Reverting back to the mean
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jamesedwards
- Posts: 2324
- Joined: Wed Nov 21, 2018 6:16 pm
My theory is that if you find and consistently exploit a gap in a market, then after a reasonable time you become part of that market's equilibrium.
eg imagine you stumble across a game where you pay £1 entry and winner takes £10.50 and there are already 9 people playing. You see an opportunity and join the game leaving 10 people playing, and all still long-term profit positive so continue to play. But, for the next person joining they will find the game is long-term profit negative and so should drop out. Thus the game always trends towards equilibrium but as long as you find your gap and continuously exploit it then you can profit long term.
eg imagine you stumble across a game where you pay £1 entry and winner takes £10.50 and there are already 9 people playing. You see an opportunity and join the game leaving 10 people playing, and all still long-term profit positive so continue to play. But, for the next person joining they will find the game is long-term profit negative and so should drop out. Thus the game always trends towards equilibrium but as long as you find your gap and continuously exploit it then you can profit long term.
This is exactly correct.jamesedwards wrote: ↑Sun Jul 02, 2023 6:05 pmMy theory is that if you find and consistently exploit a gap in a market, then after a reasonable time you become part of that market's equilibrium.
jamesedwards wrote: ↑Sun Jul 02, 2023 6:05 pmMy theory is that if you find and consistently exploit a gap in a market, then after a reasonable time you become part of that market's equilibrium.
Well said