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Trend Following: How Great Traders Make Millions in Up or Down Markets by Michael W. Covel
Albert Einstein, asset allocation, Atul Gawande, backtesting, beat the dealer, Bernie Madoff, Black Swan, buy low sell high, capital asset pricing model, Clayton Christensen, commodity trading advisor, computerized trading, correlation coefficient, Daniel Kahneman / Amos Tversky, delayed gratification, deliberate practice, diversification, diversified portfolio, Edward Thorp, Elliott wave, Emanuel Derman, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, fiat currency, fixed income, game design, hindsight bias, housing crisis, index fund, Isaac Newton, John Meriwether, John Nash: game theory, linear programming, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, market fundamentalism, market microstructure, mental accounting, money market fund, Myron Scholes, 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, survivorship bias, 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, zero-sum game
To me, the results of this wealth transfer are inescapable.”38 Parks argues that the only choice he has been given is to lose. He loses; his union loses. It seems everyone loses in the zero-sum game. Of course, there are winners and he knows that. The zerosum game is, indeed, a wealth transfer. The winners profit from the losers. Parks correctly describes the nature of the zero-sum game, but positions the game in terms of morality. Life is not fair. If you don’t like being a loser in the zero-sum game, perhaps it is time to consider how the winners play the game. Although it might appear that I am defending Soros, I am not. The market is a zero-sum game. Trying to understand Soros’ reasons for denying this would be speculation on my part. Soros is not always a zero-sum winner either. Soros was on the losing side of the zero-sum game during the Long Term Capital Management fiasco in 1998. He lost $2 billion.
It’s a double-edged sword.”30 Zero Sum Nature of the Markets Zero-sum trading is arguably the most important concept in this chapter. Larry Harris, chair in Finance at the Marshall School of Business at University of Southern California, gets to the crux of the matter: Chapter 3 • Performance Data “Trading is a zero-sum game when gains and losses are measured relative to the market average. In a zero-sum game, someone can win only if somebody else loses.”31 Another good explanation of zero sum is found in “The Winners and Losers of the Zero-Sum Game: The Origins of Trading Profits, Price Efficiency and Market Liquidity,” a white paper authored by Harris. In speaking with Harris, he told me that he was amazed at how many people came from the TurtleTrader.com website to his site to download his white paper on zero-sum trading.
Forget trying to be liked. Need a friend? Get a dog. The market doesn’t know you and never will. If you are going to win, someone else has to lose. Don’t like these survival-of-the-fittest rules? Then stay out of the zero-sum game. Key Points • Trend followers always prepare for drawdowns after strong periods of performance. • An absolute return strategy means you are trying to make the most money possible. • The fact that markets are volatile is not a problem. The problem is you if volatility scares you. • Trading is a zero-sum game in an important accounting sense. In a zero-sum game, the total gains of the winners are exactly equal to the total losses of the losers. • Trend followers go to the market to trade trends. However, not all market players are trying to do the same thing. Fannie Mae could be making a change in their bond portfolio.
barriers to entry, cleantech, cloud computing, corporate social responsibility, Grace Hopper, job satisfaction, Kickstarter, labour mobility, Lean Startup, minimum viable product, Network effects, Peter Thiel, place-making, pre–internet, Richard Florida, Ruby on Rails, Silicon Valley, Silicon Valley startup, smart cities, software as a service, Steve Jobs, text mining, Y Combinator, zero-sum game, Zipcar
Startup communities behave like an organism that has been invaded when it comes in contact with people like this, and it quickly rejects them. The risk of an occasional organ rejection is worth the risk of being completely inclusive, especially as the scale of the startup community grows. PLAY A NON-ZERO-SUM GAME Many people approach business as a zero-sum game: There are winners and losers. This is stupid and counterproductive in the context of a startup community. Startup communities are often a tiny fraction of what they could ultimately become. As a result, there is a huge amount of untapped opportunity. Approaching it as a non-zero-sum game is much more powerful. For starters, fully embrace the notion of increasing returns. The goal of everyone in the startup community should be to create something that is durable for a very long time. Although ups and downs with individual companies will always happen, view the startup community as a whole entity.
So at a country level, geographic borders matter a lot, but at a state and city level, they don’t matter much at all. PLAYING A ZERO-SUM GAME Once members of the startup community realize that geographic borders are artificial, they often fall into the trap of playing a zero-sum game, where they win at the expense of the neighboring startup community. “Our community is better than yours” starts popping up. Government initiatives to recruit startups from other states appear. Major branding initiatives around demonstrating that “we are the best startup community” emerge. Resistance appears when there is an opportunity to collaborate across geographies. This is dumb. As a society, we are far from the saturation point in terms of entrepreneurship. Although there is not an infinite capacity for it, playing a zero-sum game, especially within neighboring geographies, simply stifles the growth of the startup ecosystem.
CONTENTS Foreword Preface Acknowledgments Chapter One: Introduction The Example of Boulder How this Book Works Chapter Two: The Boulder Startup Community Boulder as a Laboratory Before the Internet (1970–1994) Pre-Internet Bubble (1995–2000) The Collapse of the Internet Bubble (2001–2002) The Beginning of the Next Wave (2003–2011) An Outsider’s View of Boulder Chapter Three: Principles of a Vibrant Startup Community Historical Frameworks The Boulder Thesis Led by Entrepreneurs Long-Term Commitment Foster a Philosophy of Inclusiveness Engage the Entire Entrepreneurial Stack Chapter Four: Participants in a Startup Community Entrepreneurs Government Universities Investors Mentors Service Providers Large Companies The Importance of Both Leaders and Feeders Chapter Five: Attributes of Leadership in a Startup Community Be Inclusive Play a Non-Zero-Sum Game Be Mentorship Driven Have Porous Boundaries Give People Assignments Experiment and Fail Fast Chapter Six: Classical Problems The Patriarch Problem Complaining About Capital Being Too Reliant on Government Making Short-Term Commitments Having a Bias Against Newcomers Attempt by a Feeder to Control the Community Creating Artificial Geographic Boundaries Playing a Zero-Sum Game Having a Culture of Risk Aversion Avoiding People Because of Past Failures Chapter Seven: Activities and Events Young Entrepreneurs Organization Office Hours Boulder Denver New Tech Meetup Boulder Open Coffee Club Startup Weekend Ignite Boulder Boulder Beta Boulder Startupdigest Cu New Venture Challenge Boulder Startup Week Entrepreneurs Foundation of Colorado Chapter Eight: The Power of Accelerators The Spread of Techstars to Boston and Seattle Techstars Expands to New York Accelerators are Different than Incubators University Accelerators Chapter Nine: University Involvement Silicon Flatirons Some Components of CU Boulder Challenges to Entrepreneurship Programs at Universities Why they Don’t Work in Isolation The Real Value—Fresh Blood into the System The Power of Alumni Chapter Ten: Contrasts between Entrepreneurs and Government Self-Aware Versus Not Self-Aware Bottom Up Versus Top Down Micro Versus Macro Action Versus Policy Impact Versus Control Chapter Eleven: The Power of the Community Give Before You Get Everyone is a Mentor Embrace Weirdness Be Open to Any Idea Be Honest Go for a Walk The Importance of the After-Party Chapter Twelve: Broadening a Successful Startup Community Parallel Universes Integration With the Rest of Colorado Lack of Diversity Space Chapter Thirteen: Myths about Startup Communities We Need to Be Like Silicon Valley We Need More Local Venture Capital Angel Investors Must Be Organized Chapter Fourteen: Getting Started Getting Startup Iceland Started Big Omaha Startup America Partnership Do or Do Not, There is No Try About the Author Index Excerpt from Startup Life Cover illustrations: Silhoueted figure: © Leontura/istockphoto; Silhoueted women and man: © edge69/istockphoto; City Background: C.
Trend Commandments: Trading for Exceptional Returns by Michael W. Covel
Albert Einstein, Bernie Madoff, Black Swan, commodity trading advisor, correlation coefficient, delayed gratification, diversified portfolio, en.wikipedia.org, Eugene Fama: efficient market hypothesis, family office, full employment, Lao Tzu, Long Term Capital Management, market bubble, market microstructure, Mikhail Gorbachev, moral hazard, Myron Scholes, Nick Leeson, oil shock, Ponzi scheme, prediction markets, quantitative trading / quantitative ﬁnance, random walk, Sharpe ratio, systematic trading, the scientific method, transaction costs, tulip mania, upwardly mobile, Y2K, zero-sum game
., 17 statistics in, 137-140 Ward, Anthony, 109 tips for, 239-241 Watts, Dickson, 227, 239 unpredictability in, 81-82 When Genius Failed, 216 “Trend-Following Methods in Commodity Price Analysis” (Donchian), 230 trend-following traders, net worth of, 15 trends, defined, 39 Tropin, Kenneth, 5, 15 The Truman Show (film), 162 Truth of the Stock Tape (Gann), 226 Tullis, Eli, 143 TurtleTrader.com, origins of, 155 TurtleTraders, 199 Twenty-eight Years (Clews), 224 The Twilight Zone (television program), 26 Twitter, 169 275 winners and losers crowd mentality, 117-120 during market crashes, 97-98 Efficient-Markets Hypothesis, 101-102 hatred of trend following, 109-110 unexpected events, 91 zero-sum game, 95 winning trades, percentage of, 85 Wired (magazine), 97 Wyckoff, Richard D., 226-227 zero-sum game, 95 This page intentionally left blank Press FINANCIAL TIMES In an increasingly competitive world, it is quality of thinking that gives an edge—an idea that opens new doors, a technique that solves a problem, or an insight that simply helps make sense of it all. We work with leading authors in the various arenas of business and finance to bring cutting-edge thinking and best-learning practices to a global market.
For example, Wall Street is known for corporate collapses and hedge fund blow-ups that transfer capital from winners to losers and back again. However, the winners always seem to be missing from the after-the-fact analysis. The press and the public are only fascinated with the losers. Everyone is oblivious to the other side of the story: the winners and why. The academics locked away with job security tenure always come up short in their analysis: “It’s a zero-sum game. For every loser there’s a winner, but you can’t always be specific about who the winner is.”2 Not true. Bear markets cause events more than events cause bear markets. John W. Henry made a fortune going short the Nikkei, while Nick Leeson and Barings Bank were long. That’s a major winner right there.3 My political science background allowed me to see that; others should be able to see it too.
Those with poor strategies are forever being cycled and recycled into the markets, giving continuous opportunities to capitalize on their missteps and take their money. And with so many people playing Isn’t history littered the big money game with such awful strategy, the with surprises? next surprise win for trend following traders is right around the corner. This page intentionally left blank The new normal is always the old always. Zero-Sum In a zero-sum game, someone can win only if somebody else loses.1 On any given market transaction, the chance of you winning or losing may be near even, but in the long run, you will only profit from trading because you have some persistent advantage (read: mathematical edge) that allows you to win slightly more often than losing.2 If you have ever played poker or studied edges in gambling, the words ring true: To trade profitably in the long run, you will know your edge, you will know when it exists, and you will exploit it when you can.
