Arbitrage
I had a lightbulb go off this morning after seeing a tweet and wanted to quickly write about it.
I’ve been reevaluating a lot of things in my life, and what ends up happening is disparate information that I’ve read about throughout my life is being applied in little, but big ways. For example, I was looking at my graduate loans today and thinking about how to pay it off. The strategy I came up with about how to tackle them was similar to my strategy about how I leveled up my Pokemon.
I think the easiest gratification for people was to raise their Charizard to a really high level and then catch wild Pokemon as they went on throughout the game that were at higher levels. One of the other strategies, the one I preferred, was to catch my favorite Pokemon of a specific type (Blastoise >>>>>>> Charizard) and raise it myself evenly amongst everyone else. This probably wasn’t the most efficient method, but I think it made me feel better in the long run knowing that they were all at level 55 and had the moves I wanted them to have by the time I got to the Elite Four.
Anyway, so yeah, I applied that to how I’m going to tackle my student loans.
In sports betting, stocks, or whatever else, there’s a strategy called arbitrage. I am not versed in stocks, but my basic understanding is that arbitrage is playing the long game instead of the short one. Not selling for short term gains and holding for long term ones. Or as those in cryptocurrency would call it “HODL.” I can better explain how it works in sports betting.
In sports betting, the way arbitrage works is that you shop around for the best value before the game starts to where you’d play both sides and either not lose a dollar or win a small amount. You play the underdog to win straight up at the best price, and the favorite to win straight up at the lowest value. You get to watch the game stress-free knowing that either an offsetting or positive outcome is the result. Yes, it is not as flashy as gambling and betting one side for the chance to double up, but this is a game of odds and we are trying to increase our odds. Why would you take a ~50% probability of succeeding when you could have a 100% chance?
Here’s the other thing: we often choose the 50% or less chance of success because it seems like we’ll get quicker wins. Yet, with quicker wins, we get quicker losses too. When you don’t flesh out a plan in the beginning, you’re going to end up running into problems down the road that make you wish you’d have spent time thinking about it before anyway.
With 100% chance of success, you’re a steady Eddie knowing that your system is in place and taking care of itself. Over the long run, you’ll end up further ahead than the person flipping a coin over and over again.
So why not apply that to your regular life?
Yes, there are systems people put in place to give them a higher probability to succeed on the coin flip. On a quick Google search, here’s the top result from research:
If it starts out as heads, there’s a 51% chance it will end as heads. If the coin is spun, rather than tossed, it can have a much-larger-than-50% chance of ending with the heavier side down. Spun coins can exhibit “huge bias” (some spun coins will fall tails-up 80% of the time).
That’s a lot of time spent figuring out how to predict a coin flip.
But as people who have a lot on our plate already who don’t have time to focus on developing one system to make one process super efficient and continuously update it, we need to find the sure wins so we can be risk averse in most areas so we can be risk takers in the more important ones.
The easiest way to sum this up is to remind myself to stop going for short wins. Play the long game. It’s not sexy right now, but everything takes at least 5 years for results to be seen on the surface. Just take your time and chip away slowly within the confines of what works for you. One day you’ll look at where you are, then think back to where you were, and realize how far you’ve come.