(Roughly) Daily

Posts Tagged ‘gaming

“There are two times in a man’s life when he shouldn’t speculate: when he can afford to and when he can’t.”*…

Robinhood, the trading platform supposedly meant “to democratize finance for all”: not all change is progress; not all “disruption” is for the good…

… What is Robinhood?

The company operates a mobile app that enables consumers to trade stocks, options, and crypto. These orders are the company’s inventory, which it sells to “market makers” — large financial institutions that pare (execute) the trades in the market. As with Google or Facebook, Robinhood’s users are not its customers, but its supply.

This means Robinhood is incentivized to keep its users trading … a lot. The goal: make stock trading as addictive as social media scrolling. RH has enjoyed success here. The proportion of users who check it daily rivals those of Twitter, Snapchat, and Facebook.

The transaction at the heart of the company’s model is “Payment for Order Flow” or PFOF. Because RH generates its revenue by selling orders to market makers, it doesn’t charge commissions to its consumer users. But this also creates a conflict of interest for the company, which is motivated to sell orders to the market maker that offers the highest payment for the trade rather than the best price. It’s like affiliate marketing, but for your financial future.

PFOF goes back to the 1980s, when it was pioneered by, wait for it … Bernie Madoff. Madoff relied on the practice to make his firm one of the leading market makers of its day, and when regulators raised questions about whether it presented a conflict of interest, he used his position as the chairperson of Nasdaq to prevent restrictions. (PFOF is illegal in the U.K.) There was no conflict of interest, Madoff assured his colleagues, because “there are very strict rules that I would assume most firms comply with.”

Robinhood is the latest example of an increasing trend: tech companies for whom illegality is a feature, not a bug. Uber is an $86 billion gypsy cab company. Facebook and Google have received so many fines, it’s likely the companies internally classify them as a cost of doing business. This is tantamount to replacing civics courses with prison training, because … well … that’s how we roll.

For its part, RH has racked up: a $70 million settlement with FINRA, a $65 million SEC fine (for failing to properly disclose PFOF), and a separate $1.25 million FINRA fine. And on Wednesday, on the eve of pricing its IPO, the company disclosed that its senior executives are under investigation by FINRA for failing to acquire broker-dealer licenses. In addition, another inquiry is under way into the possibility that RH employees made illegal insider trades during the GameStop frenzy early this year.

Once, that type of disclosure would have dismembered an IPO. Instead, 48 hours after it made the disclosure, Robinhood was publicly trading at $32 billion. Telling point: The company paid its chief legal officer, Daniel Gallagher, more than $30 million in 2020, even though it hired him halfway through the year. From 2011 to 2015, Gallagher was an SEC Commissioner. Our business environment has morphed from capitalism, which depends on the rules of fair play, into cronyism.

Flouting the law is now a signal to investors that a firm is “disruptive.” Established companies, which believe they have too much to lose, have spent years investing in a culture of compliance to protect themselves. Disrupters, with access to cheap capital and few legacy assets, have no such constraints. In Robinhood’s case, no less an establishment bulwark than Goldman Sachs has blessed its approach to business by taking the lead on the company’s IPO. Forget orange — criminality without consequence is the new black.

In practice, Robinhood’s activities look more like the dispersion of financial risk than the “democratization of finance” — kind of like if a for-profit prison claimed to be “democratizing housing.” As both an app and as an investment, RH makes more sense in the context of gambling than investing. Its business model depends on active traders, but research shows the more active traders are, the more money they lose. Likewise, the casino isn’t making much off the blackjack player who sits at the $5 table cadging free drinks, but it hopes the lure of easy money (and the lubrication of those free drinks) will loosen his pockets eventually.

Greater gambling access is becoming a trend. The illegal sports betting market, estimated at $150 billion a year, is rapidly moving to legal online forums. You can now place a sports bet from your couch in 20 states and counting, and mobile gambling apps are reaping the rewards. Since its SPAC listing in April 2020, DraftKings’ stock is up 160%. I don’t have a problem with this, as these firms state what they’re made for: gambling.

Another market that’s benefited from our insatiable appetite for risk? Crypto. Robinhood caught that trend early and introduced crypto trading to its platform in February 2018. Since then, the global crypto market has grown from $450 billion to $1.9 trillion. In the first three months of 2021, 6% of RH’s revenue came from Dogecoin trades. If that sounds like an unstable business model, trust your instincts.