A Beautiful Mind by Sylvia Nasar
Al Roth, Albert Einstein, Andrew Wiles, Brownian motion, cognitive dissonance, Columbine, experimental economics, fear of failure, Gunnar Myrdal, Henri Poincaré, invisible hand, Isaac Newton, John Conway, John Nash: game theory, John von Neumann, Kenneth Arrow, Kenneth Rogoff, linear programming, lone genius, market design, medical residency, Nash equilibrium, Norbert Wiener, Paul Erdős, Paul Samuelson, prisoner's dilemma, RAND corporation, Ronald Coase, second-price auction, Silicon Valley, Simon Singh, spectrum auction, The Wealth of Nations by Adam Smith, Thorstein Veblen, upwardly mobile, zero-sum game
But when there is more than one agent but not so many that their influence may be safely ignored, strategic behavior raises a seemingly insoluble problem: “I think that he thinks that I think that he thinks,” and so forth. Von Neumann was able to give a convincing solution to this problem of circular reasoning for games that are two-person, zero-sum games, games in which one player’s gain is another’s loss. But zero-sum games are the ones least applicable to economics (as one writer put it, the zero-sum game is to game theory “what the twelve-bar blues is to jazz; a polar case, and a point of historical departure”). For situations with many actors and the possibility of mutual gain — the standard economic scenario — von Neumann’s superlative instincts failed him. He was convinced that players would have to form coalitions, make explicit agreements, and submit to some higher, centralized authority to enforce those agreements.17 Quite possibly his conviction reflected his generation’s distrust, in the wake of the Depression and in the midst of a world war, of unfettered individualism.
43 It must have become obvious to Nash fairly early on that “the bible,” as The Theory of Games and Economic Behavior was known to students, though mathematically innovative, contained no fundamental new theorems beyond von Neumann’s stunning min-max theorem.44 He reasoned that von Neumann had succeeded neither in solving a major outstanding problem in economics using the new theory nor in making any major advance in the theory itself.45 Not a single one of its applications to economics did more than restate problems that economists had already grappled with.46 More important, the best-developed part of the theory — which took up one-third of the book — concerned zero-sum two-person games, which, because they are games of total conflict, appeared to have little applicability in social science.47 Von Neumann’s theory of games of more than two players, another large chunk of the book, was incomplete.48 He couldn’t prove that a solution existed for all such games.49 The last eighty pages of The Theory of Games and Economic Behavior dealt with non-zero-sum games, but von Neumann’s theory reduced such games formally to zero-sum games by introducing a fictitious player who consumes the excess or makes up the deficit.50 As one commentator was later to write, “This artifice helped but did not suffice for a completely adequate treatment of the non-zero-sum case. This is unfortunate because such games are the most likely to be found useful in practice.”51 To an ambitious young mathematician like Nash, the gaps and flaws in von Neumann’s theory were as alluring as the puzzling absence of ether through which light waves were supposed to travel was to the young Einstein.
“I think I’ve found a way to generalize von Neumann’s min-max theorem,” he blurted out. “The fundamental idea is that in a two-person zero-sum solution, the best strategy for both is … The whole theory is built on it. And it works with any number of people and doesn’t have to be a zero-sum game.”18 Gale recalls Nash’s saying, “I’d call this an equilibrium point.” The idea of equilibrium is that it is a natural resting point that tends to persist. Unlike von Neumann, Gale saw Nash’s point. “Hmm,” he said, “that’s quite a thesis.” Gale realized that Nash’s idea applied to a far broader class of real-world situations than von Neumann’s notion of zero-sum games. “He had a concept that generalized to disarmament,” Gale said later. But Gale was less entranced by the possible applications of Nash’s idea than its elegance and generality. “The mathematics was so beautiful.
The Internet of Money by Andreas M. Antonopoulos
AltaVista, altcoin, bitcoin, blockchain, clean water, cognitive dissonance, cryptocurrency, ethereum blockchain, financial exclusion, global reserve currency, litecoin, London Interbank Offered Rate, Marc Andreessen, Oculus Rift, packet switching, peer-to-peer lending, Ponzi scheme, QR code, ransomware, reserve currency, Satoshi Nakamoto, self-driving car, Skype, smart contracts, the medium is the message, trade route, underbanked, WikiLeaks, zero-sum game
It imposes upon us certain constraints. We don’t choose our currency; it chooses us. We are forced to use that currency in all of our interactions. We don’t have a choice — until 2008, that is. We now live in a slightly different world, but a lot of the old paradigm persists in our thinking. In a world where your currency is a monopolistic nation-state artifact that is constrained by geography, it’s a zero-sum game. The currency is the flag, is the nation-state. It is the expression of the economic value of your state. It defines your interactions in a world of geopolitics, in a global struggle for domination among nations. It’s not up to individual choice. It has nothing to do with the individual, except for that one individual whose face is on the currency — up until recently here in Canada, some old white lady named Elizabeth. 7.2.
As I thought about the evolution of alt-currencies, as they’re called, I realized I was asking the wrong questions. How many currencies will there be? How many altcoins will there be? How will altcoins compete in a world of cryptocurrencies as we move into the future? Will there be hundreds of altcoins? If there are hundreds of altcoins, what does that mean for the value of each of the altcoins? How do they compete? That was the wrong way of thinking about it. I saw currency as a zero-sum game, just like it had been imposed on my worldview from the nation-states that created currency. Then, I started thinking of currency as an application. And then, I started thinking of currency as a means of expression. You see, money, at the very root of it, is a language. It’s a language we use to express value to each other. When I give you a dollar bill, I am saying that I want to hand you the equivalent value.
There’ll be one of those, too. Really all of these things are forms of expression, and that comes back to the original point: that currency, in the end, is really a form of language. It’s a language by which we communicate our expectations and desires of value, and now that we can do it on such a massive scale, now that everyone can create currency, our choices will really matter. We’re past the zero-sum game. This isn’t about nation-states anymore. This isn’t about who adopts bitcoin first or who adopts cryptocurrencies first, because the internet is adopting cryptocurrencies, and the internet is the world’s largest economy. It is the first transnational economy, and it needs a transnational currency. "This isn’t about nation-states anymore. The internet is the world’s largest economy. It is the first transnational economy, and it needs a transnational currency." 7.7.
The Selfish Gene by Richard Dawkins
When we negotiate our pay-rises, are we motivated by 'envy', or do we cooperate to maximize our real income? Do we assume, in real life as well as in psychological experiments, that we are playing a zero sum game when we are not? I simply pose these difficult questions. To answer them would go beyond the scope of this book. Football is a zero sum game. At least, it usually is. Occasionally it can become a nonzero sum game. This happened in 1977 in the English Football League (Association Football or 'Soccer'; the other games called football-Rugby Football, Australian Football, American Football, Irish Football, etc., are also normally zero sum games). Teams in the Football League are split into four divisions. Clubs play against other clubs within their own division, accumulating points for each win or draw throughout the season.
To quote the same news report: 'Supporters who had been fierce rivals seconds before when Don Gillies fired in an 80th minute equaliser for Bristol, suddenly joined in a combined celebration. Referee Ron Challis watched helpless as the players pushed the ball around with little or no challenge to the man in possession.' What had previously been a zero sum game had suddenly, because of a piece of news from the outside world, become a nonzero sum game. In the terms of our earlier discussion, it is as if an external 'banker' had magically appeared, making it possible for both Bristol and Coventry to benefit from the same outcome, a draw. Spectator sports like football are normally zero sum games for a good reason. It is more exciting for crowds to watch players striving mightily against one another than to watch them conniving amicably. But real life, both human life and plant and animal life, is not set up for the benefit of spectators.
Sadly, however, when psychologists set up games of Iterated Prisoner's Dilemma between real humans, nearly all players succumb to envy and therefore do relatively poorly in terms of money. It seems that many people, perhaps without even thinking about it, would rather do down the other player than cooperate with the other player to do down the banker. Axelrod's work has shown what a mistake this is. It is only a mistake in certain kinds of game. Games theorists divide games into 'zero sum' and 'nonzero sum'. A zero sum game is one in which a win for one player is a loss for the other. Chess is zero sum, because the aim of each player is to win, and this means to make the other player lose. Prisoner's Dilemma, however, is a nonzero sum game. There is a banker paying out money, and it is possible for the two players to link arms and laugh all the way to the bank. This talk of laughing all the way to the bank reminds me of a delightful line from Shakespeare: The first thing we do, let's kill all the lawyers. 2 Henry VI In what are called civil 'disputes' there is often in fact great scope for cooperation.
The Clash of the Cultures by John C. Bogle
asset allocation, collateralized debt obligation, commoditize, corporate governance, corporate social responsibility, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, diversified portfolio, estate planning, Eugene Fama: efficient market hypothesis, financial innovation, financial intermediation, fixed income, Flash crash, Hyman Minsky, income inequality, index fund, interest rate swap, invention of the wheel, market bubble, market clearing, money market fund, mortgage debt, new economy, Occupy movement, passive investing, Paul Samuelson, Ponzi scheme, principal–agent problem, profit motive, random walk, rent-seeking, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, shareholder value, short selling, South Sea Bubble, statistical arbitrage, survivorship bias, The Wealth of Nations by Adam Smith, transaction costs, Vanguard fund, William of Occam, zero-sum game
Surely Jack Bogle and others inside the industry have done enough to raise the alarm. Never is this clearer than in his insistence that fees and costs are draining all the promised value out of the pockets of investors. Investors must know that they inevitably earn the gross return of the stock market, but only before the deduction of the costs of financial intermediation are taken into account. If beating the market is a zero sum game before costs, it is a loser’s game after costs are deducted. Which is why costs must be made clear to investors, and, one hopes, minimized. Pointing this out routinely surely cannot earn Jack Bogle many friends among Wall Street, which depends on the mystery surrounding financial innovations—as they are called euphemistically. But Bogle doesn’t care much about “stirring the pot.” His friends have long learned to appreciate that his truth-telling is the key to his personality.
It called attention to the even higher levels of speculation that had come to distort our markets and ill-serve our investors. To understand why speculation is a drain on the resources of investors as a group, one need only understand the tautological nature of the markets: Investors, as a group, inevitably earn the gross return of, say, the stock market, but only before the deduction of the costs of financial intermediation are taken into account. If beating the market is a zero-sum game before costs, it is a loser’s game after costs are deducted. How often we forget the power of these “relentless rules of humble arithmetic” (a phrase used in another context by former Supreme Court Justice Louis Brandeis a century ago), when we bet against one another, day after day—inevitably, to no avail—in the stock market. Over time, the drain of those costs is astonishing. Yet far too few investors seem to understand the impact of that simple arithmetic, which ultimately causes investors to relinquish a huge portion of the long-term returns that our stock market delivers.
Our newly empowered institutions now hold 60 to 75 percent of the shares of virtually every U.S. publicly held corporation, giving them a firm grip on control over Corporate America. Renters and Owners With far too few exceptions, however, these powerful new institutional agents act less like owners of stocks than renters. They turn their portfolios over with abandon, trading (obviously) largely with one another, clearly engaging in a zero-sum game that enriches only Wall Street and ill-serves their principals. The average equity mutual fund turned over its portfolio at a 17 percent rate in the 1950s and 25 percent in the 1960s. But by 1985, turnover had leaped to 100 percent, and has remained around that astonishingly high level ever since. Put another way, in 1950, the average holding for a stock in a mutual fund portfolio was 5.9 years; in 2011, it was barely one year.3 Such an average is a simple but inexact way to evaluate mutual fund turnover, so let’s look at the turnover for equity funds as a group, weighted by assets.
The Power of Passive Investing: More Wealth With Less Work by Richard A. Ferri
asset allocation, backtesting, Bernie Madoff, capital asset pricing model, cognitive dissonance, correlation coefficient, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, endowment effect, estate planning, Eugene Fama: efficient market hypothesis, fixed income, implied volatility, index fund, intangible asset, Long Term Capital Management, money market fund, passive investing, Paul Samuelson, Ponzi scheme, prediction markets, random walk, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, Sharpe ratio, survivorship bias, too big to fail, transaction costs, Vanguard fund, yield curve, zero-sum game
Sharpe’s beta measure can be uses to compare all securities and portfolios to one common risk factor. This makes risk-adjusted portfolio comparisons easier and faster. Beta is elegant, logical, and simple, and it has been applied extensively over the decades in finance and business valuation. In summary, there’s only one market risk and one market return. No excess return or excess risk exists in the market. This makes all non-market risk a zero sum game. For every non-market risk winner there must be a non-market risk loser. However, no one invests for free. After fees and expenses, most non-market risk takers (i.e., active fund investors) must underperform the market by the costs they incur. It’s simple arithmetic. During 1964, Sharpe applied beta in his revolutionary Capital Asset Pricing Model (CAPM) for which he was awarded the Nobel Prize in Economic Science.
