Nash equilibrium

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pages: 523 words: 143,139

Algorithms to Live By: The Computer Science of Human Decisions by Brian Christian, Tom Griffiths

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Such an equilibrium is now often spoken of as the “Nash equilibrium”—the “Nash” that Dan Smith always tries to keep track of. On the face of it, the fact that a Nash equilibrium always exists in two-player games would seem to bring us some relief from the hall-of-mirrors recursions that characterize poker and many other familiar contests. When we feel ourselves falling down the recursive rabbit hole, we always have an option to step out of our opponent’s head and look for the equilibrium, going directly to the best strategy, assuming rational play. In rock-paper-scissors, scrutinizing your opponent’s face for signs of what they might throw next may not be worthwhile, if you know that simply throwing at random is an unbeatable strategy in the long run. More generally, the Nash equilibrium offers a prediction of the stable long-term outcome of any set of rules or incentives.

Mixed strategies appears as part of the equilibrium in many games, especially in “zero-sum” games, where the interests of the players are pitted directly against one another. every two-player game has at least one equilibrium: Nash, “Equilibrium Points in N-Person Games”; Nash, “Non-Cooperative Games.” the fact that a Nash equilibrium always exists: To be more precise, ibid. proved that every game with a finite number of players and a finite number of strategies has at least one mixed-strategy equilibrium. “has had a fundamental and pervasive impact”: Myerson, “Nash Equilibrium and the History of Economic Theory.” “a computer scientist’s foremost concern”: Papadimitriou, “Foreword.” “Give us something we can use”: Tim Roughgarden, “Algorithmic Game Theory, Lecture 1 (Introduction),” Autumn 2013, https://www.youtube.com/watch?

simply finding Nash equilibria is intractable: Specifically, finding Nash equilibria was shown to belong to a class of problems called PPAD, which (like NP) is widely believed to be intractable. The link between Nash equilibria and PPAD was established in Daskalakis, Goldberg, and Papadimitriou, “The Complexity of Computing a Nash Equilibrium” and Goldberg and Papadimitriou, “Reducibility Between Equilibrium Problems,” which was then extended to two-player games by Chen and Deng, “Settling the Complexity of Two-Player Nash Equilibrium,” and then further generalized in Daskalakis, Goldberg, and Papadimitriou, “The Complexity of Computing a Nash Equilibrium.” PPAD stands for “Polynomial Parity Arguments on Directed graphs”; Papadimitriou, who named this class of problems in “On Complexity as Bounded Rationality,” insists any resemblance to his name is a coincidence. (Christos Papadimitriou, personal interview, September 4, 2014.)

 

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Understanding Sponsored Search: Core Elements of Keyword Advertising by Jim Jansen

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Therefore, via actions such as quality score and minimum bids, the search engine acts to keep auctions stable. One of best-known points of stability is the Nash equilibrium, which is a set of bids so that, given these bids, no advertiser has an incentive to change their bidding behavior. There is always at least one Nash equilibrium set of bids for a GSP auction, and among the equilibrium, there is always one that maximizes total advertiser valuation (i.e., all advertisers get the most from their bids). In other words, the GSP auction always has an efficient Nash equilibrium. The Serious Game of Bidding 197 Potpourri: The Nash Equilibrium [3 [30, 30, 331] 1] is a concept in game theory strategy. It refers to a point where all players in the game have nothing to gain by changing their strategy.

Stability is a key component for online auctions, such as those associated with sponsored search. A key component of the Nash Equilibrium is that all players must know the strategies of the other players. Although not really possible in a sponsored-search auction, advertisers can get a close approximation of the other advertiser’s strategies, which is good enough. The Nash Equilibrium entered pop culture with the 2001 American movie, A Beautiful Mind, directed by Ron Howard and starring Russell Crowe, Ed Harris, and Jennifer Connelly. A full-information (i.e., perfect information) Nash equilibrium is often used for modeling sponsored-search auctions, even though the sponsored-search auction does not operate under conditions of perfect information. The argument for the assumption of a full-information Nash equilibrium is that even if the bidders do not know exactly what the other advertisers are bidding, there is the possibility of updating bids until the auction gets to the best level, meaning that the resulting Nash equilibrium is about the same as if there had been full information in the first place [6].

The argument for the assumption of a full-information Nash equilibrium is that even if the bidders do not know exactly what the other advertisers are bidding, there is the possibility of updating bids until the auction gets to the best level, meaning that the resulting Nash equilibrium is about the same as if there had been full information in the first place [6]. The advantage of the GSP auction is that it has a pure-strategy Nash equilibrium and avoids a pattern of constant updates in bids [22]. The following mathematical model captures the essential features of sponsoredsearch auctions, based on integration from multiple sources [10, 28, 32, 33, 29]. A generic sponsored-search auction is defined by the following: r A set of k advertising slots with CTR Ø1 > : : : > Ø k, where Øi is the probability that the user clicks on the advertisement in slot I (i.e., the CTR of 1 > i). r Assume that higher slots get the best CTR and that CTR will generally fall geometrically.

 

pages: 998 words: 211,235

A Beautiful Mind by Sylvia Nasar

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Flood and Dresher doubted it. The mathematicians ran their experiment one hundred times.” Nash’s theory predicted that both players would play their dominant strategies, even though playing their dominated strategies would have left both better off. Though Williams and Alchian didn’t always cooperate, the results hardly resembled a Nash equilibrium. Dresher and Flood argued, and von Neumann apparently agreed, that their experiment showed that players tended not to choose Nash equilibrium strategies and instead were likely to “split the difference.” As it turns out, Williams and Alchian chose to cooperate more often than they chose to cheat. Comments recorded after each player decided on strategy but before he learned the other player’s strategy show that Williams realized that players ought to cooperate to maximize their winnings.

Leonard, “Reading Cournot, Reading Nash: The Creation and Stabilization of the Nash Equilibrium,” The Economic Journal (May 1994), pp. 492–511; Martin Shubik, “Antoine Augustin Cournot,” in Eatwell, Milgate, and Newman, op. cit., pp. 117–28. 18. Joseph Baratta, historian, interview, 6.12.97. 19. John Nash, “Non-Cooperative Games,” Ph.D. thesis, Princeton University Press (May 1950). Nash’s thesis results were first published as “Equilibrium Points in N-Person Games,” Proceedings of the National Academy of Sciences, USA (1950), pp. 48–49, and later as “Non-Cooperative Games,” Annals of Mathematics (1951), pp. 286–95. See also “Nobel Seminar: The Work of John Nash in Game Theory,” in Les Prix Nobel 1994 (Stockholm: Norstedts Tryckeri, 1995). For a reader-friendly exposition of the Nash equilibrium, see Avinash Dixit and Susan Skeath, Games of Strategy (New York: Norton, 1997). 20.

The world came back to John Nash after more than thirty years, and it was the third act of his life that drew me to his story in the first place. In the early 1990s, I was an economics reporter at the New York Times. I was interviewing a Princeton professor about some trade statistics when he mentioned a rumor that a “crazy mathematician” who hung around the math building might be on the short list for a Nobel prize in economics. “You don’t mean the Nash of the Nash equilibrium?” I asked. He told me to call a couple of people in the math department to learn more. By the time I put down the phone, I realized that this was a fairy tale, Greek myth, and Shakespearean tragedy rolled into one. I didn’t write the story immediately. Lots of people wind up on short lists for the Nobel and never win, so writing about him in a newspaper would have been an invasion of privacy.

 

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Misbehaving: The Making of Behavioral Economics by Richard H. Thaler

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A third level thinker: “Most players will discern how the game works and will figure that most people will guess 33. As a result they will guess 22, so I will guess 15.” Of course, there is no convenient place to get off this train of thinking. Do you want to change your guess? Here is another question for you: What is the Nash equilibrium for this scenario? Named for John Nash, the subject of the popular book (and biopic) A Beautiful Mind, the Nash equilibrium in this game is a number that if everyone guessed it, no one would want to change their guess. And the only Nash equilibrium in this game is zero. To see why, suppose everyone guessed 3. Then the average guess would be 3 and you would want to guess two-thirds of that, or 2. But if everyone guessed 2 you would want to guess 1.33, and so forth. If and only if all participants guessed zero would no one want to change his or her guess.

., ch. 12, p. 153. 209 “Day-to-day fluctuations . . . market”: Ibid., p. 154. 210 “Worldly wisdom teaches . . . unconventionally”: Ibid., p. 158. 210 “Professional investment may be likened”: Ibid. 212 A Beautiful Mind: Nasar (1998). 212 commonly referred to as the “beauty contest”: Camerer (1997). 212 first studied experimentally by . . . Rosemarie Nagel: Nagel (1995). 212 zero was the Nash equilibrium: Researchers have explored various alternatives to Nash equilibrium. See, for example, Geanakoplos, Pearce, and Stachetti (1989), McKelvey and Palfrey (1995), Camerer, Ho, and Chong (2004), Eyster and Rabin (2005), Hoffmann et al. (2012), and Tirole (2014). 215 “In the long run, we are all dead”: Keynes (1923), ch. 2, p. 80. Chapter 22: Does the Stock Market Overreact? 217 Groucho Marx theorem: This idea was formalized by Milgrom and Stokey (1982). 217 why shares would turn over at a rate of about 5% per month: Based on data from New York Stock Exchange (2014). 218 given a decile score . . . on a test of “sense of humor”: Kahneman and Tversky (1973). 219 Security Analysis . . .

