Welcome to The Degen Condition, formerly The Degen Post in a past life. Henceforth, in this space, we shall explore the intersections of all things degen with all things non-degen.

Gene, sports fan and gambler, is watching his favorite tennis player take the court. He’s won big and lost bigger betting on his guy but he rides with him regardless. The wins have been sweet, the losses excruciating. Recently, his guy blew a four match-point lead that not only wrecked Gene’s bag, but left him sulking and acting like a jerk to his friends and fam.

Today is a new day. He is in good spirits, ticket in hand, pumped to watch his guy compete. He wants action but backing his guy (the favorite) at -220 feels pointless. Risking a bigger bag for a relatively minor payout is unappealing. If he loses, Gene is gutted twice: financially and emotionally. So he does something counterintuitive: he bets against his heart. Instead of risking $220 on his guy to win $100, he backs the opp (the underdog) at +200, betting $50 to potentially win $100. If his guy wins, Gene gladly eats the L. If his guy crashes out, at least he cashes in, and he eats something more appetizing.

As much as Gene understands math and values his money, today he isn’t trying to maximize profit. He’s trying to minimize pain.

What Gene is doing is called an emotional hedge. On its dedicated Wikipedia page, the term is defined as a “psychological and financial strategy used to mitigate potential negative emotions by offsetting a personally significant outcome with a compensatory action.” It’s a known dimension of behavioral economics, which gives weight to all the ways humans impact markets with irrational biases and decisions.

Among seasoned sports bettors, emotional hedging is treated as part-joke, part-taboo. Although it's still often dismissed as a weak-minded tactic by some, it's become common practice for many others. Several Reddit threads debate whether betting against your desired outcome is legit strategy or a weak cope. The concept of putting money where your mouth isn’t has trended upward since 2020, currently at an all-time-high. The Google Trends chart for worldwide interest in the term “emotional hedge” shows little activity from 2004-2020, a steady rise from 2020-2024, and a projected spike from 2024 to the present (August 2025). This timeframe coincides with unprecedented mainstreaming of online sports betting since 2020, with 39 states (and the District of Columbia) having legalized sports betting following the landmark 2018 Supreme Court decision striking down the Professional and Amateur Sports Protection Act (PASPA), clearing the way for legalization.

With legal US sports betting less than a decade old, and most states only legalizing within the last few years, it's safe to say that the average US online sports bettor is a noob, and probably not very statistically literate. According to a 2024 St. Bonaventure/Siena Research survey:

• 35% of bettors signed up within the past year

• 35% joined more than a year ago but less than two

• 29% have had an account for more than two years

Another survey found 22% of all Americans (and a whopping 48% of men aged 18–49) have an active online sportsbook account. Americans wagered almost $150 billion legally on sports in 2024—up 23–24% from 2023. Over 95% of these bets were made online. Earlier this year, ESPN reported that US sportsbooks pocketed about $13.7 billion in revenue in 2024, up from $11 billion in 2023. This means over two-thirds of online sports bettors have been at it for less than two years. That's plenty of new money, new emotions, new reactions to the highs and lows of prediction market exposure.

The Agnostic sports bettor—one who can keep their emotions in check, strictly playing on identifiable edges vs the odds—is a unicorn. Those who innately have this gift, or somehow manage to level-up to this state of degen zen, I suspect are likely to have moved on to other markets with bigger returns and less fuckery than one can get from battling sportsbooks. The Agnostics are vastly outnumbered by the Homers (or, in crueler terms, the Suckers) who bet on their personal favorites no matter what. Sprinkled in there are so-called Sharps, who have (allegedly) developed a betting “system” that informs them which side is (supposedly) more likely to win.

Gene moves between sucker and sharp, but aspires to be agnostic. But he knows he’s far too emotionally engaged for that. To him, sports betting is more than the money or the dopamine hits. It’s an additional layer to his identity as part of a fan community. He knows this fandom comes with bias, bias comes with a price tag, and heartbreak can be hedged like crops against bad weather. Or an undesired election outcome.

