Red-Blooded Risk: The Secret History of Wall Street

Play and Money

I'm going to cover some topics you might not expect in a book on risk. First is play. One of the characteristics of play is that it takes place within a delineated area—physical or mental—which is not allowed to interact with the rest of the world. Basketball, for example, takes place on a court with clearly defined physical boundaries—and has people to blow whistles if the ball goes beyond those boundaries, stopping play until the situation is rectified. You are not allowed to buy a basket for money or any other consideration outside the perimeter of the game. Whether two players like or dislike each other is supposed to be irrelevant; their actions depend only on whether they're on the same team or on opposing teams. This is what allows us to treat the in-game events as risks. When the outside world intrudes, as with an injury or an equipment failure, those events cannot be managed as risks, because by rule they are incommensurate with baskets.

Although the world is not supposed to intrude on play, play can have enormous effect on the world. Elections, trials, and some wars are contests governed by rules that occur in designated times and places. Market competition can be considered a game, and game theory is a major part of the study of economics. Less serious games constitute a large portion of the economy: sports, gambling, video games, hobbies, and many other activities represent sizable aggregate demand for products and services. We will look deeply into these ...