That way I could present fresh data from FT readers along with my article. The FT agreed, and British Airways offered up two business-class tickets from London to the U.S. as the prize. Based on what you know now, what would be your guess playing with this crowd? The winning guess was 13. The distribution of guesses is shown in figure 10. As you can see, many readers of the Financial Times were clever enough to figure out that zero was the Nash equilibrium for this game, but they were also clueless enough to think it would be the winning guess.# There were also quite a few people who guessed 1, allowing for the possibility that a few dullards might not fully “get it” and thus raise the average above zero.** FIGURE 10 Many first and second level thinkers guessed 33 and 22. But what about the guesses of 99 or 100; what were those folks up to?

 

pages: 237 words: 50,758

Obliquity: Why Our Goals Are Best Achieved Indirectly by John Kay

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IBM, relieved, called it quits.3 Even in chess, with a limited range of legal moves, the number of possible outcomes multiplies so rapidly that exhaustive calculation is beyond the scope of even the most powerful computer yet imagined. There is a formal procedure for describing such iterations called game theory, and its most basic solution concept—the Nash equilibrium—supposes that each player adopts the best strategy available if the other player does the same. We can expect that there is a Nash equilibrium solution to the game of chess, but we don’t know what it is. In every game of chess that has ever been played, there are moves for at least one of the players that are better than the one played. Or to be exact, we don’t know for sure that there aren’t. We wouldn’t recognize the perfect chess game even if we saw it played because we could never be sure that neither player ever had a better move.

Messner, Reinhold metaphors Microsoft military affairs military contracts milk Mill, John Stuart misers mission statements Mobutu Sese Seko monetary targets monocultures “moral algebra” Morita, Akio mortgages Moses, Robert motorcycles mountain climbing Mount Everest “muddling through” Munger, Charles Munich Agreement (1938) music nail factories Napoleon I, emperor of France Nash equilibrium National Park Service, U.S. natural selection Nazism negotiation Nettle, Daniel neural responses New Oxford Book of English Verse, The Newsweek New York, N.Y. Nigeria Nixon, Richard M. Nobel Prize normal distribution North Vietnam Northwest Passage Notre Dame cathedral Nozick, Robert Obama, Barack objectivity obliquity: adaptation in behavior and complexity inherent to eclecticism and flow and geographical happiness achieved by incompleteness and as indirect approach interactions for irrationality and linearity vs.

 

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Here Comes Everybody: The Power of Organizing Without Organizations by Clay Shirky

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(The payoff matrix is bit more complex in the standard version, but the dilemma is the same.) Assuming that the two people can’t communicate with each other and don’t trust each other (about which more in a moment), the worst outcome—number four—is the rational one, an outcome called a Nash equilibrium. The dilemma of the Prisoners’ Dilemma is that, because it is a one-off transaction in which you and I can’t communicate with each other, we can’t coordinate any outcome better than the dismal Nash equilibrium. (This is the same math underlying the Tragedy of the Commons, where the Nash equilibrium encourages individual defection, even as it damages the group.) Things change, though, when the prisoners interact with each other repeatedly, a version called an iterated Prisoners’ Dilemma. Robert Axelrod, a sociologist at the University of Michigan who studied the iterated version extensively, staged tournaments for different software programs emulating the prisoners.

See also news business broadcast media vs. communications media mass amateurization and revolutionary changes Meetup convening power Dean campaign and as example of Small World network failure and fitness landscape and how groups form launching most active groups social capital and Stay at Home Moms (SAHM) Mermaid Parade, Coney Island Meyer, Chris Microsoft Miller, Judith Misilim, Marion mobile phones as digital cameras Dodgeball service Howard Forums and as revolutionary change shift away from advance planning as social tools stolen Sidekick story Twitter service Moore, Michael movable type MoveOn.org Muller, James Murad, Abdel Fatah MySpace California school boycott as example of Small World network vs. Facebook participation imbalance promise concept significance stolen Sidekick and user-generated content and Nash equilibrium net value argument New York City Police Department (NYPD) news business. See also media industry internet and Lott/Thurmond example as profession sharing news stories trustworthiness issue USA Today threat Northwest Airlines Nupedia NYPD. See New York City Police Department O’Keefe, William Omidyat, Pierre one-to-many communications tools one-to-one communications tools open source software O’Reilly, Tim organizations.

 

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Against the Gods: The Remarkable Story of Risk by Peter L. Bernstein

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The opposite view would prevail among the politicians. Looking downward vertically, we find that both the choices rank higher than 4: the politicians would rather do nothing or run a deficit than follow a policy that cost them their jobs if their constituents lose their jobs as a result. This outcome is known as a Nash Equilibrium, named after John Nash, another Princetonian and one of the 1994 winners of the Nobel Prize for his contributions to game theory.18 Under the Nash Equilibrium the outcome, though stable, is less than optimal. Both sides would obviously prefer almost anything to this one. Yet they cannot reach a better bargain unless they drop their adversarial positions and work together on a common policy that would give each a supportive, or at least a neutral, role that would keep them from getting into each other's way.

The players-usually large financial institutions like pension funds or mutual funds-are anonymous, but all bids and offers are displayed on the screen together with reservation prices above which the investor will not buy and below which the seller will not sell. In January 1995, the publication Pensions and Investments reported on another application of game theory in making investments. ANB Investment Management & Trust in Chicago had introduced a strategy explicitly designed to avoid the Winner's Curse. The chief investment officer, Neil Wright, saying he had based the strategy on the Nash Equilibrium, claimed that the Winner's Curse is usually associated with stocks that have abnormally wide price ranges, which "means there is a lot of uncertainty about how the company will do." A wide price range also indicates limited liquidity, which means that a relatively small volume of buying or selling will have a significant impact on the price of the stock. Wright accordingly planned to select his portfolio from stocks with narrow trading ranges, an indication that they are priced around consensus views, with sellers and buyers more or less evenly matched.

Schlarbaum, 1974. "The Individual Investor, Attributes and Attitudes."Journal of Finance, Vol. XXIX, No. 2 (May), pp. 413-433. Leinweber, David J., and Robert D. Arnott, 1995. "Quantitative and Computational Innovation in Investment Management." Journal of Portfolio Management, Vol. 22, No. 1 (Winter), pp. 8-16. Leonard, Robert J., 1994. "Reading Cournot, Reading Nash: The Creation and Stabilisation of Nash Equilibrium." Economic Journal, Vol. 104, No. 424 (May), pp. 492-511. Leonard, Robert J., 1995. "From Parlor Games to Social Science: Von Neumann, Morgenstern, and the Creation of Game Theory." Journal of Economic Literature, Vol. XXXIII, No. 2 (June), pp. 730-761. Loomis, Carol J., 1995. "Cracking the Derivatives Case." Fortune, March 28, pp. 50-68. Macaulay, Frederick R., 1938. Some Theoretical Problems Suggested by the Movements of Interest Rates, Bond Yields and Stock Prices in the United States since 1856.

 

pages: 295 words: 66,824

A Mathematician Plays the Stock Market by John Allen Paulos

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If the group continues to play this game, they will gradually learn to engage in ever more iterations of this meta-reasoning about others’ reasoning until they all reach the optimal response, which is 0. Since they all want to choose a number equal to 80 percent of the average, the only way they can all do this is by choosing 0, the only number equal to 80 percent of itself. (Choosing 0 leads to what is called the Nash equilibrium of this game. It results when individuals modify their actions until they can no longer benefit from changing them given what the others’ actions are.) The problem of guessing 80 percent of the average guess is a bit like Keynes’s description of the investors’ task. What makes it tricky is that anyone bright enough to cut to the heart of the problem and guess 0 right away is almost certain to be wrong, since different individuals will engage in different degrees of meta-reasoning about others’ reasoning.