In 2016, I came upon PredictIt—an early online prediction market that allowed users to buy and sell shares in political outcomes the way you’d trade stocks. No surprise, the biggest trading volume came on “Yes” and "No" shares on Will Donald Trump win the Election? Predictably, most traders traded in lock-step with their hearts and politics, tearing into each other in the comment section. As the volatility of the campaign cycle raised the specter of a Trump win, some of his outspoken critics saw an opportunity. They bought "Yes" shares, not because they wanted him to win, or even really believed it was the more probable outcome. They wanted to feel something more than dread if he actually pulled it off.

I sat on the sidelines of the 2016 election prediction markets, fascinated and revulsed at the spectacle of politics turning into sports. Stories of both pro- and anti-Trumpers cashing in big on predicting his victory over Hillary Clinton simmered online over the next four years. Before the 2016 election, in March, PredictIt reported having 29,000 active traders on the platform. In October 2022, New York Magazine reported 177,000 active PredictIt traders, most seemingly having opened accounts during the 2020 election cycle, when peak COVID-19 lockdown and stimulus checks created a perfect storm to bring online betting in prediction markets to new heights.

Just two days after Joe Biden's inaugruation, the legendary GameStop Short Squeeze happened, as traders organized on Reddit's r/wallstreetbets subreddit successfully drove the price of the flailing video game retailer's stock from under $20 in early January 2021 to an intraday high of about $483 on January 28, 2021. A more than 2,000% spike. The GameStop squeeze was not based on traditional analysis of market fundamentals. It was emotional speculation on steroids: people buying stock not for dividends but for dopamine and solidarity. Emotional hedging is its mirror image: buying bets not for upside but for consolation. The former is the intersection of FOMO and YOLO, the latter is insurance. Offense and defense. Both proving that widespread online access to retail trading speculation was opening the floodgates to a mass of market sentiments that abides by their its own rules, operating with its own biases.

To Gene, emotional hedging is also a way of easing the tension between his own biases as they collide with the market, and even with each other. Optimism bias afflicts suckers and sharps alike, who tend to believe their odds have a better shot than they actually do. Prospect theory, Daniel Kahneman and Amos Tversky’s big idea, posits that the pain from Ls always hit harder than the joy from Ws. Gene, who has never cracked a behavioral economics textbook, knows these concepts instinctively. His bet against his heart is an insurance policy that will turn out to be either a joy tax or a consolation prize. He holds a ticket which guarantees one or the other, and that is a more valuable to him than a ticket that has a 31.25% chance of making an already miserable day more miserable.

Sometimes, emotional hedging can backfire. I witnessed this in a living room at the end of Super Bowl XLIX. Seahawks fans already know where I’m going with this. 26 seconds left. One-yard line. 2nd & Goal. Pete Carroll calls for a Russell Wilson throw instead of handing the ball to Marshawn Lynch. Malcolm Butler picks it. Game over. Everyone who had money on Seattle, myself included, took two Ls: one financial, one emotional. But one lone friend, a fellow Seahawks "fan," emotionally hedged with Patriots +3.5 and won. Didn't even need the points on the spread. When I reminded him of this, not only did he not give a shit about his win, but he endured the whole room turning on him. We all still occasionally give him shit for this bet to this day. He takes it in stride, but I’m guessing that he’d gladly pay several times the amount he won that day to never be grieved ever again for profiting off the Worst Moment in Seahawks History while the rest of his tribe commiserated. In fact, I'd bet on it.

Back to Gene and his tennis match bet. So far, we’ve viewed his bet as an insurance policy in the event of an undesired outcome. In other words, a hedge, but an emotional one. The online sports betting community would identify it as such. Very un-degenlike of him, but understandable for the risk-averse. However, there’s a hidden dimension to Gene’s bet that is being overlooked: arbitrage.

