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Explain xkcd: It's 'cause you're dumb.
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==Explanation==
 
==Explanation==
 
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{{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.
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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.
  
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.
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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 exist.
  
 
Title text
 
Title text

Revision as of 13:07, 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.

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 exist.

Title text

In economics, the invisible hand is a metaphor used by Adam Smith to describe unintended social benefits resulting from individual actions.

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".]

Buzzcut:

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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