The Speculation Game: Industries at the Intersection of Risk and Culture

I do not count myself as a college basketball fan.

In fact, I probably could not name a single player on a men’s NCAA team today.

Yet, like approximately 80 million other people, I completed a bracket before the March Madness tournament kicked off last Thursday.

The NCAA Division I men’s basketball tournament forms a miniature economy for the month of March. Over $10 billion will be wagered in sports bets over the month. The NCAA brings in nearly $1 billion each year by selling the TV rights alone. Employers report an increase in the number of sick days taken, extended lunch breaks, and missed conference calls during the month. And for me, between the barrage of reminder emails CBS sends to past participants and the numerous colleague and friend groups who have set-up their pools, getting in on the ‘madness’ is nearly unavoidable.

This is the reality for sports fans in North America today.

But why is this such a spectacle?               

I do not care about the outcome of the tournament. The odds of successfully completing a bracket are 1 in 9.2 quintillion, which almost sounds like a made-up number! What is the point of competing?

Because we enjoy the game of speculation.

The Speculation Game

“It’s the not the Destination, It’s the journey.”

–Ralph Waldo Emerson

Like March Madness, the Speculation Game is not purely about the reward. It is about reward in the face of uncertainty.

When you look at the various definitions of ‘speculation’ online, they all seem to contain four of the same ingredients: an assumption of risk, by guessing at an outcome, without enough information to be certain, in hopes of obtaining a reward.

An assumption of risk: The excitement (or stress) of bearing risk is what triggers a small dopamine release in many human beings. This is the same chemical released by the brain, as Harvard puts it, in activities as diverse as sex, shopping and smelling cookies baking in the oven. This chemical reward also drives what’s known as a ‘gambler’s higher’, and at the extremes, can lead to harmful and addictive behavior.

By guessing at an outcome: People enjoy puzzles. Even more, they love the feeling of accomplishment that comes with successfully solving a puzzle or being ‘right’ (just ask your spouse). Ego aside, guessing at an outcome is a puzzle that requires some degree of contemplative intellect to solve. People stretch their critical thinking and problem solving muscles to chase the ‘moment of insight’ that occurs when the unknown becomes known—when the picture on the jigsaw puzzle is revealed or the letters in the Wordle light up as all green.

Without enough information to be certain: Luck plays a large role in every human success and failure, and this acknowledgement keeps things interesting. There are no guarantees in life. If everything was known ahead of time, nothing would be worth pursuing. There would be no mystery, no conflict, no reward. Luck adds spice to the dish of life and it plays a primary role in the Speculation Game.

In hopes of obtaining a reward: This is the payoff. The pot of gold at the end of the rainbow. The 10 bagger stock. The winning March Madness bracket. The satisfying sweep of poker chips after the last opponent is knocked out.

Speculation is clearly a multi-faceted activity comprised of dopamine, puzzles, luck, and payouts—no wonder we enjoy them so much.

Game Notes

Beyond the definition, there is a lot more to be learned by studying speculation.

The Speculation Game is about making decisions under a degree of uncertainty, which is a real world skill: Funny enough, when you describe the job of a CEO, making decisions under a degree of uncertainty is also a good description. Fantasy football managers speculate on their teams to earn a reward. General Managers of real-life sports franchises do the same. Of course, the stakes and associated rewards are much lower in the former versus the latter, but there is a certain skill that is present in speculative games that can be translated into the real world.

Speculation is irrational: If we were all rational actors with perfect information, speculation would be about achieving the highest risk-adjusted returns possible. This would rule out gambling (or any game where the odds are in the house’s favor). This would rule out actively managed stock portfolios, we would all be fine with the index. But it is not just the extrinsic rewards we’re after. Often times, it is the dopamine, puzzle and luck factors that we derive utility from. People play the lottery not out of a rational expectation of profit, but because the feeling (dopamine-derived, or otherwise) that they experience from the prospect of a life-changing reward is enough consumer surplus to compensate them for the ticket price.

Speculative games contain a mix of skill and luck. Skill implies a degree of competence and control. Luck implies randomness and a lack of control. Sometimes there is more luck than skill, like in the game of Blackjack. Sometimes there is more skill than luck, like in the game of Rummy. And on occasion, there is a sweet spot, like in the game of Poker, where the mix of luck and skill are in perfect harmony. People are able to feel ‘in control’ while still being subjected to the allure of the unknown. Those are the Speculation Games that tend to be most appealing and is a good argument as to why stock trading and fantasy sports have become such large industries.

Secondary factors influence gameplay: Beyond the big four components in the definition, there are more factors at play as motivators in speculative games. A primary reason I enjoy March Madness is because there are social benefits, participating alongside colleagues, joining together as a tribe for some light-hearted competition. I also know I am unlikely to ‘beat the market’, but I enjoy investing in what I know and in products that I have emotional bonds with (and I know Apple makes some fantastic products!).  These motivators are idiosyncratic reasons. They are secondary to the big four, but have an influence on speculative game play nonetheless.

Ingredients for a Good Game

Speculation Games require three ingredients:

  • an arena
  • an asset
  • an outcome

For those playing in the stock market, those ingredients are the trading venue (arena), publicly-listed equities (asset) and outperformance relative to a benchmark index (outcome).

For those playing fantasy sports, those ingredients are the league management platforms (arena), professional sports games and athletes (asset) and a winning combination of players (outcome).

