Odd Lots - 50: What Slavoj Žižek Would Say About Poker and the Peso

Episode Date: October 14, 2016

What does psychoanalytic philosophy tell us about capitalism? In this edition of Odd Lots, we speak to Ole Bjerg, a professor at the Copenhagen Business School. Bjerg studies the work of Slavoj Žižek, a Slovenian philosopher, and also writes about matters of finance, markets and money. In this episode, Bjerg discusses the game of poker and what it says about capitalism as a whole.See omnystudio.com/listener for privacy information.

Thanks for listening to OddLots. Follow the show on Amazon Music for more future episodes or just ask Alexa play the podcast, OddLots on Amazon Music. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real. Lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a big line. It's a lot. It's a firm. It's a lot. a commitment to your clients. We're talking top grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at vanguard.com

slash audio. That's vanguard.com slash audio. All investing is subject to risk vanguard marketing corporation distributor. Put knowledge to work and grow your business. with CIT. From transportation to health care to manufacturing, CIT offers commercial lending, leasing, and treasury management services for small and middle market businesses. Learn more at cIT.com. Put knowledge to work. Hello and welcome to another edition of the Odd Lots podcast. I'm Joe Wisenthal, managing editor of Bloomberg Markets. And I'm Tracy Allaway, executive editor of Bloomberg Markets. So Tracy, remember our episode a few weeks ago with Emmanuel Derman, the quant guy who wrote, who used to work at Goldman Sachs, the physicist. I do indeed. I love that episode. Is he on again?

No, not quite. But he has a new book out. It's a textbook on modeling options. And it's a textbook, so it's like massively over my head. Like I can't get past page 30 without not understanding it. But I was reading through it and I noticed a footnote in the book that really intrigued me. As you do. Yeah, a very intriguing footnote. He was sort of explaining what options were and what derivatives were. And he mentioned the work of a Danish professor who sort of operating in this sort of philosophical framework explained how a company was real. and the option was symbolic. And so going back to things you might learn in philosophy or psychology school.

I mean, I can kind of see it. It's a derivative, right? Something synthetic based on something real. Exactly. So you have a company that produces cash flows that is a business that theoretically sells something. And then the financial world has created, right, a derivative that's sort of fake and exists in our imagination based on this company. So then I got really interested in this professor,

and I was Googling him, and I was like, oh, this sounds really intriguing. Cyberstalking. Cyberstalking, exactly. And I saw that he had written a book about poker, which is a game that I love, called Poker, the Parity of Capitalism. And then I was like, oh, this is just amazing.

I got to read more by this guy. he has this whole framework about poker being this combination of the real, the symbolic, and the imaginary, and what it says about capitalism and, you know, sort of modern financial capitalism. And it just totally blew my mind. Like, it was one of the most amazing things I ever read. This is where I start to get a little bit nervous because I know nothing about poker. I probably don't know that much about capitalism either. So this conversation could well be over my head. Well, I think this conversation is going to be pretty far over my head, too,

because I know a little bit about poker and maybe a little bit about capitalism, probably less than you do. And I certainly don't know much about this sort of philosophy, this professor. He's a disciple of the professor, Jizek, who a lot of, like, hipsters are really into. And anyway, all this academic, sort of postmodern seeming stuff, it's typically way over my head and I don't get it. But we have the professor on our podcast today. His name is Ola Berg. He's a professor at the Copenhagen Business School in the Department of Management, Politics, and Philosophy.

And I want to talk to him about financial markets, poker, and the gap between the real, the symbolic, and the imaginary. and, you know, we'll just see where it goes. It sounds good. Let's try it. Thank you very much for joining us. Thanks for having me on the podcast. I read your book on a recent flight to Los Angeles, a book about poker.

And I actually played poker when I was there because there are casinos out there. So I want to talk about my poker experience at the end of it because I had a very interesting realization. But let's just start from the beginning. So why did you write? write a book about poker. You're a professor in a business school. Tell us a little bit about the philosophical framework that you study and why you thought poker was an interesting entryway into studying capitalism. Well, first of all, I wrote the book because I like poker. I'm not a

very good poker player, but I can certainly appreciate the charm and the excitement of the game. So that was one thing. And I had previously, I had studied compulsive gambling, and a lot of the stuff that was written about gambling in that field is written by people who don't really care about gambling. So I wanted to write a book about gambling that actually appreciated the game. So that was the one part. The other thing was that as I was getting into poker,

I was also reading some, you know, like strategy books on poker. It kind of struck me that there was a similarity between poker and what I was kind of seeing in the financial world. So this was around, I think I started sort of around, just around when the financial crisis was unfolding. So I kind of figured I have to sort of find out what's the relationship between these two things? What's the relationship between contemporary financial capitalism

and poker on the other hand? So I guess my reading of poker in a... way is I wanted to read poker as a cultural expression of capitalism, much in the same way that you would look at a piece of art or a novel or something else. So I think, like, at first blush, maybe people would say, oh, this doesn't really sound that unusual. You know, it's fairly common cliche to say that the markets have become a casino and it's all gambling.