However, it’s not a guarantee of manager skill. Alpha doesn’t differentiate skill from luck. A certain number of managers will outperform the market due to randomness, and there’s no telling when their luck will run out. Even if Alpha did indicate skill, that’s history. There’s no way to know which managers will show skill in the future. Chapter 7 explains why past performance is not an indicator of future returns. Alpha is always a zero sum game across the investment industry before fees and expenses. The cost of acquiring relevant investment information, analyzing the information, and making trading decisions is expensive. Even if active managers are correct on their analysis, the cost of active management often overwhelms whatever alpha they find. It should be emphasized that neither Jensen nor any other academic was out to debunk active management.
This method is commonly referred to as tactical asset allocation. To be successful, an investor must rotate money into mutual funds that represent asset classes or market sectors before the superior performance occurs and out of the sectors prior to poor performance. These tactical shifts in allocation can be large or small depending on an investor’s strategy and conviction. Market timing strategies are a zero-sum game in the marketplace. The financial markets don’t earn any more or any less return just because one person is buying and another is selling. If one investor buys in at the right time it means another investor must have sold at the wrong time. There is academic precedence that points to measurable losses for investors who frequently trade their accounts. Using recent findings from behavioral finance and survey data involving a large sample of online brokerage clients, Arvid Hoffmann, Hersh Shefrin, and Joost Pennings found that nearly all equity trading strategies produced lower returns than the markets.
23andMe, Albert Einstein, Alfred Russel Wallace, banking crisis, Barry Marshall: ulcers, Benoit Mandelbrot, Berlin Wall, biofilm, Black Swan, butterfly effect, Cass Sunstein, cloud computing, congestion charging, correlation does not imply causation, Daniel Kahneman / Amos Tversky, dark matter, data acquisition, David Brooks, delayed gratification, Emanuel Derman, epigenetics, Exxon Valdez, Flash crash, Flynn Effect, hive mind, impulse control, information retrieval, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, Jaron Lanier, John von Neumann, Kevin Kelly, lifelogging, mandelbrot fractal, market design, Mars Rover, Marshall McLuhan, microbiome, Murray Gell-Mann, Nicholas Carr, open economy, Pierre-Simon Laplace, place-making, placebo effect, pre–internet, QWERTY keyboard, random walk, randomized controlled trial, rent control, Richard Feynman, Richard Feynman, Richard Feynman: Challenger O-ring, Richard Thaler, Satyajit Das, Schrödinger's Cat, security theater, selection bias, Silicon Valley, stem cell, Steve Jobs, Steven Pinker, Stewart Brand, the scientific method, Thorstein Veblen, Turing complete, Turing machine, Vilfredo Pareto, Walter Mischel, Whole Earth Catalog, zero-sum game
Positive-Sum Games Steven Pinker Johnstone Family Professor, Department of Psychology, Harvard University; author, The Stuff of Thought: Language as a Window into Human Nature A zero-sum game is an interaction in which one party’s gain equals the other party’s loss—the sum of their gains and losses is zero. (More accurately, it is constant across all combinations of their courses of action.) Sports matches are quintessential examples of zero-sum games: Winning isn’t everything, it’s the only thing, and nice guys finish last. A nonzero-sum game is an interaction in which some combinations of actions provide a net gain (positive sum) or loss (negative sum) to the two participants. The trading of surpluses, as when herders and farmers exchange wool and milk for grain and fruit, is a quintessential example, as is the trading of favors, as when people take turns baby-sitting each other’s children. In a zero-sum game, a rational actor seeking the greatest gain for himself or herself will necessarily be seeking the maximum loss for the other actor.
Locating the “cause” (blame) in one or more persons allows us to punitively motivate others to avoid causing outcomes we don’t like (or to incentivize outcomes we do like). More despicable, if something happens that many regard as a bad outcome, this gives us the opportunity to sift through the causal nexus for the one thread that colorably leads back to our rivals (where the blame obviously lies). Lamentably, much of our species’ moral psychology evolved for moral warfare, a ruthless zero-sum game. Offensive play typically involves recruiting others to disadvantage or eliminating our rivals by publicly sourcing them as the cause of bad outcomes. Defensive play involves giving our rivals no ammunition to mobilize others against us. The moral game of blame attribution is only one subtype of misattribution arbitrage. For example, epidemiologists estimate that it was not until 1905 that you were better off going to a physician.
The Google Books Ngram tool shows that the terms saw a steady increase in popularity beginning in the 1950s, and their colloquial relative “win-win” began a similar ascent in the 1970s. Once people are thrown together in an interaction, their choices don’t determine whether they are in a zero- or nonzero-sum game; the game is a part of the world they live in. But by neglecting some of the options on the table, people may perceive that they are in a zero-sum game when in fact they are in a nonzero-sum game. Moreover, they can change the world to make their interaction nonzero-sum. For these reasons, when people become aware of the game-theoretic structure of their interaction (that is, whether it is positive-, negative-, or zero-sum), they can make choices that bring them valuable outcomes—like safety, harmony, or prosperity—without their having to become more virtuous or noble.
Albert Einstein, asset allocation, Berlin Wall, Bonfire of the Vanities, Bretton Woods, buy low sell high, capital controls, central bank independence, Chance favours the prepared mind, commoditize, commodity trading advisor, corporate governance, correlation coefficient, Credit Default Swap, diversification, diversified portfolio, family office, fixed income, glass ceiling, high batting average, implied volatility, index fund, inflation targeting, interest rate derivative, inventory management, John Meriwether, Long Term Capital Management, margin call, market bubble, Maui Hawaii, Mexican peso crisis / tequila crisis, moral hazard, Myron Scholes, new economy, Nick Leeson, oil shale / tar sands, oil shock, out of africa, paper trading, Paul Samuelson, Peter Thiel, price anchoring, purchasing power parity, reserve currency, risk tolerance, risk-adjusted returns, risk/return, rolodex, Sharpe ratio, short selling, Silicon Valley, The Wisdom of Crowds, too big to fail, transaction costs, value at risk, yield curve, zero-coupon bond, zero-sum game
I asked him if being the Federal Reserve chairman would be of interest to him one day and he smiled. In the interim, this little-known element hidden away inside one of the world’s most prestigious financial institutions helps to shed some light on market psychology and risk in the global macro markets. THE TREASURER 135 What did your junior trader ask that you thought was interesting? He asked, “What makes you unique? If the market is a zero-sum game, why should anyone be able to beat the market?” Well, in a zero-sum game, you have winners and losers. With a certain ability, one can be among the winners.What makes me unique is probably my background. I have a PhD in psychology and a master’s in economics. I was always more academically oriented and planned on going into teaching and research, which I did for a year.Trading wasn’t something that particularly interested me—I actually didn’t start trading until I was 35 years old.
So the “short-termism” is still very much there, which leads to the persistence of some anomalies and the appearances of new ones. The efficient market guys say if there’s a $100 bill lying on the pavement, it always gets picked up. My view is that it sometimes gets picked up and sometimes new $100 bills appear. 178 INSIDE THE HOUSE OF MONEY Are global macro markets a zero-sum game? In large part, that’s true, because there’s got to be somebody else who’s on the other side. In the equity markets, there is genuine wealth creation.Almost by default in most markets it’s close to a zero-sum game, but that’s exactly who you are trying to exploit, the person on the other side of the trade. Do hedge funds have an advantage against the person on the other side of the trade? Yes. Take a mundane example: A hedge fund manager can move much more quickly to a piece of news than a larger institution.
Pit traders, however, visually see all sides of price action—the buyers, the sellers, the emotion, the energy—such that price becomes multidimensional. For them, price discovery is the market, and they live and die by taking its pulse.Walking on the floor of the MERC, I could feel the pulse of the markets. It is here where equilibrium levels are found in the markets for interest rates, currencies, stock indexes, and commodities. If macro markets are a zero-sum game, as many attest, there does not seem to be any place to hide from this cruel fact in the trading pits of Chicago. After spending time on the floor, I went upstairs to Harris’s office, a stark, simple room on one of the upper floors of the MERC, where the dull glow of a fluorescent light revealed an old computer monitor; gray, marked-up walls; and a variety of files and papers strewn about. It could easily have been mistaken for a broom closet.
Albert Einstein, Asian financial crisis, asset allocation, asset-backed security, backtesting, banking crisis, Bernie Madoff, Black Swan, Bretton Woods, BRICs, British Empire, business process, capital asset pricing model, capital controls, central bank independence, collateralized debt obligation, commoditize, Commodity Super-Cycle, commodity trading advisor, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, diversification, diversified portfolio, equity premium, family office, fiat currency, fixed income, follow your passion, full employment, George Santayana, Hyman Minsky, implied volatility, index fund, inflation targeting, interest rate swap, inventory management, invisible hand, London Interbank Offered Rate, Long Term Capital Management, market bubble, market fundamentalism, market microstructure, moral hazard, Myron Scholes, North Sea oil, open economy, peak oil, pension reform, Ponzi scheme, prediction markets, price discovery process, price stability, private sector deleveraging, profit motive, purchasing power parity, quantitative easing, random walk, reserve currency, risk tolerance, risk-adjusted returns, risk/return, savings glut, selection bias, Sharpe ratio, short selling, sovereign wealth fund, special drawing rights, statistical arbitrage, stochastic volatility, survivorship bias, The Great Moderation, Thomas Bayes, time value of money, too big to fail, transaction costs, unbiased observer, value at risk, Vanguard fund, yield curve, zero-sum game
The excess return is the difference between the fund’s actual return and the fund’s predicted return, the latter of which is defined by its beta to the benchmark. In hedge fund parlance, alpha represents the value that a portfolio manager adds to or subtracts from a fund’s return through active management, thus connoting a manager’s skill (or lack thereof). Is alpha extraction a zero-sum game? Alpha, by definition, is a zero-sum game—or at least by my definition. Before costs, that is. I don’t think there is that much alpha in hedge fund indices. Some hedge funds extract true alpha rather consistently, while others generate none, or even pay alpha. Then they hide it through beta, sometimes through difficult-to-see exotic betas. Alpha seeking is, however, a positive sum game for society. You need to have people in there chasing alpha to make markets more efficient.
Rather, you need to have people constantly trying to evaluate the right price, who are ready to trade on that belief, pushing the market towards equilibrium in a price discovery process. That way we get better allocation of resources in the real economy and fewer bubbles. If there had been more John Paulsons in the market during the last few years, and fewer gullible institutional investors in subprime, the global economy would have been much better off. But alpha in a strict sense is a zero-sum game, although with beneficial externalities for society. What else did you learn in 2008? Markets can go to even worse extremes than I thought possible. I was surprised to see the extent of arbitrage opportunities that emerged, although I was not very surprised by the extent of either stock market weakness or credit spread widening. While the moves in both equities and credit were of a larger magnitude than I had anticipated, they remained within what I thought were reasonable norms and a reasonable probability scenario.