In finance, a hedge is protection. An airline might lock in jet fuel prices months ahead of time so they don’t get wrecked if the price of oil spikes. A farmer might sell futures on corn so they’re covered if harvests are bad. In sports betting, hedging mostly comes in the form of placing a second bet to soften the blow of potentially losing your first. If you bet the Seahawks to win the NFC Championship at +1000 in August, you might hedge by betting on their playoff opponent in January to lock in a guaranteed payday. Hedging is playing defense.

Arbitrage is playing offense. It’s not about protection but about exploiting a spread, akaan inefficiency in the market. Example one: Bitcoin trades for $10 (it’s a long time ago mmkay) on one exchange but is priced at $11 on another. You buy where it’s lower, sell where it’s higher, and pocket the difference (minus the trading fee, assuming it’s less than the spread itself). In sports betting, arbitragers hunt for sportsbooks that hang slightly different odds from each other, where the discrepancy is large enough that betting opposite sides on each book guarantees a profit. Example two: sportsbook one has Seahawks -180, sportsbook two has 49ers +200. With the right bet sizes, a bettor can take each side and guarantee a 2.38% profit no matter who wins. Big bankroll bettors can really exploit this to great affect. Anyone with $30000 laying around can put $18000 on the Seahawks in the first sportsbook, $9333.33 on the 49ers in 2nd sportsbook, and walk away with $666.67 either way.

What Gene is doing isn’t arbitrage in the textbook sense, but it rhymes with it. There’s no risk-free monetary gain. But he is aiming for a middle between the emotional market of fandom and the financial market of odds. The "market inefficiency" is that these two forms of value are not perfectly correlated. With the bet he’s placed, his guy winning pays him joy but no cash. His guy losing pays him cash but no joy. The bet becomes the exchange rate between them, which is subjective and dynamic. He is assertively pursuing a guaranteed positive outcome rather than playing defense against a negative one. Gene is has effectively sold his anxiety at a premium and bought peace of mind, exploiting the inefficiency between the relatively low (to Gene) monetary cost of hedging and the high affective cost of despair. What most of Gene's degen peers call emotional hedging might be more accurately called affective arbitrage.

Despite the quasi-religious worship of markets as inherently “efficient," persisting from Adam Smith onward, economists over the last century have increasingly focused on feeling. John Maynard Keynes wrote about “animal spirits” in 1936:

"The instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than on a mathematical expectation, whether moral or hedonistic or economic."

Neuroscientists like Antonio Damasio argue that every decision starts in the body, not the spreadsheet. His somatic marker hypothesis (1994) argues that emotion and bodily signals guide decision-making. Gene’s hedges are as much about calming his muthafuckin' nerves as his bankroll. Gut feelings and somatic markers guide our choices long before logic catches up, meaning even the cleanest financial models are haunted by emotion, our anxieties baked into price.

Behavioral finance has built a whole field around the idea that psychology is as central to markets as math. However, nearly all behavioral economists still assume the dominance of a single financial market, made up of many smaller markets, moving towards efficiency (in theory), but often complicated IRL by humans… being human.

But what Gene is doing goes beyond just acting irrationally in a rational marketplace, or bringing rationality to an irrational casino. Unlike behavioral economists, he doesn’t see one market with two dimensions, but two dimensions with a market in each. He isn’t merely influenced by his emotions, but rather treats emotion as a market in itself, tradable against dollars. In game theory terms, it's Gene vs. Gene, setting up a strategy where Gene always wins: fan Gene gets joy, degen Gene gets cash. T

Gene is doing in micro what our financial systems seem to be heading towards in macro. In the volatile open sea of financial speculation we're all navigating, he is building his own life raft. Consider how finance already prices disaster. Since 1997, the insurance industry has issued Catastrophe bonds (cat bonds), which allow investors to collect high yields until a natural disaster strikes, in which case the bondholders eat the loss and insurers get the cash. Carbon offsets do something similar for ecological collapse. On paper it’s “risk transfer.” In reality, it’s a way to turn catastrophe (something unquantifiable but which nonetheless has a cost, or the power to create costs) into a financial product.