But I think you push it further than that sort of surface level comparison. Explain this sort of philosophical framework that you're interested in, and then also specifically the sort of distinction, you know, the sort of distinction you make between the real, the symbolic, and the imaginary and how it relates to both. One of the things that intrigues me about poker is how do you assess the value of a hand at a particular point in time in the game?

And once you start unpacking that, you realize that it's actually an extremely complicated procedure. It's very difficult to just look at the hand and it's intrinsic value. And then from there, say, so this is what the hand is worth. Because the value of the hand is dependent on a lot of other factors. So how is your position in the game? Who are the other players? How did they play?

What kind of types of players are they? And so forth. So I was kind of intrigued in the way that, how do we put a price on the value of a poker hand in a way? And that's also what's going on in financial markets is a game or an attempt to try and price or put a price on different types of values. So that's kind of, yeah, what I was looking at. And then you introduced or you mentioned Cizek, who's sort of the main philosophical character

in the book, and he has this distinction between the real, the symbolic, and the imaginary. So he says the real, we can't, the real is something that we cannot directly reach, or at least we can only capture it in terms of the symbols we put on it. And we can compare that to the way we talk about value. It's, we can't really talk about value as such. We need to put a price on it before we can talk about it. But once we started pricing something, we've already moved from the realm of the real into the realm of the symbolic.

Wait, I'm lost. Hold on. Let's go back. Hold on. So are we saying that there's, so there's no real value to something, certainly not in poker. If you have a hand,

it kind of depends on the hands of the other players and like their reaction to you. And it only becomes like actualized once you put a price on it. Is that what you're saying? Well, what I'm saying is that sometimes. Sometimes the real matters and sometimes it doesn't.

And we don't know or it's very difficult to decide when it's one and when it's the other. That's the whole sort of that's what keeps poker going. But that's also what keeps a market going. So if everyone in a market could agree on the price of a particular asset, there would be no trading. Because there was no reason. There would be no reason. So trading comes about because people disagree on the true symbolization, if you like, or the true pricing of a particular asset. And now, I don't know, I kind of want to move into this thing about derivatives, if that's okay, because that kind of exemplifies how this works.

So if we looked at what was happening going into the financial crisis in 2007, there was a lot of derivatives trading. we've heard about the collateralized debt obligations and other types of derivatives. And when we look back at it, we can sort of say, well, that was completely disconnected. The pricing of these was completely disconnected from any underlying reality in a way. And yet, people kept trading them and they kept making money. And I would even imagine that some of the people who were trading, They knew very well that there were no underliers or the underlier were not worth very much. And yet they kept trading because they could still make money.

And then at some point, which no one could really predict, there was this, what Shishik would call like an answer from the real. It was like sort of the real sort of intervened into the market. Like a Minsky moment where everyone suddenly sort of like woke up and realized that. actually these weren't being priced correctly. Yeah. Exactly. And the same thing is what goes on in poker. Many, many hands in poker are, they are concluded even without anyone, without anyone showing their cards.

So most of what goes on in poker is, I mean, purely in the realm of the symbolic, if you like. But then all of a sudden, someone says, I think you're bluffing. I want to see your hand. And then you go to showdown. and then you show the hand and then you see who wins. But you can't really predict if it's going to go to a showdown

or if the other person is just going to fold and then the hand is completed without anyone showing their cards. So in a sense you could also say if you want to use the word or the concept of Minsky moments, poker is a game that sort of circulate or it plays around with Minsky moments, so to speak.

One of the things that I really liked in the book was this idea. So like, you know, it's sort of well understood that we live in a symbolic world from the moment that we learn words and learn to read and learn to speak. We associate symbols with everything in everyday life. And so symbols permanently intermediate are understanding with reality. But that one of the appeals of gambling is essentially to have the opportunity, I think, if I'm understanding what you've said correctly, to essentially get to experience the reel unmediated by the symbolic. So sometimes you might pull a slot on a slot machine, and even though the odds are really stacked against you, you win big. And so essentially, you've

violated what the symbolic says. The symbolic says you should lose when you pull the lever, but every once in a while you win. You get to break through this sort of symbolic structure that sort of defines everyday life. Yeah. So you can say that probability theory is it's kind of a symbolic order and or a symbolic law if you like. And what we try to do with probability theory is to tame, tame chance in a way. We can say, we know this is random, yet we can calculate these probabilities and we can master it by doing this.