I can think of many reasons why that could become an issue, so I have to take that into account but I would not want to buy oil based on my view that we are going to run out of oil. Are we headed towards inflation or deflation? I don’t think anybody knows the answer to that question. Everyone should be open-minded about this one, regardless of the strength of his opinions. Are the markets a zero sum game? No. Are they efficient? No. If you took 10 years off and were forced to put all your money in one trade, what would it be? Cash. Dollars? Pounds? Euros? Swiss francs? Probably euros but the question is difficult because it depends if my 10-year goal is to preserve my capital or maximize my wealth. Let us assume it is to maximize your wealth. In that case putting it in cash is a very bad bet because it is a bet that inflation will be contained.
Derivatives Markets by David Goldenberg
Black-Scholes formula, Brownian motion, capital asset pricing model, commodity trading advisor, compound rate of return, conceptual framework, Credit Default Swap, discounted cash flows, discrete time, diversification, diversified portfolio, en.wikipedia.org, financial innovation, fudge factor, implied volatility, incomplete markets, interest rate derivative, interest rate swap, law of one price, locking in a profit, London Interbank Offered Rate, Louis Bachelier, margin call, market microstructure, martingale, Myron Scholes, Norbert Wiener, Paul Samuelson, price mechanism, random walk, reserve currency, risk/return, riskless arbitrage, Sharpe ratio, short selling, stochastic process, stochastic volatility, time value of money, transaction costs, volatility smile, Wiener process, Y2K, yield curve, zero-coupon bond, zero-sum game
Note that this value can be positive or negative to either party. When it is positive (negative) to the long, it is negative (positive) to the short. This is what is usually meant when people say that (naked) forward positions are a FORWARD CONTRACTS WITHOUT A DIVIDEND YIELD 75 zero sum game. Your gains are my losses and vice versa. Of course, this assumes the long and short are holding naked forward positions. If they were hedgers (holding explicit or implicit spot positions at time t) as well, then those positions need not constitute a zero sum game. That is, their overall positions in spot and forwards can be win-win for both the long and the short! Unfortunately, a lot of the popular discussion simply drops the word ‘naked’ in its zero sum description and extrapolates to derivatives markets in general. The zero sum interpretation of derivatives markets applies, in general, to naked positions only. 3.5 VALUING A FORWARD CONTRACT AT INITIATION We have succeeded in valuing forward positions, long and short, at expiration.
Futures Contracts 241 Cross-Hedging, Adjusting the Hedge for non S&P 500 Portfolios 243 7.5.7 7.5.8 7.6 7.7 The Spot Eurodollar Market 245 7.6.1 Spot 3-month Eurodollar Time Deposits 246 7.6.2 Spot Eurodollar Market Trading Terminology 248 7.6.3 LIBOR3, LIBID3, and Fed Funds 250 7.6.4 How Eurodollar Time Deposits are Created 252 Eurodollar Futures 254 7.7.1 Contract Specifications 254 7.7.2 The Quote Mechanism, Eurodollar Futures 256 7.7.3 Forced Convergence and Cash Settlement 258 7.7.4 How Profits and Losses are Calculated on Open ED Futures Positions 262 DETAILED CONTENTS PART 2 Trading Structures Based on Forward Contracts CHAPTER 8 8.1 Swaps as Strips of Forward Contracts 8.1.1 274 Strips of Forward Contracts 277 Basic Terminology for Interest-Rate Swaps: Paying Fixed and Receiving Floating 278 8.2.2 8.2.3 8.4 273 275 8.2.1 8.3 271 Commodity Forward Contracts as Single Period Swaps 8.1.2 8.2 STRUCTURED PRODUCTS, INTEREST-RATE SWAPS xiii Paying Fixed in an IRD (Making Fixed Payments) 278 Receiving Variable in an IRD (Receiving Floating Payments) 279 Eurodollar Futures Strips 280 Non-Dealer Intermediated Plain Vanilla Interest-Rate Swaps 281 Dealer Intermediated Plain Vanilla Interest-Rate Swaps 284 8.4.1 An Example 284 8.4.2 Plain Vanilla Interest-Rate Swaps as Hedge Vehicles 286 Arbitraging the Swaps Market 292 8.4.3 8.5 Swaps: More Terminology and Examples 293 8.6 The Dealer’s Problem: Finding the Other Side to the Swap 294 8.7 Are Swaps a Zero Sum Game? 298 8.8 Why Financial Institutions Use Swaps 299 8.9 Swaps Pricing 301 8.9.1 301 An Example xiv DETAILED CONTENTS 8.9.2 Valuation of the Fixed-Rate Bond 303 8.9.3 Valuation of the Floating-Rate Bond 305 8.9.4 Valuation of the Swap at Initiation 308 8.9.5 Implied Forward Rates (IFRs) 309 8.9.6 Three Interpretations of the Par Swap Rate 311 PART 3 Options CHAPTER 9 321 INTRODUCTION TO OPTIONS MARKETS 323 9.1 Options and Option Scenarios 323 9.2 A Framework for Learning Options 326 9.3 Definitions and Terminology for Plain Vanilla Put and Call Options 327 9.4 A Basic American Call (Put) Option Pricing Model 332 9.5 Reading Option Price Quotes 334 9.6 Going Beyond the Basic Definitions: Infrastructure to Understand Puts and Calls 337 Identifying Long and Short Positions in an Underlying 339 9.7 CHAPTER 10 OPTION TRADING STRATEGIES, PART 1 345 10.1 Profit Diagrams 346 10.2 Eight Basic (Naked) Strategies Using the Underlying, European Puts and Calls, and Riskless, Zero-Coupon Bonds 347 10.2.1 Strategy 1.
This includes a discussion of the difference between hedging stock portfolios with forwards and hedging with futures; 11. an entry into understanding swaps, by viewing them as structured products, based on the forward concept; 12. the difference between commodity and interest rate swaps, and a detailed explanation of what it means to pay fixed and receive floating in an interest rate swap; 13. understanding Eurodollar futures strips, notation shifts, and the role of the quote mechanism; 14. discussion of swaps as a zero-sum game, and research challenges to the comparative advantage argument; 15. swaps pricing and alternative interpretations of the par swap rate; 16. a step-by-step approach to options starting in Chapter 9 with the usual emphasis on the quote mechanism, as well as incorporation of real asset options examples; 17. an American option pricing model in Chapter 9, and its extension to European options in Chapter 11; 18. the importance of identifying short, not just long, positions in an underlying asset and the hedging demand they create; 19. two chapters on option trading strategies; one basic, one advanced, including the three types of covered calls, the protective put strategy, and their interpretations; 20. a logical categorization of rational option pricing results in Chapter 11, and the inclusion of American puts and calls; 21. neither monotonicity nor convexity, which are usually assumed, are rational option results; 22. partial vs. full static replication of European options; 23. working backwards from payoffs to costs as a method for devising and interpreting derivatives strategies; 24. the introduction of generalized forward contracts paves the way for the connection between (generalized) forward contracts and options, and the discussion of American put-call parity; PREFACE xxxv 25. the Binomial option pricing model, N=1, and why it works—which is not simply no-arbitrage; 26. three tools of modern mathematical ﬁnance: no-arbitrage, replicability and complete markets, and dynamic and static replication, and a rule of thumb on the number of hedging vehicles required to hedge a given number of independent sources of uncertainty; 27. static replication in the Binomial option pricing model, N=1, the hedge ratio can be 1.0 and a preliminary discussion in Chapter 13 on the meaning of risk-neutral valuation; 28. dynamic hedging as the new component of the BOPM, N>1, and a path approach to the multi-period Binomial option pricing model; 29. equivalent martingale measures (EMMs) in the representation of option and stock prices; 30. the efﬁcient market hypothesis (EMH) as a guide to modeling prices; 31. arithmetic Brownian motion (ABM) and the Louis Bachelier model of option prices; 32. easy introduction to the tools of continuous time ﬁnance, including Itô’s lemma; 33.
asset allocation, call centre, diversification, estate planning, fixed income, Home mortgage interest deduction, index fund, knowledge economy, money market fund, mortgage tax deduction, payday loans, random walk, risk tolerance, Skype, Steve Jobs, transaction costs, women in the workforce, zero-sum game
Stock Options Are Alluring; Avoid Them Anyway Stock options are rather alluring. Some options can be purchased for pennies and have the potential to be worth several dollars. In other words, some stock options appear to have short-term investment potential of twenty fold. You wouldn’t have to be successful so often with that strategy to make a fortune, it seems. For basic and fundamental reasons, however, options are to be avoided. Zero Sum Game: Options are a zero sum game. If you buy an option, someone (probably another investor) has accepted an exactly opposite bet on the markets. Every penny you win, he loses. Every penny you lose, he wins. Not quite, actually. The broker also takes a commission. Just Like Gambling: Options are just like gambling. It may be fun and exciting, but if you do it long enough the house always wins. Every option bet has two parties who are hoping for exactly opposite outcomes.
You may want to separate your real, long term, cautiously invested portfolio from the money you like to play around with. If you keep 80 to 90% of your money cautiously invested—and keep contributing to your savings in the same proportion, you’ll keep your nest egg growing regardless of what happens with the money you’re putting at risk. Have caution with options: Investing in options over the long haul has a negative expected return. Options are a zero sum game—one player’s winnings are another’s losses. What’s worse is that the game is rigged: someone in the middle takes a commission so you aren’t even expected to get your money back. Writing naked calls is an easy way to make money until it bankrupts you. (If you don’t know what that is, you’re almost certainly not doing it.) Options offer the same thrill as gambling because they have the same expected return.
Stocks, Bonds and Mutual Funds are Different: When you invest in stocks and bonds and funds like mutual funds and ETFs that invest in stocks and bonds, the investment dynamic is entirely different. While it is true that in the short run, the odds of an individual stock rising or falling are almost exactly equal to 50/50, that changes over time. The longer you hold the stock, the greater the odds of its value rising. So, too, with bonds and funds. Stocks and bonds often pay dividends. Options do not. Stocks, bonds and funds are not a zero sum game. The expected return on these investments is distinctly positive (even though people can and do lose money in the stock market). Why Do Options Exist? “If options are so stupid, why do they exist?” you ask. There are legitimate uses for options as a hedge as a sort of insurance. If you own a million shares of IBM and the stock is trading for $105. You might be interested in buying an option that would give you the right to sell those shares for $100 per share if the share price dropped below $100.
Digital Barbarism: A Writer's Manifesto by Mark Helprin
Albert Einstein, anti-communist, Berlin Wall, carbon footprint, computer age, crowdsourcing, hive mind, invention of writing, Jacquard loom, Jacquard loom, Plutocrats, plutocrats, race to the bottom, semantic web, Silicon Valley, Silicon Valley ideology, the scientific method, Yogi Berra, zero-sum game
Intellectual works are abstract concepts and do not naturally operate as zero sum [sic] games.”91 This business about zero-sum games is repeated as gospel in the documents of the anti-copyright movement, notably in the Lessig (“Wow!…I would have focused the attack in much the same way”92) wiki.93 Of course, property does not “operate” as a game or anything else, and intellectual works are not “concepts,” but that is beside the point. This off-kilter allusion fails to recognize the very nature of replicability that it is intended to address. According to the logic presented, if Arthur Miller opened Death of a Salesman on Broadway, because it is not physical property and not a “zero-sum game,” I could therefore justifiably rent a theater across the street and put on Death of a Salesman, charging less, because I would not have had to go through the trouble of writing it.