Kozlowski, Dennis Kraus, Karl Krauthammer, Charles Kudlow, Larry Lakonishok, Josef Landsburg, Steven Lay, Ken LeBaron, Blake Lefevre, Edwin Leibweber, David linguistics, power law and Lo, Andrew logistic curve lognormal distribution Long-Term Capital Management (LTCM) losing through winning loss aversion lotteries present value and as tax on stupidity Lynch, Peter MacKinlay, Craig mad money Malkiel, Burton management, manipulating stock prices Mandelbrot, Benoit margin calls margin investments buying on the margin as investment type margin calls selling on the margin market makers decimalization and World Class Options Market Maker (WCOMM) Markowitz, Harry mathematics, generally Greek movies and plays about outguessing the average guess risk and stock markets and Mathews, Eddie “maximization of expected value” principle mean value. see also expected value arithmetic mean deviation from the mean geometric mean regression to the mean using interchangeably with expected value media celebrities and crisis mentality and impact on market volatility median rate of return Merrill Lynch Merton, Robert mnemonic rules momentum investing money, categorizing into mental accounts Morgenson, Gretchen Motley Fool contrarian investment strategy PEG ratio and moving averages complications with evidence supporting example of generating buy-sell rules from getting the big picture with irrelevant in efficient market phlegmatic nature of mu (m) multifractal forgeries mutual funds expert picks and hedge funds index funds politically incorrect rationale for socially regressive funds mutual knowledge, contrasted with common knowledge Nash equilibrium Nash, John Neff, John negatively correlated stocks as basis of mutual fund selection as basis of stock selection stock portfolios and networks Internet as example of price movements and six degrees of separation and A New Kind of Science (Wolfram) Newcomb, Simon Newcombe, William Newcombe’s paradox Niederhoffer, Victor Nigrini, Mark nominal value A Non-Random Walk Down Wall Street (Lo and MacKinlay) nonlinear systems billiards example “butterfly effect” or sensitive dependence of chaos theory and fractals and investor behavior and normal distribution Nozick, Robert numbers anchoring effect Benford’s Law and Fibonacci numbers and off-shore entities, Enron Once Upon a Number (Paulos) online chatrooms online trading optimal portfolio balancing with risk-free portfolio Markowitz efficient frontier of options. see stock options Ormerod, Paul O’Shaughnessy, James P/B (price-to-book) ratio P/E ratio interpreting measuring future earnings expectations PEG variation on stock valuation and P/S (price to sales) ratio paradoxes Efficient Market Hypothesis and examples of Newcombe’s paradox Parrondo’s paradox St.

 

Culture and Prosperity: The Truth About Markets - Why Some Nations Are Rich but Most Remain Poor by John Kay

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After making fundamental contributions to mathematics and quantum physics, he turned his attention briefly to economics, which he found "a million miles away from an advanced science." 20 Von Neumann became head of the U.S. Atomic Energy Commission-and the inspiration for Dr. Strangelove-before dying at the age of fifty-three. John Nash was author of the principal solution concept in game theory-the Nash equilibrium-but his productive career was ended by schizophrenia. His health partially restored, he was awarded the Nobel Prize in 1994. 21 Nash was played by Russell Crowe in an Oscar-winning film of his life, A Beautiful Mind. Institutional (or transactions cost) economics regards as its founder Ronald Coase,n a British economist who spent most of his career at the University of Chicago. His claim to fame rests mainly on two articles, published almost twenty-five years apart.

The theorist pulls out his laptop computer and starts to compute an optimal strategy. His colleague cries out in alarm, "Run, there is no time to waste." The economist smiles complacently. "Don't worry," he says, "the bear has to work it out too." The joke is not particularly funny, but it contains an important truth. 16 When economists adopted game theory, they assumed rational-self-regarding, materialist-behavior. In a Nash equilibrium, each player adopts the best strategy given the strategies of all other players. Biologists also adopted game theory, but did notcould not-assume their subjects had access to laptops. They developed the concept of an evolutionary stable strategy. 17 What behavior by bears would allow them to survive and thrive, even in the face of incursion by other bears with different behavior? That sounds like the same question, but it is not.

The Prisoner's Dilemma was one of the problems devised in early exploration of game theory at the Rand Corporation after World War II. Supposedly devised by Merrill Glood and Melvin Dresher, the problem was posed in story form by Albert Tucker to explain his research to Stanford psychologists. 10. Marwell and Ames (1981). 11. The "folk theorem" of game theory (see, for example, Fudenberg and Tirole [1991], chapter 5), so called because its attribution is unclear, claims that all such strategies are Nash equilibrium in an indefinitely repeated game. We behave as we are expected to. 12. Axelrod (1984, 1997). 13. Basu (2000). 14. See Cronin (1991) for an explanation of these biological models. See Frank (1988) for a development of their economic analogues. Gintis (2000) describes both. 15. The classic statement of group selection arguments is Wynne-Edwards (1962), which helped provoke the decisive refutation by G.

 

pages: 662 words: 180,546

Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown by Philip Mirowski

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Andrei Shleifer, asset-backed security, bank run, barriers to entry, Basel III, Berlin Wall, Bernie Madoff, Bernie Sanders, Black Swan, blue-collar work, Bretton Woods, Brownian motion, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, constrained optimization, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, dark matter, David Brooks, David Graeber, debt deflation, deindustrialization, Edward Glaeser, Eugene Fama: efficient market hypothesis, experimental economics, facts on the ground, Fall of the Berlin Wall, financial deregulation, financial innovation, Flash crash, full employment, George Akerlof, Goldman Sachs: Vampire Squid, Hernando de Soto, housing crisis, Hyman Minsky, illegal immigration, income inequality, incomplete markets, invisible hand, Jean Tirole, joint-stock company, Kenneth Rogoff, knowledge economy, l'esprit de l'escalier, labor-force participation, liquidity trap, loose coupling, manufacturing employment, market clearing, market design, market fundamentalism, Martin Wolf, Mont Pelerin Society, moral hazard, mortgage debt, Naomi Klein, Nash equilibrium, night-watchman state, Northern Rock, Occupy movement, offshore financial centre, oil shock, payday loans, Ponzi scheme, precariat, prediction markets, price mechanism, profit motive, quantitative easing, race to the bottom, random walk, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, school choice, sealed-bid auction, Silicon Valley, South Sea Bubble, Steven Levy, technoutopianism, The Chicago School, The Great Moderation, the map is not the territory, The Myth of the Rational Market, the scientific method, The Wisdom of Crowds, theory of mind, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, Tobin tax, too big to fail, transaction costs, War on Poverty, Washington Consensus, We are the 99%, working poor

If one cites the canonical Arrow-Debreu model of general equilibrium, then one can pair it with the Sonnenschein-Mantel-Debreu theorems, which point out that the general Arrow-Debreu model places hardly any restrictions at all on the functions that one deems “basic economics,” such as excess demand functions. Or, alternatively, if one lights on the Nash equilibrium in game theory, you can pair that with the so-called folk theorem, which states that under generic conditions, almost anything can qualify as a Nash equilibrium. Keeping with the wonderful paradoxes of “strategic behavior,” the Milgrom-Stokey “No Trade theorem” suggests that if everyone really were as suspicious and untrusting as the Nash theory makes out, then no one would engage in any market exchange whatsoever in a neoclassical world. The Modigliani-Miller theorem states that the level of debt relative to equity in a bank’s balance sheet should not matter one whit for market purposes, even though finance theory is obsessed with debt.

., “A Procurement Auction for Toxic Assets with Asymmetric Information,” p. 6. 132 Ausubel and Cramton, “Auctions for Injecting Bank Capital”; Klemperer, “The Product-Mix Auction”; Armantier et al., “A Procurement Auction”; Swagel, “The Financial Crisis”; Armantier et al., “A Procurement Auction.” 133 Ausubel and Cromtom, “Auctions for Injecting Bank Capital,” p. 4. More specifically, Ausubel et al. have since acknowledged, “there is no Bayesian Nash equilibrium bidding strategy for a similar auction that we can use as a benchmark. The reference price auction is beyond current theory” (“Common-Value Auctions with Liquidity Needs”). 134 Paulson, On the Brink, pp. 258, 264, 334, 363–68, 389; see also Swagel, “The Financial Crisis,” pp. 50–52, 58. 135 Ausubel and Cramton, “Auctions for Injecting Bank Capital.” 136 “Study Suggests Buying Toxic Assets Could Work,” NPR, November 18, 2008, available at www.npr.org/templates/story/story.php?

