Bridge of Asses

I added Money Angle for Masochists to the letter this year. The alliterative phrase is going to stay but only because I didn’t know I should have called it the “Bridge of Asses.”

In A Coder Considers the Waning Days of the Craft, James Somers writes:

Medieval students called the moment at which casual learners fail the pons asinorum, or “bridge of asses.” The term was inspired by Proposition 5 of Euclid’s Elements I, the first truly difficult idea in the book. Those who crossed the bridge would go on to master geometry; those who didn’t would remain dabblers.

Wikipedia says the pons asinorum or “bridge of asses” is:

used metaphorically for a problem or challenge which acts as a test of critical thinking, referring to the “ass’ bridge’s” ability to separate capable and incapable reasoners.

The entry later states that economist John Stuart Mill called Ricardo’s Law of Rent the pons asinorum of economics.

Well…that’s just because he didn’t live to see option theory. I don’t mean the math details. I mean the conceptual rails of looking at a web of branching future payoffs, seeing how they could be replicated, and measuring the cost of that replicating portfolio today. It is the formalization of finance’s deepest truth — you cannot eradicate risk, but only change its shape.

With that, I push you onto the bridge.

[As always, I write these with a motivated high schooler in mind. I’m not sure I always get here and I do think these would be well adapted to video explainers but it’s just hard to prioritize that.]

1. Understanding Risk Neutral Probability
2. The Intuition Behind The Black Scholes Equation
3. The MAD Straddle
4. Short Where She Lands, Long Where She Ain’t

Each of these posts is a little world of editorials embedded in explanations. I want to bring extra attention to Understanding Risk Neutral Probability because its editorials pull in ideas that are profound but relatively underexposed.

Within that post you’ll find:

👽Real World vs Risk Neutral Worlds

🌷Appreciative Reasons

🎺Instrumental Reasons

Final boss

My response here is a useful test of your understanding of some of these concepts. Can you identify the posts that best embody my claim?