And that's essentially also what you do with, we can also find that in markets very much. The thing is, however, that probability theory works only in the long run. it never works in the single instant. So when you do win against all odds, you have this experience that not only have you won a particular amount of money, but you also, you kind of, you've beaten the law in a way. And there's a certain sense of thrill in that.

It can also be horrifying in a way, but there's also some, there's an element of thrill in that. And that's another thing that I think that games and poker in particular kind of thrives on. is this element of being able to or having this sense of defeating the law. I think you can find the same thing in trading. I think a lot of traders also can have this sense of, oh, now I kind of beat the system

or something like that. Yeah, one thing that I find to be very interesting about trading, and this is also similar to poker, is that if you look at someone who's a beginner in the markets, maybe they'll buy a handful of stocks and try to beat the market and they're almost guaranteed to lose money. And then you get this other, this sort of next level investor who I think you might characterize in poker as a grinder who buys index funds and ETFs and hardly trades because they know intellectually that that's the smartest way.

But then you get to an even higher level of trader like someone like a George Soros or like some brilliant hedge fund manager who at any discreet moment, their portfolio might look identical to a novice trader because they're even, and it's very similar to poker where in any discrete hand or even a tournament, it can be difficult to distinguish a terrible poker player from a great player. Yes, so as part of the book, I did some research among poker players. And I discovered that they also had all these terms that they would use to characterize different players or types of players. And so I found I used sort of these ideal types of the soccer, the grinder and the player to sort of categorize different players. And then I combine this with this distinction between the real, the symbolic and the imaginary. So the sucker is someone who's what turns the soccer on is exactly what we talked about before, taking wild chances and then winning against all odds.

The grinder we find sort of, he masters sort of the symbolic. So he's very much into probability theory and what turns him on. It's the opposite. It's the ability to control chance and to play in the long run and have a sort of steady in the long run. What the player, this third type, what he does, he masters the imaginary. And that's he can not only can he sort of read the other players, but he can also go into this game of reading how the other players read him or reading how the other players read that he reads them and goes back and forth. the players are kind of the one that has the highest level of mastery of the game what they can also do is that they will they will play in a certain way for a period of time

and then all of a sudden they will shift gears and then throw everyone else in the game throw them off and then get a big win and he's the player again is then turned on by something else than the other two figures and i'm certain that or i think you can find the same among people who trade in financial markets. Which of the three prototypes that you just laid out would you say dominate in financial markets? None of them, because I think they're all there and they are their simultaneous presence. It is what kind of characterizes.

But I think all of them, I think if there were no suckers, then there wouldn't be any profits for any of the others. So I think they sort of, yeah, we need all of them there in order to, or the market needs all of them to be there in order to function the way that markets function. I love that breakdown. We have to take a quick word from our sponsor when we come back. I want to talk more about financial markets, but first, a quick ad. Put knowledge to work and grow your business with CIT. From transportation to health care to manufacturing, CIT offers commercial lending, and Treasury Management Services for small and middle market businesses. Learn more at CIT.com. Put knowledge to work.

And we're back with Ola Berg. He's a professor at the Copenhagen Business School. We're talking about poker. We're talking about financial markets. We're talking about the distinction between the real, symbolic, and the imaginary. Ola, I want to ask you about something specifically going on in the markets right now that really fascinates me and a lot of traders. You know, we have in the U.S. there's this election coming up that is causing a lot of people a lot of anxiety. People are trying to figure out how to play the election, what kind of trades will do well.

If Trump wins or Clinton wins, you know, how to take advantage of the fact that maybe everyone thinks Clinton will win and Trump is underpriced. One trade that really stands out that people are talking about is the Mexican peso, and there's a lot of trading in the peso related to the idea that because Trump is, been so sort of antagonistic with his rhetoric towards Mexico that the peso would get hit. You can say it, Joe. He's going to build a wall. He says he's going to build a wall. And so people, so there's been, this is one asset and derivatives related to the peso are like clearly trading around the election. But it's not clear to me as an observer that there's anything real here in the sense that if Trump were to win, that would would really be necessarily bad for the peso or the Mexican economy.