Index A Acemoglu, Daron Adbusters Admati, Anat AEA (American Economics Association), AEI (American Enterprise Institute) “After the Crash of 2008” (Prasch), The Age of Uncertainty (PBS series) Agnotology, defined Agriculture, Department of AIG Financial Products Akerlof, George Allais, Maurice AlphaSimplex American Economic Review American Economics Association (AEA) American Enterprise Institute (AEI) American Finance Association American Institute of Certified Public Accountants American Majority Americans for Prosperity Ameriquest Angelides, Phil Anglo Irish Bank Animal Spirits (Akerlof and Shiller) Annapolis Center AOL Armey, Dick Arnsperger, Christian Aron, Raymond Arrow–Debreu theory Arrow, Kenneth Artaud, Antonin, The Theatre and Its Double, Atlanta Federal Reserve Bank Atlas Economic Research Foundation Atlas Shrugged (Ayn Rand) Audacity of Intervention Auerbach, Robert Austrian School of economics Austrian-inflected Hayekian legal theory Austro-libertarianism Ausubel, Lawrence B Bailey, Martin Baker, Dean Bank concentration in US Bank of America Bank of New York Mellon Bank of Sweden Bank of Sweden Nobel Prize Barclays Barnett, Clive Barro, Robert Basel III Bayesian Nash equilibrium Bear Stearns Beck, Glenn Becker, Gary The Beginning of History (De Angelis) Behrent, Michael Benjamin, Walter Benson, Bruce Berliner Zeitung Bernal, J. D. Bernanke, Ben on asset purchase program Brunnermeier on as Chairman of Federal Reserve Bank Board on CRA on economic crisis as economic influence on EMH on Friedman on Great Moderation on Great Recession “hold-to-maturity” prices Kestenbaum on on Lehman failure Mirowski on on mortgage market on “Panic of 2007” paper pronounced absolution upon orthodox economics profession shadow banking on TARP testimony before FCIC Bernard, Andrew Bernstein, Jared Bertelsmann AG Besley, Tim Bhagwati, Jagdish Big Lie The Big Short (Lewis) The Birth of Biopolitics (Foucault) Black Rock Black-Scholes option pricing Blackstone Group Blackwater (Scahill) Blanchard, Olivier Blinder, Alan Bloomberg, Michael Bockman, Johanna, Markets in the Name of Socialism Body Alteration Boettke, Peter Bookstaber, Richard Bootle, Roger Born, Brooksley Boskin, Michael Bradley Foundation “Break the Glass: Bank Recapitalization Plan” (Swagel) Brenner, Robert Bretton Woods Bristol University British Academy British National Health Service British Royal Society Brookings Institution Brooks, David Brown, Gordon Brown, Wendy Brunnermeier, Markus Buchanan, James Buiter, Willem Bulow, Jeremy Bush, George Business Week Buycott C Calabria, Mark Caldwell, Bruce Calomiris, Charles Calvo, Guillermo Cambridge University Cameron, David Campbell, John Capitalism and Freedom (Friedman) Carbon emission permits Cassano, Joseph Cassidy, John Cato Institute CDS (Credit Default Swap) Center for Audit Quality Center for Market Processes at GMU Center for the Dissemination of Economic Information CETUSA (Council for Educational Travel in the USA) CFPB (Consumer Financial Protection Bureau) Change.org Chari, V.

 

pages: 519 words: 104,396

Priceless: The Myth of Fair Value (And How to Take Advantage of It) by William Poundstone

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availability heuristic, Cass Sunstein, collective bargaining, Daniel Kahneman / Amos Tversky, delayed gratification, Donald Trump, East Village, en.wikipedia.org, endowment effect, equal pay for equal work, experimental economics, experimental subject, feminist movement, game design, German hyperinflation, Henri Poincaré, high net worth, index card, invisible hand, John von Neumann, laissez-faire capitalism, loss aversion, market bubble, mental accounting, meta analysis, meta-analysis, Nash equilibrium, new economy, payday loans, Potemkin village, price anchoring, price discrimination, psychological pricing, Ralph Waldo Emerson, RAND corporation, random walk, RFID, Richard Thaler, risk tolerance, Robert Shiller, Robert Shiller, rolodex, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, ultimatum game, working poor

Choices reveal all that we can know of utility, and utility in turn determines the prices that consumers are willing to pay. When someone is given a free choice between A and B, he simply consults his invisible price tags and chooses the one with the higher utility. Decision making is thus reduced to numbers. This assumption leads naturally to most of the standbys of economic theory, from demand curves to the Nash equilibrium. That brings us back to von Neumann’s contribution. Many economic choices are gambles. Given our uncertain world, the difficult and interesting choices are always gambles of one kind or another. It is therefore necessary to assign prices to gambles. According to von Neumann, the way to do this is to multiply each possible outcome’s subjective price by its probability, and total the results.

., 283 Minolta cameras, 156 Minow, Nell, 257 money illusion, 225–33 Money Illusion, The (Fisher), 225 Monopoly (game), 284, 286 Monty Python, 134 Morgan, S. Reed, 3–4, 19–21 Morgenstern, Oskar, 50, 51, 54, 55 Mormons, 28 Morrissey, Paul, 202–203, 205 MRI scans, 168 MSNBC, 258 Mugabe, Robert, 223 Mullainathan, Sendhil, 146–47, 245, 246 Murphy, Charles B. G., 49, 71 Murray, Bill, 208–209 Mussweiler, Thomas, 90, 269–71 Nash equilibrium, 51 National Broadcasting Company (NBC), 255 National Economic Council, 262 National Football League (NFL), 156–66 National Geographic, 93 National Science Foundation, 122, 197 Nature Conservancy, 202 Nazis, 83–84 Neale, Margaret, 196–201, 203, 207, 208, 212 Negotiating Rationally (Bazerman and Neale), 212 negotiations, 116, 196, 211–12; anchoring in, 207–208, 211; business, 197; divorce, 234–36; fairness in, 105, 116; gender and, 236–38, 241–44; race and, 242–44; see also bargaining; ultimatum game Nestlé, 6 Netflix, 174–75 Netherlands, 130–33 Nettle, Daniel, 283 neuroeconomics, 249–50, 252 Nevada Gaming Commission, 72 Newcastle University, 282 Newsweek, 125–26 New York Giants football team, 166 New York Times, The, 185, 203, 227, 235, 236, 266 Nikon cameras, 145 99-cent stores, 184–85, 189, 190 Nobel Prize, 10, 11, 56, 57, 60, 83, 127 Nocera, Joseph, 236 Nokia, 6 NORAD, 52 Nordstrom’s department stores, 190 Norma’s restaurant (New York), 159 Northcraft, Gregory, 196–201, 203 Northwestern University, Kellogg Graduate School of Management, 218 Obama, Barack, 262 O’Dell, Brandon, 159, 161, 186 Oechssler, Jörg, 213–14 Olive Garden restaurant chain, 160 Onassis, Jacqueline, 202 “opportunity” price increases, 161 Oregon, University of, 62 Oregon Research Institute (ORI), 25–28, 49, 62, 68, 79, 87 Organizational Behavior and Human Decision Processes, 200, 210 Orma people, 122 outrage theory, 19, 276–79 Oxford University, 122, 126, 220 oxytocin, 252–54 packaging, changing size and shape of, 4–6 pain, 138–39; psychophysics of, 136 Palestine, British, 81, 83, 84 Palin, Michael, 134 Palmer, Arnold, 227 Pampers disposable diapers, 153–54 Papua New Guinea, 123 Parago, 177 Paraguay, 123 Parker Meridien Hotel (New York), 159 Parrish, Darrell, 241 Pastis restaurant (New York), 161–62 Pavlov, Ivan, 229 Pearson, Wayne, 72 Pennsylvania, University of, 237 Pepsico, 6 perceptual illusions, 36–37, 84–85 Peru, 121–22 Peters, Michael, 114 Pfeiffer, Tim, 269–71 Philosophical Enquiry into the Origin of Our Ideas on the Sublime and Beautiful (Burke), 101 phone bills, 172–73 physical attractiveness, effects on salaries and prices of, 239–40 Physical Impossibility of Death in the Mind of Someone Living, The (Hirst), 266 Picasso, Pablo, 116 pigeon drop con, 253 Pinker, Steve, 126 Plateau, Joseph-Antoine Ferdinand, 31–32, 40 Plautus, 109–10 Plott, Charles R., 78–80, 263 Pogo cartoon, 76 Poincaré, Henri, 57 Ponticello, John, 72, 73 Post, Thierry, 130–33 power curve, 32–33 Prada, 155, 158 preference reversals, 64–70, 72, 78–80, 87; experiments in, 72–75, 78–80, 90–91; rejection by economists of, 77–78 Prelec, Drazen, 9, 102, 135, 138, 194, 216, 256 price-to-earnings (P/E) ratio, 261, 263 priming, 91–94, 280–81, 284–86; see also anchoring Princeton University, 50, 165; Woodrow Wilson School, 10 Procter & Gamble Company, 6, 153 Producers, The (musical), 14–15 products, changing size and shape of, 5 Professional Pricing Society, 147 prospect theory, 97–103, 132, 147, 170, 172, 220 Prudential Real Estate, 219 Pruitt, D.

 

pages: 137 words: 36,231

Information: A Very Short Introduction by Luciano Floridi

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agricultural Revolution, Albert Einstein, bioinformatics, carbon footprint, Claude Shannon: information theory, conceptual framework, double helix, Douglas Engelbart, George Akerlof, Gordon Gekko, industrial robot, Internet of things, invention of writing, John Nash: game theory, John von Neumann, moral hazard, Nash equilibrium, Norbert Wiener, phenotype, prisoner's dilemma, RAND corporation, RFID, Turing machine

Since cooperating is strictly dominated by defecting, that is, since in any situation defecting is more beneficial than cooperating, defecting is the rational decision to take (Table 7). This sort of equilibrium qualifies as a Pareto-suboptimal solution (named after the economist Vilfredo Pareto, 1848-1923) because there could be a feasible change (known as Pareto improvement) to a situation in which no player would be worse off and at least one player would be better off. Unlike the other three outcomes, the case in which both prisoners defect can also be described as a Nash equilibrium: it is the only outcome in which each player is doing the best he can, given the available information about the other player's actions. Nash equilibria are crucial features in game theory, as they represent situations in which no player's position can be improved by selecting any other available strategy while all the other players are also playing their best option and not changing their strategies.