Here’s what we’re saddled with: A trend of companies that prey on our financial naiveté, with no regard for law or morality and infinite amounts of capital. What can we do?

First, it’s long past time for the rule of law to reassert itself. Five years ago, admissions to elite universities were awash in bribery and fraud. Then the feds put some wealthy lawyers, investors, and television stars in jail. Did it work? I’d venture that if any parent receives an offer of a “side door” for their kid to get into an elite university today, the parent hangs up, crisply.

Second, we need to arm ourselves, and particularly our young people, with financial literacy. Everyone should be fluent in the basics of markets and how to build financial security. My NYU colleague Aswath Damodaran believes the best regulation is life lessons. Perhaps basic lessons in finance (e.g., not to trade on an app that harvests its orders for revenue) would lessen the pain of these lessons. If we can offer computer science and Mandarin in schools, we should offer courses in financial literacy. The English-as-a-second language course in any capitalist society ought to be in money.

We’ve implemented policies in the U.S. that have resulted in a halving of the wealth of Americans under the age of 40 (as a percentage of household wealth) over the past three decades. With so much less to lose, today’s young Americans are justifiably looking for new asset classes and embracing volatility. Put another way, there is cause for a rebellion. The food industrial complex wants you to be fat, social media wants you to be divided, and RH wants you to believe you can get rich quick by day trading. Rebel.

When the democratization of finance isn’t: “$HOOD.” Scott Galloway (@profgalloway) on the dangerously disingenuous Robinhood.

* Mark Twain

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As we reconcile ourselves to the fact that if it seems to be too good to be true, it is, we might recall that it was on this date in 2018 that Apple became the first U.S.-based company with a $1 trillion market cap. Shares of Apple rose 2.9% on the day, closing at $207.39, giving the company a $1.002 trillion valuation. Shares of Apple’s stock were up about 40,000% since Apple computer’s IPO on December 12th, 1980.

Amazon broke the $1 trillion milestone a month later on September 4th, 2018. Microsoft reached the milestone nearly a year later, on April 25th, 2019.

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Written by (Roughly) Daily

August 2, 2021 at 1:00 am

“The idea of a ‘virtual reality’ such as the Metaverse is by now widespread in the computer-graphics community and is being implemented in a number of different ways”*…

 

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Technology frequently produces surprises that nobody predicts. However, the biggest developments are often anticipated decades in advance. In 1945 Vannevar Bush described what he-called the “Memex”, a single device that would store all books, records and communications, and mechanically link them together by association. This concept was then used to formulate the idea of “hypertext” (a term coined two decades later), which in turn guided the development of the World Wide Web (developed another two decades later). The “Streaming Wars” have only just begun, yet the first streaming video took place more than 25 years ago. What’s more, many of the attributes of this so-called war have been hypothesized for decades, such as virtually infinite supplies of content, on-demand playback, interactivity, dynamic and personalized ads, and the value of converging content with distribution.

In this sense, the rough outlines of future solutions are often understood and, in a sense, agreed upon well in advance of the technical capacity to produce them. Still, it’s often impossible to predict how they’ll fall into place, which features matter more or less, what sort of governance models or competitive dynamics will drive them, or what new experiences will be produced…

Since the late 1970s and early 1980s, many of those in the technology community have imagined a future state of, if not quasi-successor to, the Internet – called the “Metaverse”. And it would revolutionize not just the infrastructure layer of the digital world, but also much of the physical one, as well as all the services and platforms atop them, how they work, and what they sell. Although the full vision for the Metaverse remains hard to define, seemingly fantastical, and decades away, the pieces have started to feel very real. And as always with this sort of change, its arc is as long and unpredictable as its end state is lucrative.

To this end, the Metaverse has become the newest macro-goal for many of the world’s tech giants…

Matthew Ball (@ballmatthew)  peers ahead: “The Metaverse: What It Is, Where to Find it, Who Will Build It, and Fortnite.”