I believe that were the third president somehow able to know of this unsolicited association, he would suffer a nausea so immense as to disturb him even in death. That this book was written in sight of Monticello makes honoring Jefferson by separating him from false claimants especially gratifying. The chapter also deals with some of the peculiar “microeconomic” arguments the opponents of copyright present, such as that copyright is a monopoly, a tax, and a gratuitous imposition upon a non-zero-sum game, all of which make it an inhibition to art. A machine that can print books individually, on demand, quickly, and at little cost is actually at work now. “The Espresso Book Machine,” Chapter four, considers the evolution of the technology that has given rise to the movement against copyright, and how the forces and capabilities that ushered-in the battle can almost effortlessly usher it out and make it moot.
According to the logic presented, if Arthur Miller opened Death of a Salesman on Broadway, because it is not physical property and not a “zero-sum game,” I could therefore justifiably rent a theater across the street and put on Death of a Salesman, charging less, because I would not have had to go through the trouble of writing it. In the same vein, nothing would be amiss were the butcher, the baker, and the candlestick maker to sleep with Queen Victoria, because Prince Albert’s enjoyment would not be lessened—and, indeed in some quarters might conceivably be heightened—for the same reason that sexual pleasure, abstract in nature and wholly within the mind, is not a zero-sum game. The inapplicability of this strain of game theory to the notion it supposedly clarifies or impeaches is stunning. Let us say someone opens a golf course. Some people pay to use it. Others sneak on to it without paying. What these solons are saying is that because the nonpayers don’t spoil the enjoyment of those who do pay, no harm results. But even if the nonpayers don’t tear up the fairways, and play at night so as not to crowd them, if the general rule is to sneak on and only a few people pay, very soon there will be no golf course for lack of revenue.
Wealth and Poverty: A New Edition for the Twenty-First Century by George Gilder
affirmative action, Albert Einstein, Bernie Madoff, British Empire, capital controls, cleantech, cloud computing, collateralized debt obligation, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, deindustrialization, diversified portfolio, Donald Trump, equal pay for equal work, floating exchange rates, full employment, George Gilder, Gunnar Myrdal, Home mortgage interest deduction, Howard Zinn, income inequality, invisible hand, Jane Jacobs, Jeff Bezos, job automation, job-hopping, Joseph Schumpeter, knowledge economy, labor-force participation, margin call, Mark Zuckerberg, means of production, medical malpractice, minimum wage unemployment, money market fund, money: store of value / unit of account / medium of exchange, Mont Pelerin Society, moral hazard, mortgage debt, non-fiction novel, North Sea oil, paradox of thrift, Paul Samuelson, Plutocrats, plutocrats, Ponzi scheme, post-industrial society, price stability, Ralph Nader, rent control, Robert Gordon, Ronald Reagan, Silicon Valley, Simon Kuznets, skunkworks, Steve Jobs, The Wealth of Nations by Adam Smith, Thomas L Friedman, upwardly mobile, urban renewal, volatility arbitrage, War on Poverty, women in the workforce, working poor, working-age population, yield curve, zero-sum game
It is not the enlargement of incentives and rewards that generates growth and progress, profits for the entrepreneur and revenues for the government, but the expansion of information and knowledge. The competitive pursuit of knowledge is not a dog-eat-dog Darwinian struggle. In capitalism, the winners do not eat the losers but teach them how to win through the spread of information. Far from a zero-sum game, where the successes of some come at the expense of others, free economies climb spirals of mutual gain and learning. Far from a system of greed, capitalism depends on a golden rule of enterprise: The good fortune of others is also your own. Applying to both domestic and international trade and commerce, this golden rule is the moral center of the system. Not only does capitalism excel all other systems in the creation of wealth and transcendence of poverty, it also favors and empowers a moral order.
The focus on distribution continues in economics today, as economists pore balefully over the perennial inequalities and speculate on brisk “redistributions” to rectify them. This mode of thinking, prominent in foundation-funded reports, bestselling economics texts, newspaper columns, and political platforms, is harmless enough on the surface. But its deeper effect is to challenge the golden rule of capitalism, to pervert the relation between rich and poor, and to depict the system as “a zero-sum game” in which every gain for someone implies a loss for someone else, and wealth is seen once again to create poverty. As Kristol said, a free society in which the distributions are widely seen as unfair cannot long survive. The distributionist mentality thus strikes at the living heart of democratic capitalism. Whether of wealth, income, property, or government benefits, distributions always, unfortunately, turn out bad: highly skewed, hugely unequal, presumptively unfair, and changing little, or making things worse.
This is the simple and homely first truth about wealth and poverty. “Give and you will be given unto.” This is the secret not only of riches but also of growth. This is also the essential insight of supply-side economics. Government cannot significantly affect real aggregate demand through policies of taxing and spending—taking money from one man and giving it to another, whether in government or out. All this shifting of wealth is a zero-sum game and the net effect on incomes is usually zero, or even negative. Even a tax cut does not work by a direct impact on total disposable incomes, since every dollar of resulting deficit must be financed by a dollar of government debt, paid by the purchaser of federal securities out of his own disposable income. Even in the short run, real aggregate demand is an effect of production, not of government policy.
activist fund / activist shareholder / activist investor, barriers to entry, commoditize, creative destruction, disintermediation, hiring and firing, Joseph Schumpeter, Marc Andreessen, Mark Zuckerberg, Marshall McLuhan, Silicon Valley, Steve Jobs, telemarketer, the medium is the message, zero-sum game
Andreessen’s lack of regard seemed all the more confounding because he kept expressing his own personal enthusiasm for television, telling everyone what was on his list to watch in the coming weeks. And yet that sentiment was divorced from the future as he saw it and as he described the complicated new terms and relationships in a world of digital media. Finally, to what had become from Morris a kind of plea—“Are we in this together?”—Andreessen replied, “Excuse me. We are against each other. This is a zero-sum game.” “We all wanted to run away,” recalled Matt Stone in 2014. A funny thing happened over the intervening years, though. A strange schism developed. While everywhere there was the belief, near absolute, that the future of media lay with some ever-transforming technology, twenty years into this revolution, the value of traditional media, even with big losses in print and music, dramatically grew, with an Ernst & Young study in 2014 finding traditional media and entertainment companies increasing “their lead as one of the most profitable industries,” with television margins as high as almost 50 percent.
In a remarkable turnaround, Time Warner, which had, not long ago, nearly broken itself with a bet on a digital future, saw its cable fees rise so quickly that, in little more than half a decade following Icahn’s play for the company and his call to streamline it into a pure content play, its share price had doubled (a doubling even without cable, AOL, and publishing—all spun off to the shareholders). Comcast, for its part, found itself with its NBC Universal acquisition in an ultimate schizoid business, owning two companies whose health depended on the competition with each other. NBC Universal with its network and its cable channels needed to be wholly focused on raising the fees it derived from the cable operators, notably Comcast, hence creating a strangely zero-sum game—Comcast paid NBC, which then gave the money back to Comcast, its owner (Comcast bought out GE’s remaining interest in 2013). Now, it was possible to look at this functionally closed system as a decent hedge—Comcast wasn’t going to win, but it wasn’t going to lose either. It balanced the push-pull of the business. What did confuse it, and even threaten it, was the prospect that content—including its own—might migrate to a competitive distribution system.
A&E Networks, 61, 65, 117 ABC, 183 Abrahamsen, Kurt, 2 Advance Communications, 116, 117 advertising: adjacency strategy of, 59 ad-skipping devices, 49, 84, 96 and audience, 63, 72–73, 87, 198–99 billboards, 77, 115 brand, 23–24, 25, 26, 49–50, 67, 182–83 buying space vs. making ads, 48, 57, 63, 87–88 classified, 69, 115 and content, 59, 63, 84, 158 CPMs, 52, 65, 66, 71–72, 73 direct mail, 55–56, 69–70, 86 direct-response, 24, 25, 26, 85, 87 display, 69 dual markets for, 80–81, 85–88 falling prices of, 33, 50, 51, 52, 70–73, 74, 78, 167 global online industry, 75–76 government regulation of, 56 low tolerance for, 83–85 market predictions for, 79 and mass media, 123 measuring effectiveness of, 71–72, 79, 84–85, 87 media, 18, 21, 52 print, 25, 54, 69–71 programmatic buying/selling, 73, 76–80 as pyramid scheme, 57–58 remnant space for, 78 response rate, 55, 56–57, 72 as revenue source, 41, 43, 48 revolution in, 69–74 sales, 40–41, 56 and sports, 181–88 television, 24, 25, 40, 70, 79–80, 83–84, 99, 115, 119, 125, 129 too much space, 76 and YouTube, 153, 154–55 Advertising Week, New York, 21 Aereo, 112 aggregation, 18–19, 50–51, 59, 66, 190, 195–96 Ailes, Roger, 119 Alibaba, 19, 20 Allen, Mel, 182 Amazon, 42, 110, 112, 142, 161, 169 Andreessen, Marc, 2, 3, 4, 39, 60, 83, 97 AOL: and Huffington Post, 12, 58 and newspaper format, 18, 33, 189 and Time Warner, 11, 117, 126, 132, 159 Apple, 101–5 Apple TV, 109, 112, 113 Arledge, Roone, 183, 187 AT&T, 135, 136 audience: and advertising, 63, 72–73, 87, 198–99 auctions for, 77 behavior patterns of, 50 building, 47, 48, 50 and carriage, 125, 184–85 cost vs. profitability of, 54 demographics of, 73, 78 downmarket vs. upmarket, 192 drive-by, 54 eyeballs of, 57, 77–78 holding the attention of, 32, 50, 67, 71, 74 identifying, 47–49 illusory nature of, 64, 73–74 manipulation of, 50 mass, 35, 76, 195 measuring and monitoring, 48–50, 57, 77 migration of, 70 monetizing, 16, 40 and pay cable, 47–48 programming focused on, 128 and scarcity premium, 72 self-selected, 78 stand-alone unbranded entities, 78–79 as traffic, 18–19, 49–53, 73, 86, 196 value of, 48, 49 you don’t own it, 53, 54 Auletta, Ken, 95–100 Bartz, Carol, 19 Bewkes, Jeffrey, 121, 126 Blockbuster, 91 Blu-ray DVD players, 110–11 books, 115, 117, 124 broadband, 109, 135, 138–41 broadcast, 108, 112, 131, 168 BSkyB, 120 bundling-unbundling-rebundling, 171–78 BuzzFeed, 12, 18, 23, 57, 