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TIP701: Against The Gods w/ Kyle Grieve

Feb 23, 2025

Kyle Grieve dives deep into the evolution of risk from ancient gambling to modern finance. He unveils how risk management's foundations lie in gambling and explores the significant breakthroughs by thinkers like Pascal and Fermat. The conversation highlights the distortions caused by regression to the mean and the perils of irrational decision-making, as illustrated by prospect theory. Grieve emphasizes the importance of focusing on downside risk and critiques typical diversification strategies. The discussion offers insights into how biases can sabotage investor success.

01:08:31

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Episode notes

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Quick takeaways

The evolution of risk management from ancient gambling has paved the way for modern investment strategies and probability theories.

Understanding human psychology, including biases and decision-making patterns, is crucial for investors to make rational choices during market fluctuations.

Incorporating probability concepts like Bayes' theorem helps investors adapt their strategies by continuously updating their assessments based on new information.

Deep dives

The Evolution of Risk Understanding

Risk has been a critical concept in investing, evolving from ancient gambling practices to modern financial theories. Early forms of gambling, such as dice games in ancient Egypt, laid the groundwork for humanity's exploration of uncertainty. Key figures like Fibonacci, Pascal, and Fermat significantly advanced the understanding of probability, transitioning the perspective from simple luck-based outcomes to calculated odds. Their foundational work set the stage for a more analytical approach to risk in investing, emphasizing the importance of quantifying uncertainty.

Intro

3min

The Evolution of Risk and Decision-Making

15min

Pixar's Origins and the Evolution of Insurance

11min

Exploring Distribution and Regression to the Mean

2min

The Dynamics of Investment and Competition

10min

Understanding Nash Equilibrium in Economic Markets

4min

Navigating Risk: Psychology and Strategy in Investing

23min

In today's episode, Kyle Grieve discusses the book Against The Gods and how risk has evolved over history, why risk management was deeply routed in gambling, how the insurance industry was launched, revolutionary learnings on risk from brilliant historical figures, how regression was formulated and how it tricks investors, the two economists who upended utility theory, the powerful concept of prospect theory and how it showed how irrational humans are, and much more!

IN THIS EPISODE YOU’LL LEARN:

00:00 - Intro

06:52 - Why a human “calculator” can’t win in the market, and the key skills that drive investing success.

08:54 - The two critical risk concepts Cardano introduced to beat the odds—still useful for investors today.

11:12 - How Pascal and Fermat cracked the ‘problem of points’ and laid the groundwork for market probability models.

15:09 - How Daniel Bernoulli connected intuition with measurement.

20:24 - How Bayes’ rule transformed probability theory.

25:55 - Why focusing on the downside matters most—especially when the market is euphoric.

26:33 - How regression to the mean distorts our view of performance—and tricks investors into bad decisions.

38:47 - Why diversification can sometimes increase risk.

43:49 - How prospect theory rewrote the rules of decision-making—explaining why investors act irrationally.

52:01 - Why investors cling to bad ideas—how biases and ego can sabotage returns.

Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences.

BOOKS AND RESOURCES

Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, Kyle, and the other community members.
Buy a copy of Against The Gods here.
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