Gambling And Stock Trading: The Gambling Paradox Behavior

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Gambling and stock trading
Outline
* INTRODUCTION
Gambling and stock trading has become a normal investment activity for those who do not shy away from risky investments which can be explained by their paradoxical behaviors.
* THESIS:
Indeed, both gambling and stock trading have a tremendous paradoxical observation in their working in that they are investments based on speculation but risky due to the high level of uncertainties.
* THE GAMBLING PARADOX BEHAVIOR
Notably, gambling is a situation of no win and participants deny making improvements on their odds even in such a game of blackjack, that present the possibility of playing in a manner that evens the odds or otherwise offers the player what appears to be improved odds.
* STOCK TRADING PARADOX BEHAVIORS
Just like the gambling, the financial markets are normally observed to have daily high levels trading filled activities which in most cases are credited to speculations
* THE NO TRADE THEORE
This consists of three major elements which are the effectiveness of the first allocation, shared knowledge of the market and an environment filled with information together with a certain level of agreement
* CONCLUSION
The no trade theorems as merely relics without much scientific content, nevertheless, gambling and stock trading is full of uncertainty. However, the speculation by the traders makes them risk takers which are shaped by their belief and optimism.
Introduction
Large numbers of people involve themselves in various forms of such speculative activities such as gambling and stock trading despite clearly being aware of the huge downside likelihood of making losses yet the companies involved in the business make lucrative profits. As such, one is left to wonder whether the participants, such as the gamblers or stock investors, simply admit making their losses as destiny or whether they strongly believe that they will somehow stun the negative chances in an unbelievable way. The paradox becomes intricate owing to the fact that such regular participants in stock trading or even gambling, are distinctly aware that they cannot avoid their regular losses yet they cannot quit such endeavors (Geanakoplos 4). Various analyses of the behavior especially for the gamblers depict that they are led by themselves to become intellectually deluded, making themselves believe that common rules of statistics that determines the chances of loss are inapplicable to them as individuals. Essentially, those who designed gambling platforms make a clever exploitation of such delusions so as to enhance the untruthful view of the situation at present (Wagenaar 22).
Thesis: Indeed, both gambling and stock trading have a tremendous paradoxical observation in their working in that they are investments based on speculation but risky due to the high level of uncertainties.
The gambling paradox behavior
The paradoxical observations seen in gambling behavior are a central part of typical theories of individual’s decision making processes, where such decisions are offered as alternatives among bets (Hirshleifer 253). Gambling according to Wagenaar, is a situation of no win and participants deny to make improvements on their odds even in such a game of blackjack, that present the possibility of playing in a manner that evens the odds or otherwise offers the player what appears to be improved odds (35). A lot of gamblers play using suboptimal strategies which provides the gambling premise the upper hand of monetary advantage which they use to sponsoring such gambling games. Still, even the most rooted and obsessive gamblers choose to reject strategies that would better their probabilities for winning.
Similar to other behaviors, there are various factors that support the behavior of gambling. Such factors comprise of the anticipated monetary value to be obtained, the accompanying excitement offered by gambling and a perception of the gambler to become prestigious in the near future. The gambling act is common across the globe by the human kind. Observing gambling as a kind of game played is a sensible thing and would make one expect that it would be possible to find it in nonhumans (Hirshleifer 254). The decision theory has a major weak link which stipulates that predictions are made on the basis of expectations in the long run, which in essence makes no sense more so in day-to-day activities. Paul Samuelson, an economist offers a narration which explains why long-run expectations are not enough basis to give explanation of the behavior for gambling. He gives an auspicious chances on an appealing gamble to a fellow colleague with high expectations of returns: a twice to once chance on a singular flip of a coin for a reward of $100. Surprisingly, the bet was declined by the colleague even when he vividly knew that he had an equal possibility to win twice the placed amount. Apparently, the colleague offered a counter suggestion of 100 flips for 0ne dollar per flip having similar twice-to-once possibilities. The anticipated value is similar to the two cases, then again the latter suggestion gives more guarantee to making no loss for the colleague (Serrano-Padial 2).
Wagenaar likewise exposes an additional crucial discrepancy in the maxim of normative utility theory- which opines that there is a continuation of the measurement of both utility and probability (33). Make considerations of lottery that involves some chances of winning a million dollars and the likelihood of losing all that you own. The maxim is explained as having the ability to determine a certain value marked as say, X in a way that the judgment of the lottery is accepted in equal measure to receiving a given prize with the satisfaction between the utilities of double extremities. This implies that, while making a mixture of the two utility chances of extremities, an individual can at all times arrive at each utility in between. The maxim further stipulates that the possibility of having an experience of extreme loss making is rewarded for by the outlook of a huge benefit in whatever the possibility becoming the end result. Yet, the assumption is made false by Samuelson’s colleague, who would instead decline to cease good odds on a singular gamble, even though the likelihoods were ten to one.
A description of the utility curve for the profits is illustrated as concave in shape, whereas the satisfaction curve for loss making is convex in shape. Calculation of utility is a critical challenge while applying the theory of utility in describing an individual’s behavior. It would be possible to calculate the utility only if a strict follow up of the assumption to the theory is established. Nevertheless, gamblers commonly disregard a few or even more of the maxims of the theory of utility (Serrano-Padial 3). When such a case occurs where gamblers disregard maxims of the theory of utility, then it becomes difficult to concurrently calculate their satisfaction in that setting. To counter the normative theory of decision making, a heuristic and bias theoretical framework of the view is offered by Wagenaar (24). Ideally, it is presumed that the framework involves a process occurring every day while solving problems- a mathematical approach in problem solving. As such, it is clear that biases and heuristics are seen as no falsifiable stories which are used to come up with sensible stories no matter the outcome of...