This article explores the shift from pursuing stable returns to chasing jackpots and its broader social implications. It will involve some basic mathematical knowledge, but is worth reading to the end.
Imagine someone gives you a game where you toss tokens. How many times would you toss?
At first glance, this game seems like a money-printing machine. The expected return for each token toss is 20% of net assets, so you should toss tokens infinitely, ultimately accumulating the wealth of the world.
However, if you simulate 25,000 people tossing tokens 1,000 times each, almost everyone will end up with around $0.
The reason almost all outcomes go to zero lies in the multiplicative nature of repeated token tossing. Although the expected value of the game (i.e., the arithmetic mean) is a 20% return per toss, the geometric mean is negative, meaning that over the long term, tossing tokens actually yields negative compounding.
What is going on here? Here is an intuitive explanation:
The arithmetic mean assesses the average wealth created by all possible outcomes. In the token tossing game, wealth distribution is heavily skewed towards a few jackpots. The geometric mean assesses the wealth you expect to create in median outcomes.
The simulation diagram above illustrates the differences between the two. Almost all paths will go to zero. In this game, you need to toss 570 heads and 430 tails to break even. After 1,000 token tosses, all expected values concentrate on the jackpot outcomes that account for only 0.0001%, which are extremely rare cases of tossing a large number of heads consecutively.
The difference between arithmetic mean and geometric mean forms the 'jackpot paradox'. Physicists call it the ergodicity problem, while traders refer to it as volatility drag. When the expected value is hidden in rare jackpots, you cannot always 'eat it' (achieve the expectation). Over-risking to chase jackpots, volatility turns positive expected value into a line approaching zero.
The early 2020s cryptocurrency culture is a vivid example of the 'jackpot paradox'. SBF sparked a discussion on wealth preferences in a post.
Logarithmic wealth preference: each additional dollar's value is less than the previous dollar, and as capital scales grow, your risk preference decreases.
Linear wealth preference: each dollar's value is the same, regardless of how much money you earn, risk preference remains unchanged.
SBF proudly claimed to possess a linear wealth preference. He believes that increasing from $10 billion to $20 billion is as important as increasing from $0 to $10 billion, making it logical to take risks for massive high-stakes investments from a civilizational perspective.
Su Zhu of Three Arrows Capital (3AC) also acknowledges this linear wealth preference and further proposes an exponential wealth preference.
Exponential wealth preference: each additional dollar is more valuable than the previous dollar, so as the capital scale expands, risk preference also increases, and one is willing to pay a premium for massive returns.
Here are the mappings of these three wealth preferences in the aforementioned token tossing game.
Given the understanding of the 'jackpot paradox', SBF and 3AC clearly chose 'infinite token tossing'. It is this mentality that allowed them to achieve primitive wealth accumulation. In hindsight, it is not surprising that they ultimately lost $10 billion. Perhaps in a distant parallel universe, they are billionaires, which also proves the risks they took.
These failed cases are not just cautionary fables about digital risk management, but reflect a deeper cultural shift in the overall economy, favoring linear or even exponential wealth growth.
Founders are expected to possess a linear wealth mindset, taking on huge risks to maximize expected value, becoming a cog in the venture capital machine that relies on power laws. Founders like Elon Musk, Jeff Bezos, and Mark Zuckerberg risked everything and ended up as the richest people on Earth, reinforcing the myth of the entire venture capital industry, while survivor bias obscures the fact that millions of founders end up with nothing. Only a very few can cross the ever-increasing power law thresholds to attain redemption.
This preference for huge risks has seeped into everyday culture. Wage growth lags far behind the compound growth of capital, leading ordinary people to increasingly believe that their best opportunity for true upward mobility lies in those negative expected-value lottery-like chances. Online gambling, zero-day options, meme stocks favored by retail investors, sports betting, and meme coins in cryptocurrency all demonstrate people’s preference for exponential wealth growth. Technology has made speculation easy, while social media spreads the legendary stories of each new overnight millionaire, attracting a wider audience to a doomed gamble, much like moths to a flame.
Current culture is turning into a culture that worships the 'jackpot', with the value of survival increasingly diminishing.
Moreover, artificial intelligence exacerbates this trend, further devaluing the worth of labor and reinforcing the winner-takes-all scenario. The post-general AI era envisioned by technological optimists, where humanity spends time on art and leisure, seems more like billions chasing negative capital and status 'jackpots' with universal basic income subsidies. Perhaps we should redraw the 'upward' sign to reflect the winding road leading to zero; this is the true outline of the 'jackpot age'.
In its most extreme form, capitalism behaves like a collectivist hive. The mathematical theory of the 'jackpot paradox' suggests that it is rational for civilization to treat humans as interchangeable labor, sacrificing millions of worker bees to maximize the linear expected value of the entire hive. This may be the most efficient for overall growth, but it unfairly distributes 'purpose and meaning' (such as human pride and a sense of achievement).
Marc Andreessen's declaration of technological optimism warns: 'Humans are not meant to be farmed; they should be useful, productive, and feel proud.'
But the rapid development of technology and the shift toward higher-risk incentives is exactly what has pushed us toward the results he warned about. In the 'jackpot age', the driving force of growth comes from the exploitation of peers. Utility, productivity, and pride increasingly belong only to a small privileged class that wins in competition. We raise the average at the expense of the median, leading to widening gaps in liquidity, status, and dignity, fostering a host of negative-sum cultural phenomena. The externalities manifest as social unrest, starting with the election of demagogues and ending in violent revolutions, which comes at a great cost to the compound growth of civilization.
As a person making a living trading in the crypto market, I've witnessed the degradation and despair brought about by this cultural shift. Just like accumulating a prize pool, victory is built on the failures of a thousand other traders, which is a tremendous waste of human potential.
When industry insiders seek trading advice, the same pattern can almost always be found. They all take too much risk and incur too large losses. Usually, there is a scarcity mentality at play, a sense of anxiety of feeling 'behind', and an impulse to profit quickly.
In fact, the personal answer remains consistent: rather than risking to profit, it is better to accumulate more advantages. Don’t push yourself to the brink for a jackpot. Accumulating wealth is key. Maximize median returns. Create your own luck. Avoid losses. Ultimately, you will succeed.
But most people can never sustain an advantage. 'Just win more' is not a scalable suggestion. In the fierce competition of technological feudalism, 'meaning and purpose' are always monopolized by the winners. This brings us back to meaning itself; perhaps we need some revival of religion that combines ancient spiritual teachings with the modern realities of technology.
Christianity was able to spread widely because it promised redemption for all. Buddhism became popular because of the idea that everyone can attain enlightenment.
Modern cult-like movements must also do this, providing dignity, purpose, and an alternative path forward for everyone, so they do not self-destruct in the pursuit of jackpots.
This article is authorized to be reproduced from: (PANews)
Original title: (the jackpot age)
Original author: thiccy
Translated by: Felix, PANews
'From slowly getting rich to rapidly going to zero! What is the 'jackpot trap'? How does it devour your wealth?' This article was first published in 'Crypto City'.