58–61, 62, 66, 67, 87, 102, 189, 193–94, 195–96, 199 cable companies: and broadband, 140–41 and bundling/unbundling, 174–78 bypassing fees of, 112 and costs, 99–100, 174 declining quality of, 168 deregulation of, 127 and digital access, 133 and government bureaucracy, 139 and Internet, 125, 129, 130, 135 mean and stingy deals from, 10 and “must-carry rule,” 131 pay cable model, 47–48, 113, 127 paying content providers, 125–26, 127, 130, 133 and sports, 184–85 streaming, 99–100 and television, see television upgrades, 134, 168 Cable Television Consumer Protection and Competition Act (1992), 96, 131 Cannes Lions Festival, France, 21 Carey, Chase, 126 Carlson, Nicholas, 21–22 carriage, 125, 126, 131–32, 184–85 CBS, 97, 118, 121, 129, 130, 131, 160, 185, 198 Chiat, Jay, 101–2 Clear Channel, 116, 126 click fraud, 26, 74 CNN, 22, 32, 35, 65, 95, 126, 130, 132 Coleman, Greg, 58 Comcast, 10, 116, 120, 130, 132–36, 138, 143–44, 175, 185 Comedy Central, 3, 5, 130 computers: cloud, 108 as entertainment devices, 106 and television, 105, 108, 110, 111 comScore, 63 Condé Nast, 116, 117 consolivision, 114, 115–21 Consumer Electronics Show (CES), 83 “cool,” meanings of, 41, 63 copyright infringement, 146–49 Coupland, Douglas, 107 Couric, Katie, 21 Cue, Eddy, 103 curation, 36 Cusack, John, 2 Dacron Republican-Democrat, The, 18, 167 Dauman, Philippe, 126 Deadline Hollywood, 25 Delphi, 118 Demand Media, 52 Denton, Nick, 193–94, 196, 197 Deutsch, Donny, 2 digital convergence, 107 digital media: and advertising, 18, 21, 24, 25, 52, 70, 76, 84–85, 87, 128, 130 audience for, 16–17, 49, 54, 74, 87 and bundling/unbundling, 174–78 bureaucracies of, 19, 24, 138, 199 changed business of, 194–200 circulations strategy of, 56–57 click fraud on, 26, 74 and content producers, 189–92 as distribution deal, 104, 194, 199 efficiency of, 195 forecasts for, 25–26 functionality of, 16, 17, 41, 166, 168 image-based, 157–58 inevitability of the new, 5, 10, 12, 14, 15 life expectancy of, 194 lowered value of, 52, 81, 190 as news outlet, 33, 58 and profitability, 15, 49, 66 promotion as chief function of, 56–58 as reinvention of media business, 42, 168, 194 revenue sources of, 43 and sports, 181–88 digital media (cont.) stalled market of, 58 technology view of, 3, 11, 17, 43, 152–53, 166 traffic sought by, 14, 52, 59, 86 transitory nature of, 23, 194 unregulated, 138 and user satisfaction, 18 as video, 97–98, 109, 139, 157–59, 169 vs. traditional, 1–5, 14, 40, 190–91 as wasteland, 190 Digital Millennium Copyright Act (DMCA), 148 direct marketing, 55–56, 69–70, 86 Discovery Channel, 117 Disney, 60, 61, 102, 116, 117, 154, 185 dongle streaming device, 110, 111 dot-com crash, 65, 66, 134, 148 DoubleClick, 72 DSL, 133–34, 135 DVDs, 91–92, 111, 190 DVorkin, Lewis, 66–67 DVR, 83, 110, 146 entertainment businesses, 115, 142, 146, 168, 189–90, 192 ESPN, 95, 117, 120, 126, 127, 171, 184–85 Ethernet, 109 Everson, Carolyn, 40–41 Facebook, 86, 195 advertising on, 40–41, 161 and BuzzFeed, 59, 60, 102 News Feed, 33, 36–37, 157 rise of, 26, 117, 130–31 social strategy of, 52–53 and television, 157–62 as utility, 41, 42, 43 video on, 44, 158–62 FCC, 141–44, 174, 175 fiber optics, 135 Final Cut Pro, 62 Food Network, 21–22 Forbes, 57–58, 65–67, 161 Fox Broadcasting Company, 97 Fox Interactive Media, 20 Fox Network, 118, 120, 183, 185 Fox News Channel, 32, 35, 119 Freston, Tom, 62, 117, 126 Galloway, Scott, 99 Gannett, 116 Gawker media, 33, 193–97 generation gap, 13, 26 Godard, Jean-Luc, 31 Google, 42, 43, 52, 112 AdSense, 59 and Android, 102, 110 and digital vs. old media, 4, 40, 195 and DoubleClick, 72 income sources of, 26 and search engine wars, 15–16, 53 and sports, 181, 186 and traffic gaming, 59 and Yahoo, 16, 20 and YouTube, 1, 96, 147–49, 151–55, 158, 160 Google Chromecast, 110 Google News, 33 Greenfield, Richard, 96 Grey, Brad, 2 Guardian, The, 13 Hastings, Reed, 92–93, 98, 142, 187 HBO, 64, 95, 98, 100, 114, 117, 125, 126, 127, 130, 132, 171, 176, 177 Hearst, 61, 116, 117 Herzog, Doug, 2 Hirschhorn, Jason, 95 Hoffner, Jordon, 2 Holt, Dennis, 48 House of Cards, 94 Huffington, Arianna, 11–12, 34, 58–59 Huffington Post, The, 12, 18, 34, 58, 66, 189 Hughes, Chris, 196–97 Hulu, 5, 161 Icahn, Carl, 130, 132 information: bare minimum level of, 52 branding, 52 as currency, 32 personalized, 157, 158 real value of, 123 sources of, 52 surgical selection of, 51 too much, 35–36 transient nature of, 37 wanting to be free, 123, 124, 167, 189–90 intellectual property, 146–49, 194 Internet: bundling, 177–78 and cable, 125, 129, 130, 135 free, 123, 124, 139–41 moralistic intensity of, 191–92 “net neutrality,” 138–44 and OTT, 113 publishing, 65–66 and television, 91, 108, 111, 112, 139 two-speed, 143 and video, 26, 145, 159 Internet protocol (IP), 92, 94, 109, 110–11, 134 Jarvis, Jeff, 11 Jobs, Steve, 101–4, 105 Johansson, Scarlet, 2 journalists, technology, 10–11, 13 Kvamme, Mark, 2, 3 Kyncl, Robert, 96 Lauer, Matt, 21 Lerer, Ken, 11, 12, 58 Levinsohn, Ross, 20 licensing formats, 119–20, 126 LL Cool J, 2 Loeb, Dan, 19–20 magazines, 21, 56, 86, 104, 116 attention demands of, 71 CPMs, 52, 65, 66, 71–72, 73 production and distribution costs, 71 revenue sources, 48, 54, 115, 124 space limitations of, 72 Maker Studios, 154 Mann, Michael, 2 Martin, Laura, 175 Mayer, Marissa, 20–21 McCain, John, 174 McConaughey, Matthew, 2 McFee, Abigail, 27 McLuhan, Marshall, 107 media: advertising in, 18, 21, 52 and Apple, 101–3 audience for, 16–17, 40, 72 bundling/unbundling, 171–78 and consumer behavior, 12 content costs of, 165–67, 189 crossover executives in, 17, 20 deal-making in, 93 digital, see digital media disrupted paradigm of, 83 as entertainment, 31, 85 generation gap in, 13 hierarchical business of, 11 income sources for, 16 licensing and distribution, 104 low- vs. high-end, 85–88, 165, 187 and marketing, 64 mass, 39, 123, 195 as narrative, 31, 67 news outlets, 12, 18, 31–37 new world market for, 85 no-cost, 43 ownership trade-offs, 126–27 pirated, 146–49, 172 quest for new medium, 12 removing salesmen from, 76 and scarcity premium, 72, 76 and sports, 181–88 streaming media devices, 109–10 as television, 118, 121 traditional, value of, 4, 71 transformation of, 12–14 user-supported content, 127–28, 147–49, 190 as zero-sum game, 4, 23–24 media brand, 51 media business, 115–16 media buyer, 48 Microsoft, 16 Microsoft Xbox, 110 Milken, Michael, 11 Milner, Yuri, 43, 160 mobiles, 74, 102–3 Moonves, Les, 9–10, 12, 97, 131–32, 135–36 Morris, Kevin, 1–4 movies, 115, 123, 124, 146 MSN, 18, 33 MTV, 126, 130 Murdoch, Elisabeth, 119 Murdoch, James, 61, 119–20 Murdoch, Rupert, 103–4, 116–21 music industry, 1, 101–3, 146–47, 172, 173–74 Myspace, 20, 95, 117, 118 Napster, 146, 147 Nathanson, Michael, 25–26 NBC, 130, 132, 143, 160, 185 Netflix, 91–94, 97, 98–100, 139–40, 142–44, 155, 161, 169, 176, 177, 190 “net neutrality,” 138–44 Netscape, 39, 97 New Republic, The, 196–97 news: anchormen [-women] of, 35 as branding device, 59 declining value of, 34, 37, 168 economic triage of, 33 and elections, 59, 60 lower-cost, 32, 33, 35 media outlets for, 31–37, 58, 65 monetizing, 64 network, 35 as public good, 32 as reality, 31 repetitive, 33, 36 as storytelling, 31, 32 ubiquity of, 34 unprofitability of, 34, 35 and Vice, 63–64 News Corp, 20, 116, 117, 118 newspapers: attention demands of, 71 classified ads, 69, 115 consolidation of, 116 digital replacement of, 24–25, 167 entertainment supplements, 34 income sources of, 69, 124 local retailers publicized in, 115 nineteenth-century, 123 personalized, 33, 36–37 production and distribution costs, 71 space limitations of, 72 Web similarity to, 18, 33, 189 New Yorker, 94–100 New York magazine, 47, 48, 53, 61 New York Times, The, 12–13, 27, 35, 63, 73, 78, 165, 166 Nickelodeon, 95, 130 Nintendo Wii, 110 Oliver, John, 141 OTT (over-the-top) content venues, 84, 94, 100, 108, 109, 111–14, 130, 161, 175, 176–77 Outbrain, 53, 197 Paley, William, 160 Paramount Pictures, 2 Peretti, Jonah, 53, 58–59 pirated media, 146–49, 172 Pittman, Bob, 126 platform function, 93, 158, 161 Politico, 189 portal wars, 15 POTS (plain old telephone service), 135 programmatic buying, 73 publishing: business of, 55, 56, 115 Internet, 65–66 print, 66, 172 radio, 115, 116, 124 Redstone, Sumner, 121, 126, 147 Reilly, Kevin, 2 ReplayTV, 83 Roberts, Brian, 10 Rodman, Dennis, 64 Rogers Communications, 65 Roku, 109, 113 Rubicon Project, 75 Rutledge, Tom, 113 Saffo, Paul, 96–97 Sandberg, Sheryl, Lean In, 41 Scripps Networks, 21–22 search engine optimization (SEO), 51–53, 73 search engine wars, 15–16, 51, 53 Sears, Jay, 75–76, 80 Semel, Terry, 17 Sequoia Capital, 2 Showtime, 98, 177 60 Minutes, 64 smart phones, 105–6, 110, 111 smart TVs, 111, 113 Smith, Ben, 23 Smith, Shane, 62, 63–65 Snyder, Gabriel, 197 social media, 56–57, 62, 73, 158 Sony PlayStation, 110 Sorrell, Martin, 61, 99 South Park, 64 Spacey, Kevin, 94 sports events, 85, 181–88 Starz, 92, 93 Stewart, Adam, 2 Stone, Matt, 2, 4, 5 storytelling, 16, 31–32, 152, 190, 191, 199 Super Bowl, 23, 85 Supreme Court, U.S., 112 Swisher, Kara, 11 tablets, 103–6, 111 TCV, 61, 63 telephone companies (telcos), 135, 140–41, 177 television: advertising on, 24, 25, 40, 70, 79–80, 83–84, 99–100, 115, 119, 125, 129 anti-television views, 39–40 attention demands of, 71 as box, 107–8, 111, 113–14 broadcast, 108, 112, 132, 168 and bundling/unbundling, 173–75 cable networks, 95–96, 99–100, 109, 119, 124–25, 131–32, 139, 172, 184 comparisons with, 39, 167, 191–92, 197–98 and computers, 105, 108, 110, 111 deadwood on, 19 digital’s perceived threat to, 23, 25–27, 42–43 as distribution channel, 28, 94 entertainment, 111, 114, 190 evolution of, 190, 197–99 expanding, 94–96, 99–100, 107, 111–12, 120, 124, 132 and Facebook, 157–62 and family values, 191 free, 123 geographical organization of, 92 golden age of, 172 government regulation of, 137–38, 175 HDMI port, 110 income sources of, 24, 25, 28, 85, 93, 96, 99–100, 115, 117 and Internet, 91, 108, 111, 112, 139 licensing deals, 93, 97, 112, 126 as model, 21, 28, 58, 59, 64–65, 99–100, 114, 118, 168, 198 and Netflix, 91, 93–94 networks, 47, 64, 80, 131 pay for, 113, 124–28 prime time, 79–81, 96 profitability of, 4, 24 programming schedule, 83, 114, 128 ratings wars, 183 reality, 111–12, 191 as reborn industry, 96, 132, 191–92, 199 share price multiple, 40 smart TVs, 111, 113 and sports, 181–88 steady, old-fashioned nature of, 9–10, 24, 27 and storytelling, 16, 190, 191, 199 syndication, 96, 176 undifferentiated inventory supply, 79 value of, 85, 121, 198–99 and video, 96–97, 98, 108–9, 141–42, 145–46, 152–55, 158, 165–69 Thompson, Scott, 19 Time Inc., 159 Time Warner, 11, 61, 64–65, 116, 117, 119–21, 126, 130, 132, 159 Time Warner Cable (TWC), 120, 130, 135–36, 143, 185 TiVo, 83, 110 traffic: aggregation methods, 18–19, 50–51, 59, 66, 190, 195–96 audience as, 18–19, 49–53 exchanges of, 53 pumping, 73 traffic arbitrage, 52, 66 traffic loop aggregators, 73 transcendence, 42 transformation: inevitability of, 10, 12–13 print to digital, 65–67 as shell game, 66 Tribune, 116 True/Slant, 66–67 Turner, Ted, 126, 127 Turner Broadcasting, 117, 126, 127, 130, 132 21st Century Fox, 61, 118–21, 126 Twitter, 26, 33 unbundling, 171–78 utilities, 41–42 Verizon FiOS, 97, 135, 177 Viacom, 3, 116, 117, 118, 121, 126, 129, 130, 131, 147–49, 152 Vice, 57–58, 61–65, 67 video: ads on, 63, 158, 167 amateur (cheap), 167 and BuzzFeed.
