American the Casino : Primer

[rose-colored-coolaid]

I've given a little thought to a specific analogy, which I think puts the world in a more realistic light. Imagine a casino where the average game pays out. Let's be specific and say that blackjack pays 110% if you win, takes all your money if you lose, and a tie with the dealer means everyone gets their money back. If you bet $10, you could either lose it all, gain $11 walking away with $21, or walk away with your original $10.

Note that the average transaction pays back 5%, because you have an equal chance of winning 110% or losing it all. This is interestingly very close to what most investments pay out over the long term.

That's all there is to it, but it explains a lot. I'll add more in other posts, but this is open if people wish to complain about my model/analogy.