And it feels like this is something where trading has moved from the realm of the real, as in the peso, moving based on fundamentals of the Mexican economy to simply people trading against each other because they imagine that other people are playing the same game, essentially. Do you see this when you look at markets where there's like a tipping point where some idea enters the realm? It's like, ah, this is going to be how. we trade this risk and suddenly it no longer becomes based on the real but essentially a game in

and of itself. Yeah. I think, I mean, particularly with Forex markets, it's very difficult to say. So what are actually the fundamentals that we're trading on here? I think if you look at the US dollar, the US economy or the US government, they're building up this huge debt. And I think everyone knows that it's never going to be paid. And yet this doesn't seem to have any real effect on the price of the dollar. So I think in Forexmark, it's very difficult to say what is the real. At the same time, I think that when we think about these interventions from the real, they can come in many different forms.

And one of the forms in which they can come is actually when there's a, when politics intervenes in. into economics in a way that sort of goes beyond what we could have imagined in a way. Like, I mean, one thing that one could foresee sometime in the future, I think it's going to be some years into the future. But I think we could conceive of a shift where the US dollars would stop being sort of the reserve currency of the world because other superpowers are saying, it's costing us too much money.

We don't want to do this anymore. we don't want to buy into this monetary hegemony anymore. So now we'll sort of try and disconnect from this idea. And in that case, you could have a huge shift. And when people then some years later look back at that, and then they would look at the way we're saying now and say, whoa, remember before 2020 or whenever the shift, shift happens, the US dollars was trading completely.

completely out of any fundamentals. And then we had the correction in 2020 when other currencies became reserve currency. Anyway, so I guess my point here is to say that it's in the nature of the real to be beyond something that we can truly anticipate or calculate. We just have a few more minutes,

but if you don't mind, I just wanted to tell a very short story about poker because I mentioned that I was in California recently and I had a few hours to spare. I was on a brief vacation with my wife. Joe, does this end in you winning big? No, it's just the opposite. It's just the opposite.

So I had a few hours to spare. I love poker and I had a few hours to spare. I know. It's never a good sign. And good. But I had a few hours and I went to a casino on the outside of L.A. And I sat down and not all that much money. But as soon as I, as much as I love poker, and I think it's a fascinating game,

I started getting very, I just started getting really depressed when I was there. It felt kind of lonely. It felt kind of pointless. I was like, what am I doing? I'm in this beautiful city. The weather is great. I'm indoors. And then, and I couldn't like stand up, though.

So I was like losing money. My head wasn't in it. I wasn't playing well. And then near the end, I looked down at my cards and I had pocket kings. And I got all the money in pre-flop. I bet. And then someone raised me. and I re-raised, we went all in, and he had pocket queens, but he caught a queen on the turn,

and so he flopped his set, and he won all my money. And then as soon as that happened, I felt this overwhelming sense of relief. Like, I think that that would really upset me, but actually I found, like, the cloud had lifted, and I was sort of, like, unhooked from the game, and then I could just sort of, like, walk out, I'd lost all my money. And it really, you know, sort of what you were saying was, like, the exhilaration of the the real intervening into the symbolic. I should have won that hand.

You know, I think the odds are 12 to 1 when you have a pair over pair and all the money goes in or something like that. But it didn't happen. And rather than being upset, it was like this like, this like tremendous, like, sense of like relaxation and relief that descended over me. And I know in your book you talk about like problem gambling and it's, you know, some of how the gambling manifested in real life. and I wanted to get your sort of a take, you know, I wanted to get your psychological reading of what happened to me.

Well, I think the thing, one of the fascinating thing about poker is that you encounter all sorts of emotions in poker. I think I quote someone in the book saying poker is about everything you can find in life except love, but there doesn't have to be love everywhere. Something like, he put it a little bit smarter than I can do. So on the one hand, you can find extreme joy and exhilaration, but you can also find kind of depression in there. It's kind of all in there. And the difference between the two can be very sudden, or the shift between the two can be very sudden.

And I would say for my own, what I've realized is that I only like to play poker with people whom I would like. like to have a beer with anyway. Right. Yeah? So for me, it's, I don't, I mean, I've also tried, like, playing games, obviously, with strangers. And yes, it's been fun, but at the same time, it's like, yeah, I kind of have to like

people in order to play with them. So, but of course, there is this, one of the things that the game does, it kind of, it drags you in, that's also why you can end up becoming a compulsive game, because it has this force where it sort of drags you in. And even though many, many compulsive gamblers, when they do play, they don't feel very well. It's not like they're just, oh, I'm playing, this is great. No, they can sit there and be really depressed. Even if they're winning?