 

pages: 467 words: 154,960

Trend Following: How Great Traders Make Millions in Up or Down Markets by Michael W. Covel

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Albert Einstein, asset allocation, Atul Gawande, backtesting, Bernie Madoff, Black Swan, buy low sell high, capital asset pricing model, Clayton Christensen, commodity trading advisor, correlation coefficient, Daniel Kahneman / Amos Tversky, delayed gratification, deliberate practice, diversification, diversified portfolio, Elliott wave, Emanuel Derman, Eugene Fama: efficient market hypothesis, fiat currency, fixed income, game design, hindsight bias, housing crisis, index fund, Isaac Newton, John Nash: game theory, linear programming, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, market fundamentalism, market microstructure, mental accounting, Nash equilibrium, new economy, Nick Leeson, Ponzi scheme, prediction markets, random walk, Renaissance Technologies, Richard Feynman, Richard Feynman, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, shareholder value, Sharpe ratio, short selling, South Sea Bubble, Stephen Hawking, systematic trading, the scientific method, Thomas L Friedman, too big to fail, transaction costs, upwardly mobile, value at risk, Vanguard fund, volatility arbitrage, William of Occam

Traders pay close attention to volatility because price changes affect their profits and losses. Periods of high volatility are highly risky to traders. Such periods, however, can also present them with opportunities for great profits.9 252 Trend Following (Updated Edition): Learn to Make Millions in Up or Down Markets only way for everyone to succeed is to ignore the blonde and hit on the brunettes. The scene dramatizes the Nash Equilibrium, his most important contribution to game theory. Nash proved that in any competitive situation—war, chess, even picking up a date at a bar—if the participants are rational and they know that their opponents are rational, there is only one optimal strategy. That theory won Nash a Nobel Prize in economics and transformed the way we think about competition in both games and the real world.10 Building off Nash’s general thoughts, Ed Seykota lays out a basic risk definition from a trading perspective: “Risk is the possibility of loss.”

., 119 minimum stock price (trend following on stocks), 331 Mint Investments, xvi misconception of trend following, 279-280 models of trend following, 381-383 money, role of, 198-199 money management, 256-259. See also risk management Moneyball (Lewis), 181-182 Montana, Joe, 261 monthly newsletter of Dunn Capital Management, 42-43 Montier, James, 215 Morgan Stanley, 153 Motley Fool, 9 Mulvaney Capital Management, 136, 138 Mulvaney, Paul, 17, 124, 127, 172, 255, 259, 381-383 Munger, Charlie, 234 mutual fund industry, 296 NASDAQ, 3, 111, 233 Nash Equilibrium, 252 Nash, John, 251 National Institute of Standards and Technology, 225, 228-229 natural gas trading, 144-150 negative skew (statistics), 228 Neuro-Linguistic Programming (NLP), 201 The New Market Wizards (Schwager), 202, 300 New York Stock Exchange, 3 New York Yankees, 186, 188 Newton, Isaac, 238 Neyer, Robert, 188 Niederhoffer, Victor, 100, 164-168, 272, 289 Nightline (television program), 116 Nikkei 225 stock index, 131, 168-172, 238 Nin, Anais, 150, 273 NLP (Neuro-Linguistic Programming), 201 nonlinear versus linear world, 224-229 normal distributions, 226-227 numbers, trusting, 18 Oakland A’s, 185-186 objectivity and behavioral finance, 196 Occam’s razor, 212-213 Odean, Terrence, 212 Ostgaard, Stig, 126, 129 outcome versus process, 218-219 Oxford Dictionary, 213 The Oxford Guide to Financial Modeling (Ho and Lee), 125 panics.

 

pages: 598 words: 134,339

Data and Goliath: The Hidden Battles to Collect Your Data and Control Your World by Bruce Schneier

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23andMe, Airbnb, airport security, AltaVista, Anne Wojcicki, augmented reality, Benjamin Mako Hill, Black Swan, Brewster Kahle, Brian Krebs, call centre, Cass Sunstein, Chelsea Manning, citizen journalism, cloud computing, congestion charging, disintermediation, Edward Snowden, experimental subject, failed state, fault tolerance, Ferguson, Missouri, Filter Bubble, Firefox, friendly fire, Google Chrome, Google Glasses, hindsight bias, informal economy, Internet Archive, Internet of things, Jacob Appelbaum, Jaron Lanier, Julian Assange, Kevin Kelly, license plate recognition, linked data, Lyft, Mark Zuckerberg, Nash equilibrium, Nate Silver, national security letter, Network effects, Occupy movement, payday loans, pre–internet, price discrimination, profit motive, race to the bottom, RAND corporation, recommendation engine, RFID, self-driving car, Silicon Valley, Skype, smart cities, smart grid, Snapchat, social graph, software as a service, South China Sea, stealth mode startup, Steven Levy, Stuxnet, TaskRabbit, telemarketer, Tim Cook: Apple, transaction costs, Uber and Lyft, urban planning, WikiLeaks, zero day

There’s value in studying social trends, and predicting future ones. We have to weigh each of these benefits against the risks of the surveillance that enables them. The big question is this: how do we design systems that make use of our data collectively to benefit society as a whole, while at the same time protecting people individually? Or, to use a term from game theory, how do we find a “Nash equilibrium” for data collection: a balance that creates an optimal overall outcome, even while forgoing optimization of any single facet? This is it: this is the fundamental issue of the information age. We can solve it, but it will require careful thinking about the specific issues and moral analysis of how the different solutions affect our core values. I’ve met hardened privacy advocates who nonetheless think it should be a crime not to put your medical data into a society-wide database.

