Infinite Replay Value
Infinite Replay Value
The hype cycle, pachinko, generative AI, and more
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Peak reality TV
Jane was the perfect host; and was thrilled to be announced the victor on the penultimate evening of the culinary competition she had applied for months earlier. That was until Peter Marsh, a fellow competitor, opened his mouth.
Come Dine with Me is a timeless slice of British television. Each week, five guests take turns hosting a dinner party; serving three courses and providing a form of entertainment. At the conclusion of each evening, the guests score their host out of ten. The one who collects the highest score is the winner; taking home £1,000 and the pride of a job well done. In the same way that Friends, a show which ended production in 2004, continues to endure, come dine with me has a similar permanence in UK culture.
Older episodes give the viewer a glimpse into life decades past. There was a time when scallops and chorizo or asparagus wrapped in pancetta (recurring starters on the show) were considered fancy. When tableside talk turns to online dating, the consensus is taboo; displaying the remnants of a stigma which has since decayed. The show has infinite replay value, despite many of the episodes now being over a decade old. Why?
Infinite replay value is a phrase we will use a lot today; a term to describe an experience that can be revisited repeatedly without becoming boring. Not to be confused with addiction.
A lot of the replay value is down to the narrator of the show, David Lamb, who peppers his witty commentary throughout every episode. Otherwise, the show’s ability to captivate audiences transcends that of a juicy exhibition of what might technically be construed as reality TV. It captures the oddities of humans; amplified through the strategic selection of diverse batches of contestants; each hailing from different backgrounds. We get to peer into provincial norms that are abstract from our own. Five people that would ordinarily never acquaint with one another, allow each other into their most intimate space; their home. The viewer has a front-row seat to the hilarity which ensues.
Through watching hundreds of episodes, I noticed a few recurring themes that speak volumes for the casting department; who are very good at their job. In almost every episode there is:
Someone that states that they like “the finer things in life”.
Someone who remarks that something is “too posh” for them.
One fussy eater.
Point three is an obvious curveball for any host. With menus established before the show, their score is at the mercy of the, often unrefined, palate of the typical Brit. Often it is those who play it safe that earn the most kudos from their peers. The number of times a truly great cook has witnessed their menu and execution pooh-poohed because of their guests’ unadventurous tastes is comical. Points one and two are the ingredients for friction between guests. The two statements are diametrically opposed. When these two people sit down at the dinner table, it makes for scintillating viewing. Appearing for a red carpet event, Lamb once said something that stuck with me. Asked why he thought the show was able to capture the attention of the viewers so well throughout the years, he said something along the lines of;
“The gap between how people think of themselves vs how other people perceive them is an interesting space, and Come Dine with Me exploits that”.
More often than not, the guests who present themselves as upwardly mobile (those who adore the finer things) are engaging in live-action role-play. Someone once shared an analogy with me; expressing that the majority of people who proclaim to earn a six-figure salary are earning a little over $100,000 per year. The ones who are closer to the seven-figure range are more likely to say “I do okay”. The people who say they like the finer things on the show are the people who say they earn a six-figure salary as soon as they surpass $99,999.99 in annual income
. The gap between social posturing & self-perception and reality is why the show is so brilliant; and why it has infinite replay value.Gambler’s fallacy
What happens when an experience with infinite replay value introduces money or reward into the equation? We could quite easily deviate into the world of online sports betting. Following legislative changes, the US is undergoing a transformative cultural shift that the UK endured decades ago (good luck, Americans). Sports broadcasts are now proliferated with advertisements for sports betting. The American Gaming Association reports that commercial gaming revenue in the US reached $60.4 billion in 2022, up 14% from 2021.
In-person gaming continues to be the backbone of the industry but online gambling represents a growing share of the total. Sports betting, a $7.5 billion segment, grew 73% last year as Americans bet a total of $93.2 billion on sports. The Brits, who dominate the global rankings, are reported to have generated $12.5 billion in sports betting revenues that same year. But I won’t be addressing that today. Instead, we are going to fly 5,700 miles east to Japan and explore one of the nation’s largest leisure activities.
Pachinko
“First you hear it. Then you smell it (the cigarette smoke). And finally, you stumble through a crowded room, disorientated and confused, before leaving subsequently deaf. It's an experience many foreigners in Japan have had, and I was no different. I'll never forget being bewildered by Pachinko when I discovered it 6 years ago”.
