behemoth can control his variance. (This is ignoring finance.)

[haroldp]

That example was terrible. The ivory example was terrible. The housing market example is stupendously bad. Not a great article.