Splinterlands Economics: Risk
Hello everyone! We are back again today with another edition of Splinterland Economics - a series in which we introduce a basic economic concept and then apply it to Splinterlands. If this is your first time reading, just to tell you a little bit about myself: my day job is in an unrelated area but I consider myself a little bit of economics nerd - I read a little (or maybe way, way) more news than I should, double majored in econ, and am obsessed with optimization. I love the way Splinterlands is equal parts card game and resource allocation game. My goal with these articles is to share a little bit of what I know with you all.
Our subject today is a popular boardgame. While it doesn't quite live up to the standard of more modern Eurogames, many of you who have played it may remember it as one of the best way to lose friends. Oh wait, what's that you say? This supposed to be an economics post? Well, in that case we'll talk today about the other Risk! Not to be confused with Risk: The Game of Strategic Conquest, this is a concept which helps us to understand the decisions we make and the assets we accumulate, and is particularly relevant in uncertain times, such as bear markets and "red candle" days - sound familiar at all?
What is Risk?
Risk deals with the uncertainty surrounding particular outcomes or events, and while it can also include positive outcomes, it is most commonly is used to refer to the probability of a bad or unfavorable outcome occurring. For example, if you purchase a stock, then your risk may refer to the chances of that stock's price dropping after you buy it. If you are entering a business arrangement then risk may refer to the odds of the deal ending in a loss or other complications. Risk is not limited to finance either - "risk" also applies to the chances that you may get hit by a car while crossing the street if you forget to look both ways, or the possibility of tickets for opening night of your favorite movie series selling out if you forget to purchase them as soon as they are available.
Understanding risk is important because it allows us to identify it, and then choose whether to manage it. Identifying risk in a useful manner can be more difficult than you may first think - being able to say that something is "risky" is of limited use if we are unable to describe the chances of a bad outcome occurring, and exactly how bad that outcome could be. Whenever it comes to making important decisions, don't skip doing your due diligence - remember that sometimes the biggest risks are the ones that you didn't anticipate ahead of time and plan for the possibility of!
If you are able to identify risks then you are able to take steps to mitigate them, or at least will be able to make decisions with fuller information of the true situation. For example, you may choose to invest your time to camp out at the box office to be the first in line for movie tickets. Insurance is a common (and perhaps simpler) way of mitigating risk. You may pay a fee for health insurance in order to pay less in case you have a medical emergency and need to purchase costly procedures or medications. You may pay for automobile insurance in order to offset potential damages from an accident - and where I live, doing so is even required by law! If you manage a stock portfolio, you may also use tools such as options in order to mitigate risk from other portions of your assets, or may choose to diversify your holdings in order to reduce the risk from any one particular section.
How do we apply it to Splinterlands?
"Risk" is a term that gets used often in investing and in the crypto space, and Splinterlands bridges both of those categories. Splinterlands is all about asset management, so it is useful to identify the risks whenever we are making an investment in the game. Whether it is cards, nodes, SPS, DEC, or some other item related to the game, identifying and being aware of potential risks can help us to make better, more informed decisions. Knowing more about the risks also allows us to take steps to reduce or mitigate risk.
For example, if you are buying singles then be sure to do your research - how useful is the card at different league levels? How long will it be usable in different formats? How have similar cards behaved in price in the past? Answering questions such as these can give you more information on possible outcomes, good or bad. A similar analysis could be done on items such as nodes, though those are harder to predict - since they are new assets in the Splinterlands world, we have less historical information to go on. In the crypto space it is also important to keep in mind bigger picture risks, such as the possibility of a bear market, the project shutting down, or it being a scam (though in my opinion Splinterlands is relatively safe in those last 2 areas, NFA).
Splinterlands is also a card game, and there are elements of risk involved in the actual gameplay as well. For example, if you think your opponent may go for a particular lineup, then you may choose to select a lineup which will beat that predicted lineup, but may lose to many others - a risky strategy, albeit one that can result in victory if you know your opponent well. The game also has random elements such as misses due to speed differences, so there is uncertainty or risk involved due to those odds.
Once you have identified your risks then you can choose to try to mitigate them. Maybe you decide to bring a "safer" lineup into battle, or to bring monsters with higher speed values. Spreading your investments across multiple cards and asset types or across a longer time period by dollar cost averaging are just a few possible ways in which you may try to reduce your risk. Do note that you may not always choose to mitigate your risk. If you have strong feelings about what is likely to happen, then mitigating those risks will oftentimes reduce your potential gains. Even if you end up deciding to go that route, knowing what the risks are gives you the tools you need to make a more informed decision.
Why should we care?
It can become easy to forget what exactly we mean when we mention risk, and what we can (or should) do about it, but being able to identify, evaluate, and mitigate (or at least accept) risk will allow us to make better choices with our investments and resource allocations. While turning a blind eye to risks may help you to feel better in the short run, it can easily result in you unintentionally taking on more risk than you might have if you knew the big picture - and at that point it becomes gambling. Gambling at the casino with some money you can afford to lose is one thing. Gambling with your life savings and perhaps not even knowing it is a whole different story.
Thank you so much for reading all the way to the end. Interested in seeing some more of my writing in the future? Be sure to give me a follow! In the meantime, if you'd like to see some of my recent posts:
The Little Scrapper that Could - Using Gargoya Scrapper in Battle! - Last week's battle challenge, featuring Gargoya Scrapper!
Splinterlands Economics: The 10,000 Hour Rule - An introduction to the 10,000 hour rule, and how we can apply it to Splinterlands.
Splinterlands Economics: Chunking - An introduction to chunking, and how we can can use it to our benefit in Splinterlands.
Thinking about giving Splinterlands a try but haven't signed up yet? Feel free to use my referral link: https://splinterlands.com?ref=bteim, and be sure to reach out to me if you have any questions!