Billers, Players, and Income Inequality

If there are more players, wouldn't that reduce the size of the required tournament prize? Wouldn't the increased supply of players and the increased competition among them lead to lower pay-outs and lower average incomes for players, cet. par.?

It is a great book. If you can endure (or enjoy!) his tone, it is most certainly a fun read. He also recommend that people are happier in "billing" type professions. Anecdotally, I have to agree, and hence my application to law school. I played, and I have yet to win.

I think Arnold is pointing out that Players have the ability to take no payout for an extended period of time in search of the big payout, so they don't have to act like Billers to secure a modest payout. If the natural equilibrium is one that few Players will accept, and there continue to be huge payouts for some Players, that natural equilibrium cannot be achieved.

Another great point that Taleb drives home is that Player success has a big random component. There is no formula for wild success. We can look at examples of success and notice some common elements, such as scalability. But see Arnold's last post about how hindsight bias can make us think that a desired big outcome can be planned.

If you can endure (or enjoy!) his tone, it is most certainly a fun read.

And that's why I'm not likely to buy the book. I agreed completely with the actual content of 'Fooled by Randomness', but I couldn't stand the tone. I thought the book was 10% about randomness, and 90% about the wisdom & brilliance of Taleb.

EclecticEcon,
Yes, more players with a fixed prize lowers the expected value of the tournament. That is why I would argue that if more people have shifted from being Billers to Players, then either average income of Players must have gone down or the number of tournaments/value of prizes has gone up. My guess is that the latter is the case.

His book is highly recommended, good stuff.

I agree wholeheartedly on the idea of a cushion that gives people the economic (and psychological) freedom to risk new ventures. I talked about how that played out in my own successful entrepreneurship here:

http://trueconservative.typepad.com/trueconservative/2005/12/you_deserve_it.html

and here:

http://trueconservative.typepad.com/trueconservative/2008/02/wealth-and-inno.html

But I draw a different conclusion from it: that increasing social support systems gives more people this cushion, which encourages innovation and risk-taking. (Yes, of course there are countervailing incentives at work at the same time.)

We tend to refer to the "safety net," but might we not sensibly refer to it as a springboard? A stable platform from which to leap?

Give another 10, 30, 50 million Americans a place to stand, and they'll move the world.

This might provide one explanation for Europe's equivalent growth compared to the US, despite tax and spending levels far above ours.

Then, there are the Player Haters. Some call them "Spitzers".

I'll also recommend his book.

Fooled by randomness makes the same point, but Black Swan is much more enjoyable. BS is more literary, FBR is more for entry level business types (point is made early, I stopped after about 70 pages, it became repetitive).

Taleb is a true intellectual fraud because he practices everything he criticizes. He can't stand criticism, only fawning adulation (he would send my old boss letters whining about web postings). He prefers anecdotes, name drops, routinely travels the rubber chicken circuit, delinks his old ridiculous remarks about Value-at-Risk, recategorized his extinct Hedge Fund as a hedge (before folding it), is immodest, against any specific mathematical formula. But that's in practice. In theory, he's against all that stuff. Or perhaps he means, he hates when other people do it.

He makes some good points, but has big idea, 'shit happens', is not profound. Further, his idea that the more speculative something is, the more attractive it is, is simply untrue. Across the board, the more speculative the asset, from lottery ticket, to volatile stocks, to internet huckster campaigns, have lower expected returns.

If he's a font of wisdom, I'm a Sith Lord. More here if interested.

Tyler Cowen sketched out a science-fiction premise back in March about a wealthy world where only being a successful 'Player' earned people any happiness/status (apparently because all Billers and washed-out Players enjoy the same high baseline level of material comfort). "[C]apitalist enterprise starts to collapse," he suggests. See:

http://www.marginalrevolution.com/marginalrevolution/2008/03/are-incentives.html

Arnold, I always enjoy your unique perspective on things. The only thing I would add as a key to creating large wealth (income inequality) is being able to find a way to leverage your time. This is often done by creating a product that you can make a predictable profit margin on and once discovered repeat over and over. Good examples are, e.g., McDonalds or Starbucks. Other examples are artistic endeavors, e.g., recording artists selling music, film makers selling movie tickets or DVDs. You get the idea, but isn't that what we call entreprenuership and creative distruction.