On Investing, Gambling & Bounded Rationality

"A given man lives a life free from boredom by gambling a small sum every day.  Give him every morning the money he might win that day, but on condition that he does not gamble, and you will make him unhappy.  It might be argued that what he wants is the entertainment of gaming and not the winnings.  Make him play then for nothing; his interest will not be fired and he will become bored, so it is not entertainment he wants.  A half-hearted entertainment, he must delude himself into imagining that he would be happy to win what he would not want as a gift if it meant giving up gambling." ~ Blaise Pascal (1623-1662)

I had the privilege of writing a few guest posts this week on my favorite investing and economy blog, The Big Picture.

One post, "Are You an Investor or a Gambler?," makes an attempt at differentiating between investing and gambling.  Be sure to read (and join in) the comments that follow the post!  Readers often have the most interesting and insightful discussions.

The other post, "Do you consume information or does it consume you?," suggests that today's abundance and velocity of information does not increase the capacity to make rational decisions.  In fact, the information age decreases the capacity for rational thought (bounded rationality), as economist and psychologist, Herbert Simon (1916-2001), has explained:

...in an information-rich world, the wealth of information means a dearth of something else:  a scarcity of whatever it is that information consumes.  What information consumes is rather obvious:  it consumes the attention of its recipients.  Hence a wealth of information creates a poverty of attention and a need to allocate that attention efficiently among the overabundance of information sources that might consume it.

If you are new here at The Financial Philosopher or a "regular" visitor with interest in these topics, you may wish to explore the topic of Behavioral Finance further on these blog posts:

Beware of Confirmation Bias
We Are All 'Naive Scientists'
Finding God in Behavioral Finance
Know Thy Risk
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Pascal Image by Shannon

Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.

Comments

[jurisdictional arb]

Hi Kent. I totally agree with you, no doubt about that. The information age decreases the capacity for rational thought