Difference between revisions of "1499"

Explain xkcd: It's 'cause you're dumb.
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==Explanation==
 
==Explanation==
 
{{incomplete|Very early draft.}}
 
{{incomplete|Very early draft.}}
In economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets to make risk-free profit by buying in the market with a lower price and simultaneously selling in the market with the higher price.  In real-world liquid financial markets, the possibility of arbitrage ensures that there is only a single price for a given product, since if a product is available for a low price in one market and a high price in another, the buying and selling of arbitrageurs will bid the price up in the low-price market and down in the high-price market until the prices are equal.
+
In economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets to make risk-free profit by buying in the market with a lower price and simultaneously selling in the market with the higher price.  In real-world {{w|Market liquidity|liquid financial markets}}, the possibility of arbitrage ensures that there is only a single price for a given product, since if a product is available for a low price in one market and a high price in another, the buying and selling of arbitrageurs will bid the price up in the low-price market and down in the high-price market until the prices are equal.
  
Some place is giving away unlimited free chips while Cueball and Buzzcut are eating there -- effectively a market selling chips for $0. Buzzcut is taking advantage of this fact to turn a profit for himself by collecting the chips and attempting to resell them at a higher price elsewhere. In the real world one wouldn't be allowed to carry bags full of chips out of the restaurant, nor would there be many buyers for chips taken from a restaurant in this manner, so one is not expected to try to do this.  In financial terms, the extreme illiquidity of the chip market is what allows the obvious arbitrage opportunity to persist indefinitely.
+
The place where [[Cueball]] and [[Hairy]] are eating is giving away unlimited free chips -- effectively a market selling chips for $0. Hairy is taking advantage of this fact to turn a profit for himself by collecting the chips and attempting to resell them at a higher price elsewhere. In the real world one wouldn't be allowed to carry bags full of chips out of the restaurant, nor would there be many buyers for chips taken from a restaurant in this manner, so one is not expected to try to do this.  In financial terms, the extreme illiquidity of the chip market is what allows the obvious arbitrage opportunity to persist indefinitely.
  
Randall suggests that society only functions because we don't take people like Buzzcut to dinner.  On the face of it, this means not taking people like that to dinner since they would abuse any complimentary parts of the meal, but Randall also suggests that it goes deeper that this.  A distinguishing feature of social animals, rather than animals simple sharing habitat, is that they perform tasks that benefit their group.  All such societies rely on some situations where the individual is not working purely on short term self interest.  The payoff for this is generally that co-operation makes things better for the group as a whole, or perhaps just individuals who closely share genes (e.g. helping your children/nephews/nieces).  Complex human society equally needs people to not act as pure arbitrageurs all the time and respect each other.  An upshot of these evolution is that most people would find Buzzcut's behavior embarrassing and shameful, and thus would not socialize we people who behave like that.  That is, such individuals would be rejected from society.  By rejecting such individuals, society protects itself from such people.
+
Randall suggests that society only functions because we don't take people like Hairy to dinner.  On the face of it, this means not taking people like that to dinner since they would abuse any complimentary parts of the meal, but Randall also suggests that it goes deeper that this.  A distinguishing feature of social animals, rather than animals simple sharing habitat, is that they perform tasks that benefit their group.  All such societies rely on some situations where the individual is not working purely on short term self interest.  The payoff for this is generally that co-operation makes things better for the group as a whole, or perhaps just individuals who closely share genes (e.g. helping your children/nephews/nieces).  Complex human society equally needs people to not act as pure arbitrageurs all the time and respect each other.  An upshot of these evolution is that most people would find Hairy's behavior embarrassing and shameful, and thus would not socialize we people who behave like that.  That is, such individuals would be rejected from society.  By rejecting such individuals, society protects itself from such people.
  
There are some similarities between Buzzcut's behavior (extreme self interest) and sociopathic behavior.
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There are some similarities between Hairy's behavior (extreme self-interest) and sociopathic behavior.
  
(Another, related, issue is the poor [http://en.wikipedia.org/wiki/Fungibility fungibility] of chips.  Chips that are factory-sealed in a bag or served in a restaurant are served in a context where cleanliness and food safety practices can be assumed to have been followed.  Chips sold from an open bag by some random person do not have that expectation associated with them and would not expected to command as high a price.)
+
(Another, related, issue is the poor {{w|fungibility}} of chips.  Chips that are factory-sealed in a bag or served in a restaurant are served in a context where cleanliness and food safety practices can be assumed to have been followed.  Chips sold from an open bag by some random person do not have that expectation associated with them and would not expected to command as high a price.)
  
