Editing 1499: Arbitrage
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==Explanation== | ==Explanation== | ||
− | In | + | 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 by 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 | + | 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 elsewhere. Any price higher than $0 would make him a profit. In the real world, one wouldn't be allowed to carry large bags full of chips out of the restaurant, nor would there be many buyers for chips taken from a restaurant in this manner, so this is not expected to work even if reactionary server slow down, and a minimum paid order per unit time rule were ignored. In financial terms, the extreme illiquidity of the chip market is what allows the obvious arbitrage opportunity to persist indefinitely. 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 be expected to command as high a price as they do in a restaurant transaction. |
− | + | In the title text, Randall suggests that society only functions because we don't take people like Hairy out "to dinner", i.e., we generally have an aversion to dealing with people with such extreme self-interest, bordering on sociopathic behavior. A distinguishing feature of social animals, rather than animals simply sharing a 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. Most people would find Hairy's behavior embarrassing and shameful, and thus would not socialize with people who behave like that. By rejecting such individuals, society protects itself from such people. | |
− | In | + | 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. |
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==Transcript== | ==Transcript== | ||
− | :[Cueball and Hairy are sitting at a table with a bowl of chips in the middle. Hairy is taking chips from the bowl on the table with one hand, and his other hand is dropping chips into a large bag behind him | + | :[Cueball and Hairy are sitting at a table with a bowl of chips in the middle. Hairy is taking chips from the bowl on the table with one hand, and his other hand is dropping chips into a large bag behind him.] |
:Hairy: ''They're'' the ones giving chips away! | :Hairy: ''They're'' the ones giving chips away! | ||
:Hairy: If they don't see the arbitrage potential, sucks for them. | :Hairy: If they don't see the arbitrage potential, sucks for them. | ||
− | : | + | :On the bag is written: Chips |
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− | + | :[Below the main frame]: In a deep sense, society functions only because we generally avoid taking these people out to dinner. | |
{{comic discussion}} | {{comic discussion}} | ||
[[Category:Comics featuring Cueball]] | [[Category:Comics featuring Cueball]] | ||
[[Category:Comics featuring Hairy]] | [[Category:Comics featuring Hairy]] |