Expected Returns: An Investor's Guide to Harvesting Market Rewards by Antti Ilmanen
Andrei Shleifer, asset allocation, asset-backed security, availability heuristic, backtesting, balance sheet recession, bank run, banking crisis, barriers to entry, Bernie Madoff, Black Swan, Bretton Woods, buy low sell high, capital asset pricing model, capital controls, Carmen Reinhart, central bank independence, collateralized debt obligation, commoditize, commodity trading advisor, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, deglobalization, delta neutral, demand response, discounted cash flows, disintermediation, diversification, diversified portfolio, dividend-yielding stocks, equity premium, Eugene Fama: efficient market hypothesis, fiat currency, financial deregulation, financial innovation, financial intermediation, fixed income, Flash crash, framing effect, frictionless, frictionless market, George Akerlof, global reserve currency, Google Earth, high net worth, hindsight bias, Hyman Minsky, implied volatility, income inequality, incomplete markets, index fund, inflation targeting, information asymmetry, interest rate swap, invisible hand, Kenneth Rogoff, laissez-faire capitalism, law of one price, Long Term Capital Management, loss aversion, margin call, market bubble, market clearing, market friction, market fundamentalism, market microstructure, mental accounting, merger arbitrage, mittelstand, moral hazard, Myron Scholes, negative equity, New Journalism, oil shock, p-value, passive investing, Paul Samuelson, performance metric, Ponzi scheme, prediction markets, price anchoring, price stability, principal–agent problem, private sector deleveraging, purchasing power parity, quantitative easing, quantitative trading / quantitative ﬁnance, random walk, reserve currency, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, riskless arbitrage, Robert Shiller, Robert Shiller, savings glut, selection bias, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, stochastic volatility, survivorship bias, systematic trading, The Great Moderation, The Myth of the Rational Market, too big to fail, transaction costs, tulip mania, value at risk, volatility arbitrage, volatility smile, working-age population, Y2K, yield curve, zero-coupon bond, zero-sum game
Any systematic gains the HF sector makes must come from a large population of active investors that tolerate poor performance. Worse, and rarely mentioned, is the unpleasant fact that your most likely counterparty when you trade in markets is no longer a retired dentist or an unmotivated long-only manager—it is a HF manager. Admittedly, the zero-sum-game argument is clearest when all investors have the same benchmark; in the real world of segmented markets and multiple benchmarks this argument is more complicated. I am not sure how the zero-sum-game argument works in a technical sense if all benchmarks used by investors do not add up to the global all-asset market portfolio, but the argument is sound conceptually in that we cannot collectively be worth more than the sum of what we are worth individually. • There are some superior HF managers with reasonably consistent profits after fees and other costs.
The classic statement from Fama (1970) is that markets are informationally efficient if “prices reflect all available information”. The EMH is also closely tied to the assumption of investor rationality. The main practical implication of the EMH is investors’ inability to consistently beat the market. Why? Competition among many profit-seeking agents eliminates any easy pickings. Active management is a zero-sum game even before costs; after trading costs and fees it is a negative-sum game (this observation is mathematically true regardless of whether the market is efficient). Empirical analyses unequivocally confirm that most managers underperform passive indices after fees and leave open the possibility that winners have just been lucky. People’s innate optimism and the financial industry’s marketing machines have been able to muddle these messages, thereby slowing the lure of passive investing.
The year before mid-2007 has been hailed as the golden age—one that inevitably led to excesses and a hard landing in 2008. The main advantage of private equity over public markets is in better corporate governance, including closer supervision of management. PE funds can create wealth by improving operating efficiency and exploiting tax deductibility of interest payments through leverage—thus PE is not subject to the zero-sum-game argument of most active managers. Yet, PE also involves risks. PE and VC funds have especially high equity market betas if artificially smoothed returns are adjusted for, so they offer less diversification to an equity-dominated portfolio than do other alternatives. The characteristics of low liquidity and long holding periods have some advantages in enabling the PE fund to accomplish its goals with the companies it holds, but surely warrant some premium as compensation.
activist fund / activist shareholder / activist investor, affirmative action, Albert Einstein, Andrei Shleifer, barriers to entry, Berlin Wall, colonial rule, Daniel Kahneman / Amos Tversky, double entry bookkeeping, Edward Glaeser, en.wikipedia.org, endowment effect, European colonialism, experimental economics, experimental subject, George Akerlof, income per capita, invention of the telephone, Jane Jacobs, John von Neumann, law of one price, Martin Wolf, mutually assured destruction, New Economic Geography, new economy, Plutocrats, plutocrats, Richard Florida, Richard Thaler, Ronald Reagan, Silicon Valley, spinning jenny, Steve Jobs, The Death and Life of Great American Cities, the market place, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Malthus, women in the workforce, zero-sum game
Von Neumann died in 1957, a few years before the cold war reached its defining crises in Berlin and then Cuba. In game theory von Neumann had crafted a tool that promised to analyze both poker and war. Yet rhetorically pleasing as the analogy is—and delighted as the RAND strategists were with game theory—analytically poker and war had very little in common. Poker is a zero-sum game: One player’s loss is another’s gain. It is also a game with well-defined rules. War is neither well defined nor a zero-sum game. (Nor is life. Von Neumann was too quick to draw the parallel between life and poker.) It is much more desirable to avoid war altogether than to fight a destructive war that does not change the balance of power, so while war is certainly a conflict of interests, there is nothing zero-sum about it. Compared to the likely alternative of mutually assured destruction, the cold war was a win for both sides.
That all seems very abstract, but von Neumann’s game theory was abstract. If you’re confused, you’re beginning to appreciate the difficulties of von Neumann’s creation. Fundamental to von Neumann’s approach was the assumption that both players were as clever as von Neumann himself. He wanted to understand what infallible play looked like, and his answer can, in principle, be applied to any two-player “zero-sum” game, including poker, where one player’s loss is the other player’s gain. But in practice, there are two problems. The first is that the game may be so complex that even the fastest computer could not calculate the perfect strategy. The poker model is a perfect illustration of why game theory began to feel like such a disappointment in the real world. While von Neumann’s analysis distilled with great elegance some vital insights of good poker play, it didn’t go far as an instruction manual.
Thomas Schelling was just one of many cold war intellectuals at RAND, the air force’s research arm, using von Neumann’s game theory to dissect the possibilities of an event nobody had yet experienced: thermonuclear war. Applying a theory of poker to try to understand the project of mutual annihilation may seem unhinged, but that is exactly what von Neumann and his disciples did. The theory of zero-sum games wasn’t up to the job, as we’ll shortly see. But how else to develop nuclear strategy? Practicing was not an option, while history, fortunately, could provide no exact parallels. Von Neumann demanded an aggressive approach. Coincidentally or not, his mathematical analysis backed his instinctive hatred of the Soviet Union, the occupier of his native Hungary. In the late 1940s, he favored a surprise nuclear assault on the Soviet Union, before they were able to develop the bomb themselves.
Capitalism: Money, Morals and Markets by John Plender
activist fund / activist shareholder / activist investor, Andrei Shleifer, asset-backed security, bank run, Berlin Wall, Big bang: deregulation of the City of London, Black Swan, bonus culture, Bretton Woods, business climate, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, collapse of Lehman Brothers, collective bargaining, computer age, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, discovery of the americas, diversification, Eugene Fama: efficient market hypothesis, eurozone crisis, failed state, Fall of the Berlin Wall, fiat currency, financial innovation, financial intermediation, Fractional reserve banking, full employment, God and Mammon, Gordon Gekko, greed is good, Hyman Minsky, income inequality, inflation targeting, information asymmetry, invention of the wheel, invisible hand, Isaac Newton, James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, joint-stock company, Joseph Schumpeter, labour market flexibility, liberal capitalism, light touch regulation, London Interbank Offered Rate, London Whale, Long Term Capital Management, manufacturing employment, Mark Zuckerberg, market bubble, market fundamentalism, mass immigration, means of production, Menlo Park, money market fund, moral hazard, moveable type in China, Myron Scholes, Nick Leeson, Northern Rock, Occupy movement, offshore financial centre, paradox of thrift, Paul Samuelson, Plutocrats, plutocrats, price stability, principal–agent problem, profit motive, quantitative easing, railway mania, regulatory arbitrage, Richard Thaler, rising living standards, risk-adjusted returns, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, shareholder value, short selling, Silicon Valley, South Sea Bubble, spice trade, Steve Jobs, technology bubble, The Chicago School, The Great Moderation, the map is not the territory, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, too big to fail, tulip mania, Upton Sinclair, Veblen good, We are the 99%, Wolfgang Streeck, zero-sum game
From a more economic perspective, the bias against charging interest is perfectly logical if you bear in mind the context. The mindset stems not so much from a failure to grasp the time value of money as from the nature of a world where minimal or non-existent growth in per capita income was the norm. As the earlier quotation from Aristotle’s Politics implied, without growth, trade struck people as a zero-sum game where it was felt that one man’s profit could only be earned at the cost of inflicting loss on another man. The moral basis of trade thus appeared dubious, while usury, or making money out of money, was still worse. Even the Jews were constrained by their religion in lending to each other at interest, while being permitted to lend to non-Jews. ‘Unto a stranger thou mayest lend upon usury,’ says Deuteronomy, ‘but unto thy brother thou shalt not lend upon usury…’ Muslims, of course, continue to be prohibited from lending at interest to the present day.
Put another way, in Western Europe between 1820 and 1992, per capita growth increased thirteen-fold. Maddison’s work is an extraordinary statistical marathon. While some economists quibble about his methodology, few doubt that the broad picture is correct.14 The move towards a capitalist market economy that had started in the late medieval period thus became truly transformational. Economic activity was no longer perceived as a zero-sum game in which one man’s profit was another’s loss and thus morally questionable. It became easier to make great fortunes from industry and commerce than from the land, even if many landed aristocrats in Europe showed a remarkable tenacity in hanging on to their inherited assets. Wealth became increasingly intangible and the rich were rarely powerful in the military sense. War, from which so much evil had stemmed throughout history, began to lose its status as the primary means through which monarchs and states sought to enrich themselves.