 
Title text
 
Title text
  
In economics, the invisible hand is a metaphor used by Adam Smith to describe unintended social benefits resulting from the individual actions of self-interested parties.  In the context of arbitrage, the "invisible hand" compels all of a given fungible substance to be sold for the same price, as a result of the actions of individuals like Buzzcut who are only seeking personal profit.
+
In economics, the invisible hand is a metaphor used by Adam Smith to describe unintended social benefits resulting from the individual actions of self-interested parties.  In the context of arbitrage, the "invisible hand" compels all of a given fungible substance to be sold for the same price, as a result of the actions of individuals like Hairy who are only seeking personal profit.
  
 
==Transcript==
 
==Transcript==
[Cueball and Buzzcut are sitting at a table with a bowl of chips in the middle. Buzzcut has one hand in the bowl of chips, and the other hand behind him in a large bag marked "Chips".]
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[Cueball and Hairy are sitting at a table with a bowl of chips in the middle. Hairy has one hand in the bowl of chips, and the other hand behind him in a large bag marked "Chips".]
  
Buzzcut:
+
Hairy:
 
:'''They're''' the ones giving chips away!
 
:'''They're''' the ones giving chips away!
 
:If they don't see the arbitrage potential, sucks for them.
 
:If they don't see the arbitrage potential, sucks for them.

Revision as of 13:52, 16 March 2015

Arbitrage
The invisible hand of the market never texts me back.
Title text: The invisible hand of the market never texts me back.

Explanation

Ambox notice.png This explanation may be incomplete or incorrect: Very early draft.
If you can address this issue, please edit the page! Thanks.

In economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets to make risk-free profit by buying in the market with a lower price and simultaneously selling in the market with the higher price. In real-world liquid financial markets, the possibility of arbitrage ensures that there is only a single price for a given product, since if a product is available for a low price in one market and a high price in another, the buying and selling of arbitrageurs will bid the price up in the low-price market and down in the high-price market until the prices are equal.

The place where Cueball and Hairy are eating is giving away unlimited free chips -- effectively a market selling chips for $0. Hairy is taking advantage of this fact to turn a profit for himself by collecting the chips and attempting to resell them at a higher price elsewhere. In the real world one wouldn't be allowed to carry bags full of chips out of the restaurant, nor would there be many buyers for chips taken from a restaurant in this manner, so one is not expected to try to do this. In financial terms, the extreme illiquidity of the chip market is what allows the obvious arbitrage opportunity to persist indefinitely.

Randall suggests that society only functions because we don't take people like Hairy to dinner. On the face of it, this means not taking people like that to dinner since they would abuse any complimentary parts of the meal, but Randall also suggests that it goes deeper that this. A distinguishing feature of social animals, rather than animals simple sharing habitat, is that they perform tasks that benefit their group. All such societies rely on some situations where the individual is not working purely on short term self interest. The payoff for this is generally that co-operation makes things better for the group as a whole, or perhaps just individuals who closely share genes (e.g. helping your children/nephews/nieces). Complex human society equally needs people to not act as pure arbitrageurs all the time and respect each other. An upshot of these evolution is that most people would find Hairy's behavior embarrassing and shameful, and thus would not socialize we people who behave like that. That is, such individuals would be rejected from society. By rejecting such individuals, society protects itself from such people.

There are some similarities between Hairy's behavior (extreme self-interest) and sociopathic behavior.

(Another, related, issue is the poor fungibility of chips. Chips that are factory-sealed in a bag or served in a restaurant are served in a context where cleanliness and food safety practices can be assumed to have been followed. Chips sold from an open bag by some random person do not have that expectation associated with them and would not expected to command as high a price.)

Title text

In economics, the invisible hand is a metaphor used by Adam Smith to describe unintended social benefits resulting from the individual actions of self-interested parties. In the context of arbitrage, the "invisible hand" compels all of a given fungible substance to be sold for the same price, as a result of the actions of individuals like Hairy who are only seeking personal profit.

Transcript

[Cueball and Hairy are sitting at a table with a bowl of chips in the middle. Hairy has one hand in the bowl of chips, and the other hand behind him in a large bag marked "Chips".]

Hairy:

They're the ones giving chips away!
If they don't see the arbitrage potential, sucks for them.

[Below the main frame]: In a deep sense, society functions only because we generally avoid taking these people out to dinner.

[Title Text]: The invisible hand of the market never texts me back.


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