Chris Broad, 2018
Pachinko
is a controversial game in Japan. Some believe it's a form of addiction, while others believe it's a harmless form of entertainment. It combines elements of pinball and slot machines; where players purchase and drop steel balls into a machine and watch as they bounce and slide down various pathways. The goal of the game is to win as many balls as possible and cash them out for prizes. The parlours they are typically found in are noisy, brightly lit and not too disimilar from the floor of a Las Vegas casino.
In 2002, there were ~16,504
Pachinko parlours throughout Japan. Today, there are closer to 9,000. Despite the industry slowly eroding, it remains immensely popular with 1/10 people playing at least once per week. Prior to the pandemic in 2020, which the industry has yet to recover from, Pachinko generated ¥20 trillion (~$145 billion) in annual sales. This represented ~3% of Japan's GDP. While the operation of casinos is strictly illegal in Japan, Pachinko avoids regulatory scrutiny because of the exchange mechanism. Players are technically not gambling; instead exchanging currency for steel balls and cashing out prizes.
The game of Pachinko is fun but is distinct from traditional gambling because players are not vying for economic rewards. Instead, they are rewarded with prizes which often have inferior worth to the monetary value of the balls they are exchanged for. The allure of the dopamine-inducing lights and noises also have their part to play. It’s easier to rationalise why a traditional gambler might engage in the pastime. There is a clearer relationship between inputs and outputs. While most gamblers are subject to the gambler’s fallacy, a blackjack player may tell themself romantic lies about what their expected return is on a $1,000 bankroll at the table; “okay, I’m down $750, but if I can just manage double up twice, then I’m back at breakeven”.
Gambler’s fallacy: a mistaken belief about sequences of random events. A type of cognitive bias in which a person believes that the outcome of a future event is influenced by the outcome of past events.
There are aspects of infinite replay value in traditional gambling, but the prospective monetary gain is a far more powerful vice. They are less likely to play because of how fun they perceive it to be. Instead, being hooked on of the prospect of winning big; whether they realise it or not. With Pachinko players, the monetary incentives are weaker
, and they are more drawn to the gameplay itself, regardless of whether they make a return on their stake.
Pachinko is a singular representation of infinite replay value; less shrowded by competing motivations. Next, we move onto the most gargantuan model of infinite replay value there ever was.
The stock market’s replay value
The stock market possesses infinite replay value for a number of reasons. Some are drawn to the prospect of making money. These motivations, if not properly controlled, can mutate into a gambler’s fallacy. I lost money in this investment, but the next one has to be a ten-bagger. Others are encapsulated by the lens through which studying the stock market allows them to view how the world and the companies within it behave and transform over time. The variations in the manner in which investors engage with the stock market (process, style, goals, time horizon, etc) may as well be infinite; and the news cycle which permeates the social sphere of the investment world is perpetual. The news cycle is one of the (many) drivers that encourage the stock market’s infinite replay value, and the one I want to isolate today
.Absent from investing style and goals, we all have the tendency to get sucked into the social sphere. In the later stages of a bull market, we are fabulously intoxicated by the highs of our returns. Everyone is making money and everyone perceptually gains a few IQ points. We absorb the news cycle because of its confirmatory bias. When the inevitable bear market comes, we are glued to our screens like the couple who stares as they drive past a car wreck on the side of the road. Most of the later entrants to the bull market will leave, but genuine investors will hang around to endure another cycle. Because money is such an integral part of our lives and our investments are subject to valuation changes by the minute, we are naturally drawn to fervent observation. This is why the stock market, and the commentary which surrounds it, has infinite replay value. There is always something to pull us back in. Even when the information we consume ought to have minimal bearing on our actions in the stock market.
John Bogle once said the stock market is the greatest distraction from the business of investing. But humans crave distractions. They cherish endlessly scrolling through social feeds or living vicariously through idols. They adore gossip. They love to take 30-minute phone breaks to reward their 15-minute bursts of work. They frequently fill their day with busy work that mimics hard work.
Busy work: tasks that are assigned or completed with the primary purpose of keeping someone occupied or busy, rather than to achieve a specific outcome.