., 17, 23, 35, 251 from Internet searches, 22–23 in mass surveillance, 20–23, 67 from tweets, 23 Michigan, 2, 39 Microsoft, 49, 59–60, 84, 148, 221, 272, 359 customer loyalty to, 58 government demands for data from, 208, 359 increased encryption by, 208 transparency reports of, 207 Mijangos, Luis, 117 military, US: ban on domestic security role of, 185–86 Chinese cyberattacks against, 73 “Don’t Ask Don’t Tell” policy of, 197 drone strikes by, 94 see also Army, US; Cyber Command, US; Defense Department, US MINARET, 175 Minority Report (film), 98 mission creep, 104–5, 163 Mitnick, Kevin, 116 Moglen, Eben, 95, 318 money transfer laws, 35–36 Monsegur, Hector, 42 Mori, Masahiro, 55 MS Office, 60 Multiprogram Research Facility, 144 Muslim Americans, government surveillance of, 103–4 MYSTIC, 36 Napolitano, Janet, 163 Narent, 182 narrative fallacy, 136 Nash equilibrium, 237 Natanz nuclear facility, Iran, 75 National Academies, 344 National Counterterrorism Center, 68 National Health Service, UK, 79 National Institute of Standards and Technology (NIST), proposed takeover of cryptography and computer security programs by, 186–87 National Reconnaissance Office (NRO), 67 National Security Agency, US (NSA): backdoors inserted into software and hardware by, 147–48 Bermuda phone conversations recorded by, 23 “Black Budget” of, 65 cell phone metadata collected by, 20–21, 36, 37, 62, 138, 339 “collect” as defined by, 129, 320 “collect it all” mentality of, 64–65, 138 COMSEC (communications security) mission of, 164–65, 346 congressional oversight of, 172–76 “connect-the-dots” metaphor of, 136, 139 cost to US businesses of surveillance by, 121–22, 151 counterterrorism mission of, 63, 65–66, 184, 222 counterterrorism successes claimed by, 325 cryptanalysis by, 144 cyberattacks by, 149–50 drug smugglers surveilled by, 105 economic espionage by, 73 encryption programs and, 85–86, 120–21 encryption standards deliberately undermined by, 148–49 expanding role of, 24, 165 FISA Amendments Act and, 174–75, 273 foreign eavesdropping (SIGINT) by, 62–63, 76, 77, 122–23, 164–65, 186, 220 Germany surveilled by, 76, 77, 122–23, 151, 160–61, 183, 184 Gmail user data collected by, 62 historical data stored by, 36 history of, 62–63 inadequate internal auditing of, 303 innocent people surveilled by, 66–67 insecure Internet deliberately fostered by, 146–50, 182 international partnerships of, 76–77 Internet surveillance by, 22, 62, 64–65, 78, 86–87, 122–23, 149–50, 188, 207 keyword searches by, 38, 261 legal authority for, 65–66 location data used by, 3, 339 Multiprogram Research Facility of, 144 Muslim Americans surveilled by, 103 parallel construction and, 105, 305 Presidential Policy Directives of, 99–100 PRISM program of, 78, 84–85, 121, 208 proposed breakup of, 186–87 QUANTUM program of, 149–50, 329–30 relationship mapping by, 37–38 remote activation of cell phones by, 30 secrecy of, 99–100, 121, 122 SIGINT Enabling Project of, 147–49 Snowden leaks and, see Snowden, Edward SOMALGET program of, 65 Syria’s Internet infrastructure penetrated by, 74, 150 Tailored Access Operations (TAO) group of, 72, 85, 144, 149, 187 UN communications surveilled by, 102, 183 National Security Agency, US (NSA) ( continued) Unitarian Church lawsuit against, 91 US citizens surveilled by, 64, 66, 175 US global standing undermined by, 151 Utah Data Center of, 18, 36 vulnerabilities stockpiled by, 146–47 National Security Letters (NSLs), 67, 84, 100, 207–8 Naval Criminal Investigative Service, 69 Naval Research Laboratory, US, 158 Nest, 15–16 Netcom, 116 Netflix, 43 Netsweeper, 82 New Digital Age, The (Schmidt and Cohen), 4 newsgroups, 119 New York City Police Department, 103–4 New York State, license plate scanning data stored by, 36 New York Times, Chinese cyberattack on, 73, 132, 142 New Zealand, in international intelligence partnerships, 76 Nigeria, 81 9/11 Commission Report, 139, 176 Nineteen Eighty-Four (Orwell), 59, 225 NinthDecimal, 39–40 NIST, see National Institute of Standards and Technology Nixon, Richard, 230 NOBUS (nobody but us) vulnerabilities, 147, 181 Nokia, 81 nondisclosure agreements, 100 North, Oliver, 127–28 Norway, 2011 massacre in, 229–30 NSA, see National Security Agency, US Oak Ridge, Tenn., 144 Obama, Barack, 33, 175 NSA review group appointed by, 176–77, 181 Obama administration: Internet freedom and, 107 NSA and, 122 whistleblowers prosecuted by, 100–101, 179 obfuscation, 217–18 Occupy movement, 104 Ochoa, Higinio (w0rmer), 42–43 OECD Privacy Framework, 191–92, 197 Office of Foreign Assets Control, 36 Office of Personnel Management, US, 73 Off the Record, 83, 215 Olympics (2014), 70, 77 Onionshare, 216 openness, see transparency opt-in vs. opt-out consent, 198 Orange, 79 Orbitz, 111 Organized Crime Drug Enforcement Task Forces, 69 Orwell, George, 59, 225 oversight, of corporate surveillance, see mass surveillance, corporate, solutions for, government regulation in oversight, of government surveillance, 161–63, 169, 172–78 Oyster cards, 40, 262 packet injection, 149–50 PageRank algorithm, 196 Palmer Raids, 234 Panetta, Leon, 133 panopticon, 32, 97, 227 panoptic sort, 111 parallel construction, 105, 305 Pariser, Eli, 114–15 Parker, Theodore, 365 PATRIOT Act, see USA PATRIOT Act pen registers, 27 Peoria, Ill., 101 personalized advertising, see advertising, personalized personally identifying information (PII), 45 Petraeus, David, 42 Petrobras, 73 Pew Research Center, 96 PGP encryption, 215, 216 photographs, digital, data embedded in, 14–15, 42–43 Pirate Party, Iceland, 333 Placecast, 39 police, see law enforcement, state and local police states, as risk-averse, 229 political action, 7, 213, 222–24, 237–38 political campaigns: data mining and, 33, 54 personalized marketing in, 54, 115–16, 233 political discourse, government surveillance and, 97–99 politics, politicians: and fear of blame, 222, 228 technology undermined by, 213 Posse Comitatus Act (1878), 186 Postal Service, US, Isolation Control and Tracking program of, 29 Presidential Policy Directives, 99–100 prices, discrimination in, 109–10 PRISM, 78, 84–85, 121, 208 privacy, 125–33 algorithmic surveillance and, 129–31, 204 as basic human need, 7, 126–27 breaches of, 116–18, 192, 193–95 as fundamental right, 67, 92, 126, 201, 232, 238, 318, 333, 363–64 of healthcare data, 193 Internet and, 203–4, 230–31 loss of, 4, 7, 50–51, 96, 126 and loss of ephemerality, 127–29 “nothing to hide” fallacy and, 125 and proposed Consumer Privacy Bill of Rights, 201, 202 security and, 155–57 social norms and, 227, 230–33 third-party doctrine and, 67–68, 180 as trumped by fear, 228 undervaluing of, 7–8, 50, 156, 194, 203–4 Privacy and Civil Liberties Oversight Board, 176, 177 privacy enhancing technologies (PETs), 215–16, 217 Privacy Impact Notices, 198, 211 probable cause, 184 Protect America Act (2007), 275 public-private partnership, see mass surveillance, public-private partnership in Qualcomm, 122 QUANTUM packet injection program, 149–50, 329–30 radar, high-frequency, 30 “ratters,” 117 Reagan, Ronald, 230 redlining, 109 Red October, 72 Regulation of Investigatory Powers Act (UK; 2000), 175 relationships, mapping of, 37–38 remote access Trojans (RATs), 117 resilience, systemic imperfections and, 163–64 retailers, data collected by, 14, 24, 51–52 revenge porn, 231 RFID chips, 29, 211 Richelieu, Cardinal, 92 rights, of consumers, see consumer rights risk, police states as averse to, 229 risk management, 141–42 Robbins, Blake, 104 robotics, 54–55 Rogers, Michael, 75 Roosevelt, Franklin D., 229, 230 Rousseff, Dilma, 151 RSA Security, 73, 84 rule of law, 210, 212 Russia: cyberwarfare and, 180 mandatory registration of bloggers in, 95 mass surveillance by, 70, 187, 188, 237 salience, 203–4 San Diego Police Department, 160 Sarkozy, Nicolas, 96 Saudi Arabia, 76, 187, 209 Saudi Aramco, 75 Schmidt, Eric, 4, 22, 57, 86, 125 schools, surveillance abuse in, 104 Schrems, Max, 19, 200 search engines, business model of, 113–14, 206 secrecy: corporate surveillance and, 194 of government surveillance, 99–101, 121, 122, 170–71 legitimate, transparency vs., 332–33 security, 135–51 airplane, 93, 158 attack vs. defense in, 140–43 balance between civil liberties and, 135 complexity as enemy of, 141 cost of, 142 data mining as unsuitable tool for, 136–40 and deliberate insecurity of Internet, 146–50 encryption and, see encryption fear and, 4, 7, 95–97, 135, 156–57, 171, 182–83, 222, 226, 227–30 hindsight and, 136 mass surveillance as harmful to, 7, 146–50 and misguided focus on spectacular events, 135 narrative fallacy in, 136 privacy and, 155–57 random vs. targeted attacks and, 142–43 risk management and, 141–42 social norms and, 227 surveillance and, 157–59 vulnerabilities and, 145–46 security cameras, see surveillance technology self-censorship, 95 Senate, US, Intelligence Committee of, 102, 172, 339 Sensenbrenner, Jim, 174 Sense Networks, 2, 40 September 11, 2001, terrorist attacks, 63, 65, 136, 156, 169, 184, 207, 227, 229 SHAMROCK, 175 Shirky, Clay, 228, 231 Shutterfly, 269 Siemens, 81 SIGINT (signals intelligence), see National Security Agency, US, foreign eavesdropping by SIGINT Enabling Project, 147–49 Silk Road, 105 Skype, 84, 148 SmartFilter, 82 smartphones: app-based surveillance on, 48 cameras on, 41 as computers, 14 GPS tracking in, 3, 14, 216–17 MAC addresses and Bluetooth IDs in, 29 Smith, Michael Lee, 67–68 Snowden, Edward, 177, 178, 217 e-mail of, 94 Espionage Act and, 101 EU Parliament testimony of, 76 NSA and GCHQ documents released by, 6, 20, 40–41, 62, 65, 66, 67, 72, 74, 78, 96, 99–100, 121, 129, 144, 149, 150, 160–61, 172, 175, 182, 207, 223, 234, 238 Sochi Olympics, 70, 77 Socialists, Socialism, 92–93 social networking: apps for, 51 customer scores and, 111 customer tracking and, 123 data collected in, 200–201 government surveillance of, 295–96 see also specific companies social norms: fear and, 227–30 liberty and, 227 mass surveillance and, 226–38 privacy and, 227, 230–33 security and, 227 software: security of, 141, 146 subscription vs. purchase models for, 60 Solove, Daniel, 93 SOMALGET, 65 Sophos, 82 Sotomayor, Sonia, 95, 342 South Korea, cyberattack on, 75 spy gadgets, 25–26 SSL encryption, 85–86 SSL (TLS) protocol, 215 Standard Chartered Bank, 35–36 Staples, 110 Stasi, 23 Steinhafel, Gregg, 142 strategic oversight, 162, 172–77 StingRay surveillance system, 100, 165 Stross, Charles, 128 Stuxnet, 75, 132, 146 collateral damage from, 150 Supreme Court, US, 26, 180, 361–62 third-party doctrine and, 68 surveillance: automatic, 31–32 benefits of, 8, 190 as business model, 50, 56, 113–14, 206 cell phones as devices for, 1–3, 14, 28, 39, 46–47, 62, 100, 216–17, 219, 339 constant, negative health effects of, 127 cost of, 23–26 espionage vs., 170, 183–84 government abuses of, 101–5 government-on-government, 63, 73, 74, 75, 76, 158 hidden, 28–30 legitimate needs for, 219–20 as loaded term, 4 mass, see mass surveillance oversight and accountability in, 161–63, 169, 172–78 overt, 28, 30 perception of, 7–8 personal computers as devices for, 3–4, 5 politics and, 213 pre-Internet, 64, 71 principles of, 155–66 targeted, see targeted surveillance transparency and, 159–61, 169, 170–71, 176 surveillance technology: cameras, 14, 17, 31–32 cost of, 25–26 shrinking size of, 29 Suspicious Activity Reports (SAR), 138 Sweeney, Latanya, 44, 263–64 SWIFT banking system, 73 Swire, Peter, 160 Syria, 81 NSA penetration of Internet infrastructure in, 74, 150 System for Operative Investigative Measures (SORM; Russia), 70 tactical oversight, 162, 177–79 Tailored Access Operations group (TAO), 72, 85, 144, 149, 187 Taleb, Nassim, 136 Target, 33, 34, 55 security breach of, 142, 193 targeted advertising, see advertising, personalized targeted surveillance: mass surveillance vs., 5, 26, 139–40, 174, 179–80, 184, 186 PATRIOT Act and, 174 tax fraud, data mining and, 137 technology: benefits of, 8, 190–91 political undermining of, 213 privacy enhancing (PETs), 215–16, 217 see also surveillance technology telephone companies: FBI demands for databases of, 27, 67 historical data stored by, 37, 67 NSA surveillance and, 122 transparency reports of, 207–8 see also cell phone metadata; specific companies Teletrack, 53 TEMPORA, 79 Terrorism Identities Datamart Environment, 68, 136 terrorists, terrorism: civil liberties vs., 135 government databases of, 68–69 as justification for mass surveillance, 4, 7, 170–71, 226, 246 mass surveillance as ineffective tool for detection of, 137–40, 228 and NSA’s expanded mission, 63, 65–66 terrorists, terrorism ( continued) overly broad definition of, 92 relative risk of, 332 Uighur, 219, 287 uniqueness of, 138 see also counterterrorism; security; September 11, 2001, terrorist attacks thermostats, smart, 15 third-party doctrine, 67–68, 180 TLS (SSL) protocol, 215 TOM-Skype, 70 Tor browser, 158, 216, 217 Torch Concepts, 79 trade secrets, algorithms as, 196 transparency: algorithmic surveillance and, 196 corporate surveillance and, 192, 194, 196, 202, 207–8 legitimate secrecy vs., 332–33 surveillance and, 159–61, 169, 170–71, 176 Transparent Society, The (Brin), 231 Transportation Security Administration, US (TSA), screening by, 136, 137, 159, 231, 321 Treasury, US, 36 Truman, Harry, 62, 230 trust, government surveillance and, 181–83 truth in lending laws, 196 Tsarnaev, Tamerlan, 69, 77, 139 Turkey, 76 Turla, 72 Twitter, 42, 58, 199, 208–9 metadata collected by, 23 Uber, 57 Uighur terrorists, 219, 287 Ukraine, 2, 39 Ulbricht, Ross (Dread Pirate Roberts), 105 “uncanny valley” phenomenon, 54–55 Underwear Bomber, 136, 139 UN High Commissioner on Human Rights, 96 Unit 8200, 77 United Kingdom: anti-discrimination laws in, 93 data retention law in, 222 GCHQ of, see Government Communications Headquarters in international intelligence partnerships, 76 Internet censorship in, 95 license plate scanners in, 27 mission creep in, 105 Regulation of Investigatory Powers Act (2000) of, 175 United Nations: digital privacy resolution of, 232, 363–64 NSA surveillance of, 102, 183 United States: data protection laws as absent from, 200 economic espionage by, 73 Germany’s relations with, 151, 234 intelligence budget of, 64–65, 80 NSA surveillance as undermining global stature of, 151 Stuxnet cyberattack by, 75, 132, 146, 150 Universal Declaration of Human Rights, 232 USA PATRIOT Act (2001), 105, 221, 227 Section 215 of, 65, 173–74, 208 Section 505 of, 67 US Cellular, 177 Usenet, 189 VASTech, 81 Verint, 2–3, 182 Verizon, 49, 67, 122 transparency reports of, 207–8 Veterans for Peace, 104 Vigilant Solutions, 26, 40 Vodafone, 79 voiceprints, 30 vulnerabilities, 145–46 fixing of, 180–81 NSA stockpiling of, 146–47 w0rmer (Higinio Ochoa), 42–43 Wall Street Journal, 110 Wanamaker, John, 53 “warrant canaries,” 208, 354 warrant process, 92, 165, 169, 177, 180, 183, 184, 342 Constitution and, 92, 179, 184 FBI and, 26, 67–68 NSA evasion of, 175, 177, 179 third-party doctrine and, 67–68, 180 Watson, Sara M., 55 Watts, Peter, 126–27 Waze, 27–28, 199 weapons of mass destruction, overly broad definition of, 92, 295 weblining, 109 WebMD, 29 whistleblowers: as essential to democracy, 178 legal protections for, 162, 169, 178–79, 342 prosecution of, 100–101, 178, 179, 222 Wickr, 124 Wi-Fi networks, location data and, 3 Wi-Fi passwords, 31 Wilson, Woodrow, 229 Windows 8, 59–60 Wired, 119 workplace surveillance, 112 World War I, 229 World War II, 229 World Wide Web, 119, 210 writers, government surveillance and, 96 “wrong,” changing definition of, 92–93 Wyden, Ron, 172, 339 XKEYSCORE, 36 Yahoo, 84, 207 Chinese surveillance and, 209 government demands for data from, 208 increased encryption by, 208 NSA hacking of, 85 Yosemite (OS), 59–60 YouTube, 50 Zappa, Frank, 98 zero-day vulnerabilities, 145–46 NSA stockpiling of, 146–47, 180–81 ZTE, 81 Zuckerberg, Mark, 107, 125, 126 Praise for DATA AND GOLIATH “Data and Goliath is sorely needed.

