survival
Ergodicity
The rule
The crowd's average is not your fate. One player betting big again and again can still reach zero, even when the average looked fine.
Where it flips
This does not mean all averages lie. For small bets that simply add up, and do not depend on each other, the crowd average and your time-path nearly match. Care is needed only when losses multiply and a bad draw shrinks the base. There, judge the repeated path, not the one-shot average.
An average return is worked out across a big crowd, all at once. But you live only one path, one step after another, through time. When losses stack up by multiplying, the path most people really walk drifts far below that nice average. This is because a big loss shrinks the base that every future gain must rebuild from. So the real question is never just the average payoff. It is what happens to you when the same bet is taken again and again.
A worked example
A reader keeps staking a large slice of the portfolio on a coin-flip trade with a positive average return. Across many imaginary traders, the average looks fine. But their own single account, flip after flip, drifts toward ₹0 as one bad flip halves the base. [illustrative]
How to spot it
- ·a nice average return quoted with no mention of the sequence
- ·the same large bet repeated many times
- ·losses that multiply rather than add
- ·reasoning as if you got many parallel tries, not one life
Ole Peters · Ergodicity economics