The same is true in the stock market. While most investors would be better off being less active, they feel the need to compensate for inactivity by gorging on fattening information. Investing is home to plenty of unknown unknowns, and that can be terrifying. Imagine having a significant part of your worth invested across a number of assets that you have no idea what the value will be tomorrow. That you can’t possibly ascertain what the value will be ten years from now. Image those companies are situated within an economy that you haven’t a chance of forecasting. We, therefore, do things to fool ourselves into thinking we have control. We model cashflows ten years into the future. We make bets about where interest rates will be. We spend hours debating with other people why we think certain companies will succeed or fail
. But most of this activity results in busy work. There is a fine line between keeping abreast of developments that relate to your investment process and consuming information that represents empty calories. Every news item is breaking news. Every technological development is a potential windfall for a certain company and a cataclysmic event for another. News has to be divisive, it has to be provocative, and it has to capture your attention. Every new topic is dissected with such scrutiny or hyperbole, even though most of it is noise. Just like we relish engaging in busy work, investors like to speculate and fill the gap with useless conversation. I’m not talking about OTM call options for a company facing bankruptcy. I’m talking about hypothesizing on the outcome of unknown unknowns.The stock market captures our attention in such a way that its one of the most powerful forces of infinite replay value there is. Circumnavigating the noise is a great practice to ensure one’s mental space remains uncluttered. But there are times when perceiving everything as noise can come to our own detriment.
There’s always something to captivate us
An exercise for you to establish just how trivial the news can be; read a few newspaper articles from last year and see how much of it is relevant today. The last few years have given us:
Is IDFA going to destroy Meta?
Is TikTok going to destroy Meta?
Is Disney going to kill Netflix?
Should mortgages be NFTs? (no, really, someone said this).
Web 3.0 (remember that?)
Will the metaverse replace the physical world?
Is the Dollar too strong?
Is the Dollar too weak?
Bitcoin to $100,000?
Will Miscrosof’s BING AI finally interrupt Google’s search dominance?
Are banks about to collapse?
Interesting as they may be, these themes lose relevancy almost as fast as they are fructified. But they captured such intense attention at their peak relevancy. People altered their portfolios because of them. The most recent “thing” is generative AI; with Open AI’s ChapGPT being the new beacon of attention.
Hype is intriguing because people get burned by so many hype cycles they give up on exploring new ones and, instead, dismiss them. We criticise what we don’t understand. Recency bias tells us the new hype will suffer the same fate as the last, and the one before that. Many are saying the rate of adoption for this recent breakthrough in generative AI represents an “iPhone moment”. It’s rational to be a sceptic; AI is something which has cyclically garnered attention for years. We may avoid a lot of investments that turn out to be stinkers employing this attitude. We may also miss some home runs. You could say a bag of worthless marbles and a solitary gold nugget is worth more than an empty sack. Will generative AI be the nugget? Is the flywheel spinning enough to be self-sustaining? I have no idea, personally, but I am impressed by the products being built using the technology.
When it comes to VCs, the dilemma is that every VC will pitch their book like it’s about to change the world when 90% of the time it will fail and 9% of the time turn out to be a reasonably good outcome. When they are pitching the things that 1% of the time will actually change the world, some people will hear “boy cries golden goose”. NFTs certainly weren’t “it”, crypto wasn’t either, VR might not be, and AI has been pitched countless times in the past. But what if the new-fangled adoption of generative AI is “it”? That thing which changes the world in a manner similar to the internet, or the iPhone; both of which had their sceptics. If innovations that exhibit power law tendencies were so easy to identify at their inception, then the Internet and iPhone would have been accepted by the masses long before they did.
As an investor, do you have to be first to reap attractive returns from a power law-wielding innovation? There is no harm in exercising patience and allowing the industry to form before parting with capital. But the ones who are first (or close to it), and bet on the right horse, will reap the largest rewards. That’s the bounty for the risk of being a first mover in some respects. Prospects like these fuel media cycles. They ignite the inquisitive hunger in investors looking to be early in the next great thing. It is the reason why the stock market has infinite replay value.
Thanks for reading,
Conor
A few notes here. One, it’s perfectly okay to say you earn a six-figure salary if you earn $100,000 per year; it’s objectively correct. Two, this is a generalisation, but I find it to be the case more often than not on the show.
One of my favourite Youtubers, Chris Broad, did a great episode about the machines back in 2018. (here)
Trends of Japan's Giant Leisure Industry: Pachinko, via UNLV Gaming Research & Review Journal.
Net generated sales from Pachinko halls, via Statista. Has been amended to JPY’s value in USD as of April 2022.
They are still vying for something; the various prizes they can win in the parlour.
An exploration of the monetary drivers is warranted but can be saved for another time.
Discussion and the gathering of other perspectives are important in investing. I am trying to get across the point that not everyone’s opinion matters.
That was an awesome and wide ranging essay. I will need to read it again. I half suspect you wrote the whole thing to use the word “fructified” correctly!