[image above: source]

* “The idea of a ‘virtual reality’ such as the Metaverse is by now widespread in the computer-graphics community and is being implemented in a number of different ways. The particular vision of the Metaverse as expressed in this novel originated from idle discussion between me and Jaime (Captain Bandwidth) Taaffe — which does not imply that blame for any of the unrealistic or tawdry aspects of the Metaverse should be placed on anyone but me. The words ‘avatar’ (in the sense used here) and ‘Metaverse’ are my inventions, which I came up with when I decided that existing words (such as ‘virtual reality’) were simply too awkward to use. […] after the first publication of Snow Crash, I learned that the term ‘avatar’ has actually been in use for a number of years as part of a virtual reality system called ‘Habitat’ […] in addition to avatars, Habitat includes many of the basic features of the Metaverse as described in this book”…   – Neal Stephenson, Author’s acknowledgments, Snow Crash, Bantam, 2003 (reissue)

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As we visualize the virtual, we might recall that it was on this date in 1978 that the first computer bulletin board system went on-line.  Created in Chicago by Ward Christensen and Randy Suess, the Computerized Bulletin Board System (CBBS) had been built in 30 days.

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Written by (Roughly) Daily

February 15, 2020 at 1:01 am

“Reality is broken”*…

 

Paperclips, a new game from designer Frank Lantz, starts simply. The top left of the screen gets a bit of text, probably in Times New Roman, and a couple of clickable buttons: Make a paperclip. You click, and a counter turns over. One.

The game ends—big, significant spoiler here—with the destruction of the universe.

In between, Lantz, the director of the New York University Games Center, manages to incept the player with a new appreciation for the narrative potential of addictive clicker games, exponential growth curves, and artificial intelligence run amok…

More at “The way the world ends: not with a bang but a paperclip“; play Lantz’s game here.

(Then, as you consider reports like this, remind yourself that “We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.”)

* Jane McGonigal, Reality is Broken: Why Games Make Us Better and How They Can Change the World

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As we play we hope not prophetically, we might recall that it was on this date in 4004 BCE that the Universe was created… as per calculations by Archbishop James Ussher in the mid-17th century.

When Clarence Darrow prepared his famous examination of William Jennings Bryan in the Scopes trial [see here], he chose to focus primarily on a chronology of Biblical events prepared by a seventeenth-century Irish bishop, James Ussher. American fundamentalists in 1925 found—and generally accepted as accurate—Ussher’s careful calculation of dates, going all the way back to Creation, in the margins of their family Bibles.  (In fact, until the 1970s, the Bibles placed in nearly every hotel room by the Gideon Society carried his chronology.)  The King James Version of the Bible introduced into evidence by the prosecution in Dayton contained Ussher’s famous chronology, and Bryan more than once would be forced to resort to the bishop’s dates as he tried to respond to Darrow’s questions.

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Ussher

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Written by (Roughly) Daily

October 23, 2017 at 1:01 am

“It is named the ‘Web’ for good reason”*…

 

Perspective, from John Atkinson.

* David Foster Wallace

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As we enjoy our leisure, we might recall that it was on this date in 2001, at the European Computer Trade Show in London, that Blizzard Entertainment announced World of Warcraft. The MMORPG (Massively-Multi-Player Online Role-Playing Game) was released in 2004.

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Written by (Roughly) Daily

September 2, 2016 at 1:01 am

“Dinner was made for eating, not for talking”*…

 

Still, talking is, more often than not, part of the program.  How to increase the odds that the discussion will be as tasty as the dinner?  Alex Cornell has the key:

larger version here

One of the most complex social situations you will encounter is the 45 seconds that elapse while deciding where to sit for dinner at a restaurant. Your choice should appear natural, unbiased and haphazard if executed properly. Timing is everything.

These 45 seconds determine how enjoyable your next 2 hours will be. Once the pieces start to fall into place and people take their seats, your choices narrow. People sit, seemingly at random, and if you don’t take the appropriate measures, you’re inevitably stuck at the least interesting end of the table.

I have compiled the above infographic to assist you with some of the common configuration patterns…

More at “Musical Chairs.”

* William Makepeace Thackeray

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As we fiddle with our forks, we might recall that it was on this date in 1931 that tables of a different sort became the main event in Nevada, when the economic pressures of the Great Depression (and the opportunity to entertain workers arriving to build Hoover Dam) moved the state legislature to legalize gambling.  But it wasn’t until after World War II, when Bugsy Siegel decided to go (sort of) legit and took control of the Flamingo Hotel in Las Vegas, that the Land of Casinos began to glow in the way that, to this day, it does.

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Written by (Roughly) Daily

March 19, 2013 at 1:01 am

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