Gene’s affective arbitrage is smaller and more personal, but it belongs to the same lineage: the attempt to set an exchange rate between the unquantifiable and the quantifiable. Evolving and scaling where PredictIt left off, platforms like Kalshi and Polymarket are extending this logic with products letting a thousand prediction markets bloom every day. You can hedge on whether interest rates rise, who will win an Oscar or Grammy, or whether a politician makes it past the year. What's seen as a side strategy for sports bettors has scaled into a cultural operating system: markets where you can trade not just dollars against dollars, but feelings against futures.

Is what Gene doing rational or irrational? For him, it doesn’t matter. It’s both. Or neither. Who knows and who cares? All he knows is that he takes Ls badly and the Ws don’t feel good for long enough. He came from the trenches, he’s neurodivergent and chases dopamine, and he is, let’s say, very passionate. But he’s also self-aware and trying to do better. Affective arbitrage keeps his pendulum from swinging too far in either direction. Betting against his favorite player is a way to be a degen and still show up in all the non-degen parts of his life.

Behavioral finance is full of paradoxes like this. People can be risk-seeking in one domain and risk-averse in another, and, in Gene’s case, both at the same time. Affective arbitrage allows Gene to reconcile recklessness with conservatism in a world where most people are seemingly trapped in one box, avoidant of the other.

Alas, there is a cost. The price of buying comfort, which seems minimal in a single instance, can, over time, add up to significant foregone profit. It's generally agreed upon by OG sports bettors that hedging has expected negative value (-EV). Even through an affective arbitrage lens, there's no denying that on a longer time horizon, Gene may be setting his bankroll, and possibly his financial future, on fire just to feel some warmth in the present. He'd argue that this is a risk he is willing to take, and a worthy trade, and he'd be justified in feeling that way.

But the costs aren't just financial, either. Whether sports, politics, art, culture, romance etc. our passionate commitments don’t always fit neatly in a box of rationality. To love something enough to be gutted when we lose it is the whole experience. Buying protection from pain means selling some of the joy. Emotional hedging seems to have become part of everyday life. I think of this when I see a live concert crowd holding up their phones, watching the performance through their camera. They are preserving a memory in the present, protecting it from being forgotten in the future, but it coming at the expense of being fully present.

Gene, hedging his heart at +220, is only doing what so many of us already do in subtler ways: buying insurance against bad feels. Winning is dope and losing is wack. But winning is dope because losing is wack. Outsourcing pain to affective arbitrage ensures some kind of psychologically balanced ledger, sure. In a world swinging between extremes, these acts--affective arbitrage, emotional hedging, going full degen--all appear first as emotionally coping strategies, but inevitably start feeling like the only way to ride the chaos of long degeneracy.

In the uncertain times we live in, it makes sense that what's essentially a cope is becoming a default response for many. But to me, that part is unsettling. The tragedy (and the comedy) is that being human is to allow ourselves to feel the joy and the pain, to learn, to adjust. What starts as using money as a pillow to soften the landing on a losing sports bet, or an election night disappointment, or a bad seasonal harvest, is seemingly scaleable into hedging against existential catastrophe itself.

In the last 30 years, financial systems emerged to let people trade doom for dollars (climate contracts, war markets, disaster bonds). Newer prediction market platforms push that kind of financialization into the realm of politics and pop culture. We’re using computational power for harm reduction rather than exploring alternatives to the uproot the sources of the harm. We're speculating in ways that anticipate our own suffering. Our boy Gene did all that math in his head before committing his dollars to something he didn't even really want to happen. He could’ve simply not made any bets at all, and maybe found the most value in just enjoying the match.