Well, regardless of the, yeah, regardless of the winning, whether they're winning or losing, doesn't necessarily matter. It can matter, but it doesn't necessarily. But they will kind of still be sitting there, which for me is also, it's, again, it's a fact. fascinating thing about gambling and poker, but it's also, of course, a scary thing. I mean, that's also one of the things that got me into studying gambling in the first place is that I was fascinated by the fact that with such simple means, basically what you have is that you have a stack of plastic discs and a stack of paper cards.

And then yet you can just by moving those things around, you can sort of have people feeling the most extraordinary emotions just by that very, very simple technology. And I was just like, wow, that's amazing. So I want to say that I've sort of cracked the code on that, but that was kind of what I wanted to get at in my, part of what I wanted to get at in my studies. Well, Allah, I think that is a

great place to leave it. It's a fascinating book. I'm also looking forward to reading your follow-up books. And I really appreciate you coming on the podcast today. I was very happy to be on the podcast. Thank you very much to both of you. So Tracy, I know you were skeptical of that conversation, but what do you think? After all of that, I just have one question. What's a pocket queen?

Oh. So in Texas Hold'em, you, in Texas Hold'em, you can. Everyone gets dealt two cards. And so you have two cards that only you can see. And then there's five cards out on the table and you make your best hand out of five. So two kings is pocket kings and two queens as pocket queens. Okay, that's useful. On a more serious note, I thought that was, I was skeptical, but I thought that was a really

fascinating conversation that gets to the heart of what you and I talk a lot about, you know, when we're judging news stories and judging market movements are these fun. fundamental things reflecting something actually happening in the economy, or are they just people speculating? And, you know, if I could channel the Bloomberg View columnist Matt Levine for a second, he is often fond of saying that when it comes to financial markets and certainly things like big banks, they are just kind of collections of estimates and forecasts and in some sense as symbolic numbers. Well, I remember one of the things, I remember, I used to, trade stocks a little bit back in 1998 and 1999 when I was in college during the, during the dot-com bubble.

And there were all these message boards. There were people like, you know, hyped each other up and said, yeah, let's go buy this or whatever. And then on the way down, I remember like those message boards obviously took a very dark, grim turn as everyone was losing their money. And I remember there were a lot of people who didn't understand why people had to sell. They were basically like, don't sell. let's just hold on to our stock and all our money is here. And you could see it was like this like desperate attempt to keep, you know, in the parlance of the discussion, to prevent the real from intervening. Like there was clearly this like under like the real which had been suppressed for so long.

Like people ignored the fact that so many of these stocks didn't have like successful companies behind them. It could only be submerged for so long. And then it was in starting at 2000, it really started to bubble back up. And people didn't understand why that. had to be. Why couldn't we just keep making money and trading stocks with each other and being rich like we were last year? And so it was this very like fascinating phenomenon of like people discovering in real time that eventually get, yeah, the real, the real returns eventually. I question if that's true because there are things that you could argue that have gone on for,

you know, thousands of years that aren't necessarily real. Like, you know, fiat money. Some people might say, why are we placing our faith in pieces of paper and like bits of wrong? and metal and things like that. That's an extreme version, but like I do think markets can carry on in that kind of way for a long time. But the other thing the dot-com bubble brings up is like just the idea of how many fortunes are built on this imaginary or symbolic wealth. Like they're not actually there. And I know a lot of people lost money in the dot-com bubble, but I'm sure a lot of people, you know, got out at the right time and, you know, made money from what was essentially, a falsehood, I guess.

Yeah, no, it's exactly right. And it's, as he put it, as all I put it, you know, that's sort of like, this relationship is what makes a market, the fact that people disagree on stuff, the fact that there is no objective way to measure the real. And yeah, you can have these extreme dislocations, positive and negative, and when fortunes can be made with nothing really underneath them. Should we do, we should do like a markets philosophy spin-off podcast. Yeah, I'd love that.

I bet Matt Levine would like that one too. Yeah. We'll get them on. Beyond, beyond gamma and alpha. We should call it. That's terrible. On that note, this has been another edition of the Oddlots podcast. I'm Joe Wisenthall.

You can follow me on Twitter at the stalwart. I'm Tracy Allaway. I'm on Twitter at Tracy Allo. Thanks for listening. Put knowledge to work and grow your business. business with CIT. From transportation to health care to manufacturing, CIT offers commercial lending, leasing, and treasury management services for small and middle market businesses. Learn more at CIT.com. Put knowledge to work. The news doesn't stop on the weekends. Context changes constantly.

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