I saw this going viral: The Three Pillars of the Bro-Economy: Day-trading, sports betting, and crypto are about to get bigger.
The growing popularity of sports betting and crypto gambling is related to the rise of lottery-like systems of wealth. For those who cannot make it in tech or other high-status or high-paying jobs, they are either stuck with low-paying service jobs, hustles (like Uber Eats, Door Dash), or gambling. Average-IQ people typically cannot become wealthy or attain high social status with meritocratic forms of wealth creation or occupations (e.g. tech jobs, finance, consulting, writing). It’s not like they can ace tech interviews or impress recruiters. Their career options are fairly limited.
Thus, the only options for these people for a quick shot at wealth are lottery-like systems of wealth (e.g. podcasts, YouTube, sports betting, entrepreneurship), in which the median return is low or negative, but the average is skewed by huge outliers (e.g. Joe Rogan). The shot at getting rich quick despite the abysmal odds is an alluring one. People see success stories online , like on YouTube, of what appears to be effortless wealth by seemingly ordinary people, and want a part of that. It seems so attainable, and yet it’s not.
You don’t have to be that smart to succeed at YouTube, but you do need connections (or luck by being early at a niche). Starting a podcast or channel requires ‘plugs’, in which other successful podcasters promote your show either because of connections or under the table payment. In the recording industry this is called payola, which is technically illegal if undisclosed, but ‘pay for play’ exists pretty much everywhere. Getting on Rogan requires either knowing his producer or getting his attention some other way. In the entertainment industry it’s also called ‘paying one’s dues’ suggesting a sort of implicit seniority, as opposed to a meritocracy.
Meritocratic wealth is the opposite, in which smart people with no connections suddenly make huge incomes at tech jobs just by being so competent instead of lucky. The median is much higher relative to the skew. Instead of having to be early, you only have to show up. It’s often asked, “Are we in a tech bubble?” If you’re collecting a fat paycheck to show up, does it matter? You’re still going to get paid for every day that you show up regardless of what happens. [Of course employee stock options complicate things.] Instead of paying dues, top companies such as Jane Street emphasize how they are impartial in the hiring process, screening for merit above all. [Although this is for entry positions and internships.]
With lottery-like systems of wealth, one is under the illusion that the game is not rigged. Unlike lottery tickets, there is enough complexity in the system or game to foster the illusion of having control or being skilled. Sports betting or crypto speculation tempts the sort of person who is too smart to play the lottery or slots, but is not savvy enough to see they are being scammed, that the game is rigged, or that there is considerable survivorship bias at play. They think they have an edge, when the only one with the edge is the house. Sports betting is designed in such a way that the fees and spread erode at any profits. There is no evidence to suggest anyone has an edge at predicting outcomes.
To get an idea of survivorship bias, consider the popular niche of ‘muckbang videos‘, in which content creators record themselves eating for the entertainment of the audience. In most videos, the food is consumed slowly with a lot of talking, but others are more competitive, such as eating a lot of calories in a short amount of time. The most successful creators at this niche are able to make a living, with their videos regularly garnering hundreds of thousands or even millions of views. These videos are algorithmically promoted and rank well–a ‘Mathew effect’ in which success begets success. But a YouTube search shows many ‘muckbang failures’–that is–videos that only got a couple thousand or hundreds of views. Certainly not enough to make a living, and a lot of wasted food with nothing to show for it but indigestion.
Even if the expected value is positive, such as entrepreneurship, the odds are low enough that it’s often not worthwhile. The positive expected value from entrepreneurship assumes many trials, which although true from a theoretical perspective involving thousands of people, is inapplicable or impractical at an individual level. It’s not like you have unlimited trials, unless you have rich parents, in which case you don’t need to get into business to get rich–that is already done for you.