To this point, we have largely relied on stocks, sports and gambling as examples, yet, the speculation game can be played with almost any ownable asset (at least those with values that are subject to change). A good framework to use is the personal capital hierarchy from Competing on Advice: A Framework for Looking at the Strategy at the Center of Financial Services (see below):

  • Real Assets: (Real Estate, Collectibles, etc.). Real estate speculation is an activity that pre-dates modern society. People have been acquiring and flipping properties since land title and ownership systems came into place. People also collect and trade hard assets of various types: classic cars, baseball cards, stamps, coins, art, etc. Collecting is a hobby and speculation is at its very core, solving the puzzle and finding the next ‘great addition’ to add to the assembly.
  • Financial Assets: (Stocks, Bank Accounts, Crypto, etc.). Financial assets are perhaps the most liquid and tradable form of capital in the personal capital hierarchy. This makes them ripe for speculative games. Traditional capital markets and the industry around them have held this crown for a long time, but one that is slowly being relinquished to the crypto crowd. Even the most sound-money crypto enthusiasts will admit speculation has a central role to play in the success of the industry. In fact, Carlota Perez’s work on Technological Revolutions and Financial Capital suggests speculation has a key role to play in capital formation which drives the ‘frenzy phase’ of a financial cycle. Even relatively safe financial assets still have some degree of speculation to them—before the SVB scare, I bet most of us never thought we’d have to consider the soundness of the financial institution we were depositing our money into (and thanks to the Fed and the FDIC, we no longer have to).
  • Intellectual/Cultural Assets: (Sports, Fashion, Memes, etc). These are the intangible assets we hold in our heads, but they play an important role in our identities. Intellectual and cultural assets help to inform theunique characteristics, affiliations, and social roles that make up who we are. Sports has been the example used so far, where a high degree of sports knowledge and intuition can help win sports wagering games. But this can apply to any cultural arena. Fashion, for example, is home to a high degree of speculation. This is displayed on high-fashion runways where the speculative choices that go into a designer’s show can lead to an outcome that is either a smashing success or a flop. This is also displayed in lower-stakes scenarios, like in the halls of a high school where fashion choices may not have economic consequences and outcomes, but they can certainly gain (or lose) you some social currency. Speaking of Gen Z, as strange as it sounds, memes can also act as a type of speculative game, where signaling with the right meme or wrong meme can gain or lose you clout.
    *Also, to make an additional point, not all speculation occurs in dollars. Outcomes can be measured by anything related to the asset being speculated upon. For cultural assets, that is often social clout/currency.
  • Human Capital: (Skills/Education, Relationships, Experiences, etc.): These are the skills, knowledge, and experience possessed by an individual that makes them productive in the economy. Our knowledge and intellect, for example, is a major component of our human capital, and we often speculate on the right signals to showcase it as an asset. High school seniors speculate over which university brand will be best for their future and corporate professionals speculate over which designations offer the most prestige in their industry. People also speculate using social capital, affiliating themselves with specific groups/communities, building an audience on social media platforms, or engaging in the debatably cringy professional task of ‘networking’. Finally, people also speculate over the experiences they collect. Our memories are our most important asset of all, and collecting new memories through a variety of experiences is another important speculative activity. It can be seen in a traveller’s decision on which country to explore next and in a pet owner’s decision over which breed of dog is the best fit for their lifestyle.

The final ingredient that is important to all games is an outcome. This is what determines the reward. Were you right or wrong? Did you win or lose? Did your portfolio outperform or underperform? Outcomes provide closure and an end to the game (or at least, a reset or milestone along the way). They are an important component, albeit, the simplest.

The Business of Speculation

Speculative Games are played in Speculative Arenas.

Today, there are massive industries supporting how Speculative Games are played. When it comes to this world, there are two general businesses archetypes that service game participants. They provide one of the following services:

  • Helping people understand/analyze/research their bets: These are the ancillary businesses that support gameplay. They are Bloomberg, ESPN, Vogue, and again, Instagram. The service these firms provide is information, equipping players to achieve a better outcome.
  • Helping people place their bets: These are the platform businesses on top of which people play Speculative Games. The trading venues, fantasy sports apps, fashion blogs and even social media platforms like Instagram. The service they provide is access and facilitation.
  • *Helping people display their bets: People also like to show off their assets and decisions. This is a sub-category, since it applies in only a few scenarios. In many cases, platforms that help people place their bets also help them display them. But when it comes to non-digital assets (like art or other collectibles) and intangible assets (like memes or experiences), game participants often require a separate service to showcase their wares.

For service providers in this space, while product development often focuses on the game’s ingredients (arenas, assets and outcomes), there is a lot to be gained by taking a step back to focus on the four components of speculation itself: an assumption of risk, by guessing at an outcome, without enough information to be certain, in hopes of obtaining a reward. These offer intangible paths to strengthen a product’s effectiveness by focusing on what Rory Sutherland calls the psycho-logic (click for a quick read).

However, we should also note, Speculative Games can be dangerous. We’ve seen headlines of the misfortunes of Robinhood’s options traders over the past several years; we’re reminded of the addictive powers of gambling every time the ‘play responsibly’ reminder roles across the commercials of lotto corporations; and we all know the pitfalls of making a fashion faux-pas in the eyes of our peers. Speculative Games involve risk management, which needs to be an integral component that service providers emphasize when thinking about their products and the effects they might have on game players. Service providers in this area have a responsibility to their customers and to their communities to facilitate speculative games responsibly.


If it has not become clear already, speculation is more than a game, it is a life skill.

The role of decision-making under uncertainty pops up in both the macro and the micro, and in tangible and intangible domains.

We enjoy specific speculative games, like sports betting or collecting classic cars, because they give us a more concentrated cocktail of dopamine, puzzles, luck and reward.

But they are all practice for navigating the broader infinite speculative game, which is what we call life.

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