 

pages: 607 words: 133,452

Against Intellectual Monopoly by Michele Boldrin, David K. Levine

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accounting loophole / creative accounting, agricultural Revolution, barriers to entry, cognitive bias, David Ricardo: comparative advantage, Dean Kamen, Donald Trump, double entry bookkeeping, en.wikipedia.org, Ernest Rutherford, experimental economics, financial innovation, informal economy, interchangeable parts, invention of radio, invention of the printing press, invisible hand, James Watt: steam engine, Jean Tirole, John Harrison: Longitude, Joseph Schumpeter, linear programming, market bubble, market design, mutually assured destruction, Nash equilibrium, new economy, open economy, pirate software, placebo effect, price discrimination, profit maximization, rent-seeking, Richard Stallman, Silicon Valley, Skype, slashdot, software patent, the market place, total factor productivity, trade liberalization, transaction costs, Y2K

The problem is that, after you do so, other states will respond by doing the same, or more. In the ensuing equilibrium, the total amount of investment is roughly the same as when no one was offering a subsidy, but everyone is now paying a distorting tax to finance the subsidy. When capital moves freely across countries, the very same logic applies to the international determination of IP rights. In what economists call the Nash equilibrium of this game, it is obvious that patent holders prefer to locate in countries with strong IP laws. This increases the stock of capital in the receiving country and reduces it everywhere else, especially in countries with low IP protection. Hence, absent international cooperation, there is a strong incentive for most countries to keep increasing patent protection, even in the absence of lobbying and bribing by intellectual monopolists.

., 197 establishment of by patents, 64 Lessig, Larry, 5 given to publicly funded research, 261 P1: KXF head margin: 1/2 gutter margin: 7/8 CUUS245-IND cuus245 978 0 521 87928 6 April 29, 2008 10:0 294 Index monopoly ( cont. ) taxes to recoup losses from piracy, government-enforced, 10, 64 119–120 granted by copyright and patents, 6 use of encryption, 34–35 impact on direction of R&D, 168 music piracy, 29, 32–33, 34, 119–120 model of, 169–170 muskets, 51 pressure for from early entrants, 48 and prevention of new entry, 69, Napster, 5, 89, 141–142. See also 93–94n.18 peer-to-peer networks and price discrimination, 70–71 Nash Equilibrium, 195 and progress, 9 National Committee on Plant Patents, 52 as reason for patenting, 76 NCSA Mosaic, 17 rent-seeking in, 68–69, 171, 234 New Growth Theory, 159–160 Schumpeterian view of, 169–171 news, distribution of on Internet, 26 and secrecy, 167–168 news industry Smith on, 10 attempts to gain monopoly in, 27–28 and social inefficiency, 69 copyright in, 27 Statute of Monopolies, 43–44 distribution of news on Internet, 26 and war, 82 newspapers, 29–30 monopoly, intellectual.

 

pages: 252 words: 73,131

The Inner Lives of Markets: How People Shape Them—And They Shape Us by Tim Sullivan

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Airbnb, airport security, Al Roth, Andrei Shleifer, attribution theory, autonomous vehicles, barriers to entry, Brownian motion, centralized clearinghouse, clean water, conceptual framework, constrained optimization, continuous double auction, deferred acceptance, Donald Trump, Edward Glaeser, experimental subject, first-price auction, framing effect, frictionless, fundamental attribution error, George Akerlof, Goldman Sachs: Vampire Squid, helicopter parent, Internet of things, invisible hand, Isaac Newton, iterative process, Jean Tirole, Jeff Bezos, Johann Wolfgang von Goethe, John Nash: game theory, John von Neumann, Joseph Schumpeter, late fees, linear programming, Lyft, market clearing, market design, market friction, medical residency, multi-sided market, mutually assured destruction, Nash equilibrium, Occupy movement, Peter Thiel, pets.com, pez dispenser, pre–internet, price mechanism, price stability, prisoner's dilemma, profit motive, proxy bid, RAND corporation, ride hailing / ride sharing, Robert Shiller, Robert Shiller, Ronald Coase, school choice, school vouchers, sealed-bid auction, second-price auction, second-price sealed-bid, sharing economy, Silicon Valley, spectrum auction, Steve Jobs, Tacoma Narrows Bridge, technoutopianism, telemarketer, The Market for Lemons, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade route, transaction costs, two-sided market, uranium enrichment, Vickrey auction, winner-take-all economy

When Arrow spoke with one of his mentors at Columbia, the great statistician Abraham Wald, about this question of proving the existence of equilibrium, he was told “it is a very difficult issue”—as in, “too difficult for the likes of you.” That challenge helped spur Arrow, who went ahead and proved it anyway. The year 1951 had seen a major technical advance that made proof of existence far easier than Wald might have realized. John Nash, the game theorist made famous by the book and movie A Beautiful Mind, had borrowed the fixed-point theorem of Japanese mathematician Shizuo Kakutani to prove the existence of Nash equilibrium in game theory. In Arrow’s retelling, at that point it was obvious how to go about proving the existence of competitive equilibrium, and it was a race among himself, French economist Debreu, and several others to see who could do it first and do it best. As Arrow recalls, he summarized his first attempt at proving the existence theorem in a working paper just before heading to Europe to give some lectures.

 

pages: 317 words: 100,414

Superforecasting: The Art and Science of Prediction by Philip Tetlock, Dan Gardner

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Affordable Care Act / Obamacare, Any sufficiently advanced technology is indistinguishable from magic, availability heuristic, Black Swan, butterfly effect, cloud computing, cuban missile crisis, Daniel Kahneman / Amos Tversky, desegregation, Edward Lorenz: Chaos theory, forward guidance, Freestyle chess, fundamental attribution error, germ theory of disease, hindsight bias, index fund, Jane Jacobs, Jeff Bezos, Mikhail Gorbachev, Mohammed Bouazizi, Nash equilibrium, Nate Silver, obamacare, pattern recognition, performance metric, place-making, placebo effect, prediction markets, quantitative easing, random walk, randomized controlled trial, Richard Feynman, Richard Feynman, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, Saturday Night Live, Silicon Valley, Skype, statistical model, stem cell, Steve Ballmer, Steve Jobs, Steven Pinker, the scientific method, The Signal and the Noise by Nate Silver, The Wisdom of Crowds, Watson beat the top human players on Jeopardy!

So I should … See where this is going? Because the contestants are aware of each other, and aware that they are aware, the number is going to keep shrinking until it hits the point where it can no longer shrink. That point is 0. So that’s my final answer. And I will surely win. My logic is airtight. And I happen to be one of those highly educated people who is familiar with game theory, so I know 0 is called the Nash equilibrium solution. QED. The only question is who will come with me to London. Guess what? I’m wrong. In the actual contest, some people did guess 0, but not many, and 0 was not the right answer. It wasn’t even close to right. The average guess of all the contestants was 18.91, so the winning guess was 13. How did I get this so wrong? It wasn’t my logic, which was sound. I failed because I only looked at the problem from one perspective—the perspective of logic.

 

pages: 574 words: 164,509

Superintelligence: Paths, Dangers, Strategies by Nick Bostrom

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agricultural Revolution, AI winter, Albert Einstein, algorithmic trading, anthropic principle, anti-communist, artificial general intelligence, autonomous vehicles, barriers to entry, bioinformatics, brain emulation, cloud computing, combinatorial explosion, computer vision, cosmological constant, dark matter, DARPA: Urban Challenge, data acquisition, delayed gratification, demographic transition, Douglas Hofstadter, Drosophila, Elon Musk, en.wikipedia.org, epigenetics, fear of failure, Flash crash, Flynn Effect, friendly AI, Gödel, Escher, Bach, income inequality, industrial robot, informal economy, information retrieval, interchangeable parts, iterative process, job automation, John von Neumann, knowledge worker, Menlo Park, meta analysis, meta-analysis, mutually assured destruction, Nash equilibrium, Netflix Prize, new economy, Norbert Wiener, NP-complete, nuclear winter, optical character recognition, pattern recognition, performance metric, phenotype, prediction markets, price stability, principal–agent problem, race to the bottom, random walk, Ray Kurzweil, recommendation engine, reversible computing, social graph, speech recognition, Stanislav Petrov, statistical model, stem cell, Stephen Hawking, strong AI, superintelligent machines, supervolcano, technological singularity, technoutopianism, The Coming Technological Singularity, The Nature of the Firm, Thomas Kuhn: the structure of scientific revolutions, transaction costs, Turing machine, Vernor Vinge, Watson beat the top human players on Jeopardy!, World Values Survey

One can model each team’s performance as a function of its capability (measuring its raw ability and luck) and a penalty term corresponding to the cost of its safety precautions. The team with the highest performance builds the first AI. The riskiness of that AI is determined by how much its creators invested in safety. In the worst-case scenario, all teams have equal levels of capability. The winner is then determined exclusively by investment in safety: the team that took the fewest safety precautions wins. The Nash equilibrium for this game is for every team to spend nothing on safety. In the real world, such a situation might arise via a risk ratchet: some team, fearful of falling behind, increments its risk-taking to catch up with its competitors—who respond in kind, until the maximum level of risk is reached. Capability versus risk The situation changes when there are variations in capability. As variations in capability become more important relative to the cost of safety precautions, the risk ratchet weakens: there is less incentive to incur an extra bit of risk if doing so is unlikely to change the order of the race.

 

pages: 589 words: 147,053

The Age of Em: Work, Love and Life When Robots Rule the Earth by Robin Hanson

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8-hour work day, artificial general intelligence, augmented reality, Berlin Wall, bitcoin, blockchain, brain emulation, business process, Clayton Christensen, cloud computing, correlation does not imply causation, demographic transition, Erik Brynjolfsson, ethereum blockchain, experimental subject, fault tolerance, financial intermediation, Flynn Effect, hindsight bias, job automation, job satisfaction, Just-in-time delivery, lone genius, Machinery of Freedom by David Friedman, market design, meta analysis, meta-analysis, Nash equilibrium, new economy, prediction markets, rent control, rent-seeking, reversible computing, risk tolerance, Silicon Valley, smart contracts, statistical model, stem cell, Thomas Malthus, trade route, Turing test, Vernor Vinge

At work, learning opportunities and economies of scale usually matter more, encouraging synchronized relationships. The existence of thousands or millions of copies of a team give those team copies many ways to learn from statistics about events in other teams. This makes it easier to score the performance of each team and member, via comparisons with other teams and members. This also tends to push em team behavior to more closely approximate an informed game theoretic Nash equilibrium, that is, a matched set of strategic behaviors that are less influenced by hidden information regarding the types of participants and the consequences of their actions. Statistics about other copies of a team make it harder for team members to deceive themselves about their past performance or their chances for future performance. Such ems may become more like chess players today, where objective performance measures (i.e., their rating) force them to accept their current performance and abilities.

 

pages: 463 words: 118,936

Darwin Among the Machines by George Dyson

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Ada Lovelace, Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, Albert Einstein, anti-communist, British Empire, carbon-based life, cellular automata, Claude Shannon: information theory, combinatorial explosion, computer age, Danny Hillis, fault tolerance, Fellow of the Royal Society, finite state, IFF: identification friend or foe, invention of the telescope, invisible hand, Isaac Newton, Jacquard loom, Jacquard loom, James Watt: steam engine, John Nash: game theory, John von Neumann, Menlo Park, Nash equilibrium, Norbert Wiener, On the Economy of Machinery and Manufactures, packet switching, pattern recognition, phenotype, RAND corporation, Richard Feynman, Richard Feynman, spectrum auction, strong AI, the scientific method, The Wealth of Nations by Adam Smith, Turing machine, Von Neumann architecture

“The initial reaction of the economists to this work was one of great reserve, but the military scientists were quick to sense its possibilities in their field,” wrote J. D. Williams in The Compleat Strategyst, a RAND Corporation best-seller that made game theory accessible through examples drawn from everyday life.6 The economists gradually followed. When John Nash was awarded a Nobel Prize for the Nash equilibrium in 1994, he became the seventh Nobel laureate in economics whose work was influenced directly by von Neumann’s ideas. Nash and von Neumann had collaborated at RAND. In 1954, Nash authored a short report on the future of digital computers, in which the von Neumann influence was especially pronounced. “The human brain is a highly parallel setup. It has to be,” concluded Nash, predicting that optimal performance of digital computers would be achieved by coalitions of processors operating under decentralized parallel control.7 In 1945 the Review of Economic Studies published von Neumann’s “Model of General Economic Equilibrium,” a nine-page paper read to a Princeton mathematics seminar in 1932 and first published in German in 1937.