This seventeenth-century economist, physician and property developer is a figure of enduring historical interest who left a mark on the London landscape that remains visible today. His full name, imposed on him by a strongly puritan father, was Nicholas If-Jesus-Christ-Had-Not-Died-For-Thee-Thou-Hadst-Been-Damned Barbon.30 Yet little in his life appears to have been guided by religious principle. He was an early advocate of free markets and a critic of the mercantilists. They were the folk who believed that trade was a zero-sum game and that the way to enhance the prosperity and strength of a country was to boost exports and restrain imports in order to accumulate reserves of gold. His economic writings, of which A Discourse of Trade was the most important, were admired by Keynes, Schumpeter and Marx. He was also a pioneer of fire insurance after the Great Fire of London in 1666 and helped found England’s first mortgage bank.
The Perfect Bet: How Science and Math Are Taking the Luck Out of Gambling by Adam Kucharski
Ada Lovelace, Albert Einstein, Antoine Gombaud: Chevalier de Méré, beat the dealer, Benoit Mandelbrot, butterfly effect, call centre, Chance favours the prepared mind, Claude Shannon: information theory, collateralized debt obligation, correlation does not imply causation, diversification, Edward Lorenz: Chaos theory, Edward Thorp, Everything should be made as simple as possible, Flash crash, Gerolamo Cardano, Henri Poincaré, Hibernia Atlantic: Project Express, if you build it, they will come, invention of the telegraph, Isaac Newton, John Nash: game theory, John von Neumann, locking in a profit, Louis Pasteur, Nash equilibrium, Norbert Wiener, p-value, performance metric, Pierre-Simon Laplace, probability theory / Blaise Pascal / Pierre de Fermat, quantitative trading / quantitative ﬁnance, random walk, Richard Feynman, Richard Feynman, Ronald Reagan, Rubik’s Cube, statistical model, The Design of Experiments, Watson beat the top human players on Jeopardy!, zero-sum game
When two players are involved, this means one person is always trying to minimize the opponent’s payoff—a quantity the opponent will be trying to maximize. Von Neumann called it the “minimax” problem and wanted to prove that both players could find an optimal strategy in this tug-of-war. To do this, he needed to show that each player could always find a way to minimize the maximum amount that could potentially be lost, regardless of what their opponent did. One of the most prominent examples of a zero-sum game with two players is a soccer penalty. This ends either in a goal, with the kicker winning and the goalkeeper losing, or a miss, in which case the payoffs are reversed. Keepers have very little time to react after a penalty is taken, so generally make their decision about which way to dive before the kicker strikes the ball. Because players are either right- or left-footed, choosing the right- or left-hand side of the goal can alter their chances of scoring.
As Ferguson discovered when he applied game theory to poker, sometimes an idea that seems unremarkable to scientists can prove extremely powerful when used in a different context. While the fiery debate between von Neumann and Fréchet sparked and crackled, John Nash was busy finishing his doctorate at Princeton. By establishing the Nash equilibrium, he had managed to extend von Neumann’s work, making it applicable to a wider number of situations. Whereas von Neumann had looked at zero-sum games with two players, Nash showed that optimal strategies exist even if there are multiple players and uneven payoffs. But knowing perfect strategies always exist is just the start for poker players. The next problem is working out how to find them. MOST PEOPLE WHO HAVE a go at creating poker bots don’t rummage through game theory to find optimal strategies. Instead, they often start off with rule-based approaches.
., 47–48 Metropolis, Nicholas, 61, 63–64, 168–169, 180 Mezrich, Ben, 214 Michigan Lottery, 30 Midas algorithm, 87, 88, 89 Milgram, Stanley, 13 Miller, George, 179 Millman, Chad, 102 mind-set, 209 minimax approach, 145, 147–148, 155 minor sports, benefit of focusing on, 107 MIT gambling course, 213–214 MIT Sloan Sports Analytics Conference, 85, 105, 107 mixed strategies, 142–143, 147 Monte Carlo fallacy, 6, 200 Monte Carlo method, 61–62, 63, 64, 83, 178–179, 217 Morgenstern, Oskar, 139, 150, 181–182 mortgage loan crisis, 96–97 multiple regression, 49 Munchkin, Richard, 72, 214 Nadal, Rafael, 110 NASCAR, 107 Nash, John, 137, 148–149, 158 Nash equilibrium, 137–138, 148–149, 151, 154, 160, 161, 181, 183, 184, 185, 187 National Academy of Sciences, 133 Nature (journal), 48, 49, 51 NBA, 85 near-equilibrium strategies, 152–153, 153–154 neural networks, 173–174 new data, testing strategies against, 53, 54 New England Patriots, 88 new games, advantages in, 72–73 New York Stock Exchange, 117 New York Times (newspaper), 101, 172, 177, 178, 180 New Yorker (magazine), 143 newsfeeds, 120, 122, 133–134 NFL, 103, 209 NHL, 85, 205 no-limit poker, 189, 195 “nonlinear” trajectory, 12 Oakland A’s, 209 Occam’s razor, 53 Oller, Joseph, 44 online betting, 90 online blackjack, 71–73 online gambling, advantages of, 72–73, 90, 107, 132 online poker sites, 192–193, 194, 195, 198, 200 online security, 195 Onside Analysis, 78, 105 opponent modeling, 163, 181, 184, 187 optimal strategies in bankroll management, 65–67 in blackjack, 36–37, 40, 72 in checkers, 158 in chess, 161, 202 in get-so-many-in-a row-style games, 158–159 in poker, 143–144, 145, 147, 149, 151, 152, 153, 160, 161, 177, 181, 184, 188, 208 in rock-paper-scissors, 143, 178, 180 in soccer, 146, 147 and stock/financial markets, 161 See also game theory; perfect strategies “Optimum Strategy in Blackjack, The” (Baldwin, Cantey, Maisel, and McDermott), 37 order-routing algorithms, 115 Osipau, Andrei, 72 overestimating, 98 overlays bias, 56 oversimplification, 212 Packard, Norman, 14, 20, 120 Palacios-Heurta, Ignacio, 146, 147 panic, 99, 133 pari-mutuel betting system, 43–45, 66, 114 Pascal, Blaise, 10 Pasteur, Louis, 202 patience and ingenuity, 218 PDO statistic, 205 Pearson, Karl, 4–7, 15, 24, 46–47, 48–49, 54, 61, 217 Pentagon, 92 perfect bet, story of the, 218 perfect strategies, 37, 53, 146, 149, 154, 159, 160, 168, 187 See also optimal strategies performance measurement, 85, 102–105, 208–209 physical bias, 7, 8, 21 Picasso, Pablo, 209–210 Pinnacle Sports, 91–92, 93 Poincare, Henri, 2–3, 8–9, 9–10, 11, 12, 21, 22, 40, 41, 46, 62, 63, 127, 217 Poisson, Siméon, 75 Poisson process, 75–76, 78 poker abstractions and, 212 analysis of the endgame in, 143 applying game theory to, 141, 148, 181, 183 bankroll management in, 144–145 basic options in, 138–139, 142 behaviors in, 191–192 coalitions in, 181–183 combined approach to, 208 heads-up, 172, 186, 188, 195 incomplete information in, 168 in Internet chat rooms, 142 as less vulnerable to brute force methods, 171 limited-stakes, 172, 177, 185, 187, 189 luck versus skill in, 198–200, 201, 215 more options in, complexity of, 142 near-equilibrium strategy for, 152–153, 153–154 no-limit, 189, 195 optimal strategy in, 143–144, 145, 147, 149, 151, 152, 153, 160, 161, 177, 181, 184, 188, 208 potential for errors in, 160 prediction in, 163 randomness in, 152, 156 robot players in, 135–136, 149–150, 151, 153, 154, 161, 163, 167–168, 172, 173, 175, 176–177, 182, 184, 185–189, 190, 192–196, 212, 217 scientific idea inspired by, 217 Texas hold’em, 140–141, 151–152, 172, 177, 185–186, 187–188 university course studying, 214–215 well-known research into, 169 World Series, 140–141 as a zero-sum game, 145, 181 poker boom, 198 poker face, optimal, 192 poker industry, 198 poker websites. See online poker sites Polaris poker bot, 185–186 Polaris 2.0, 186–187 policy analysis market, 92 Poots, Brendan, 97, 98, 99, 100, 104 popularity, randomness of, 203–204 populations, 125–129 Power Peg program, 118 Powerball, 29 predator-prey relationships, 129–130 Prediction Company, 120, 131 predictions baseball and, 87, 88 basketball and, 82, 85–86 blackjack and, 40, 42 bookmakers and, 91–92, 93 checkers and, 156, 157 comparing, against new data, 53, 54 computerized, 2, 13, 14, 15–20, 22, 46, 51, 61, 68, 80–82, 87, 88, 89–90, 97, 105, 156, 157, 217 degree of ignorance and, 3, 8 external disruptions as a factor in, 19–20 focus in making, 205–206 football and, 79, 82, 87, 88 golf and, 84–85 horse racing and, 46, 49–50, 51–54, 55–58, 64, 68, 69, 74, 206, 207, 216, 218 hydrogen bomb building and, 59, 61 opponent behavior and the need for, 163 poker and, 163 problem with explaining, 206–207 roulette and, 2, 3–4, 5–8, 10–11, 12–13, 14, 15–20, 21–22, 124, 127, 162, 210–211, 218 soccer and, 73–79, 82, 86, 90, 97–98, 98–99, 218 weather and, 9, 13, 53 of worst-case scenarios, 74 Preis, Tobias, 96 Premium Bonds, 204 Priomha Capital, 97, 99, 100, 101 prisoner’s dilemma, 137–138, 160 probability basic, successful strategies go beyond, 208 in blackjack, 36 of default on a home loan, 96 different conclusions about, 212 of ecosystem survival, 128 in horse racing, 45, 46, 51, 56–57, 58, 66, 206, 207 in lotteries, 32, 98 in poker, 138, 152, 171, 208 in rock-paper-scissors, 143 in roulette, 6, 17–18, 98 in soccer, 75, 146, 147, 209 in solitaire, 60 weighing against, 216 probability theory, 73, 132, 216–217 professional sports bettors, 102 proof by contradiction, 158–159 pseudorandom numbers, 61 psychological bias, 6, 98 psychology, 171, 177, 189, 208 pure strategies, 142, 143, 147, 152 qualitative information, 105 quality measurement, 50–51, 74 quantitative information, 105 raising, 143 Random Strategies Investments, LLC, 30 randomness as an abstraction, 210–211, 212 in basketball, 85 in blackjack, 38, 40, 41, 42, 71, 212 in chess, 168, 176, 202 in coin tosses, 199 collecting data on, 4–8 controlled, 25–26, 28 in ecosystems, 128, 129 generating, in game moves, 179 in golf, 84 and the infinite monkey theorem, 156–157 logistic map and, 126 Monte Carlo method and, 61 nonrandom patterns in, 178–179 in poker, 152, 156 of popularity, 203–204 in rock-paper-scissors, 143, 178, 181 in roulette, 2, 3–4, 5–8, 9, 10–11, 12–13, 15–20, 21–22, 38, 162, 178–179, 202, 212 and uniform distribution, 41 rationality, 123–124, 160 reality, model of, 211, 212 rebates, 69 recruitment teams, 73 regression analysis, 47–49, 50, 52, 79, 106, 206 regression to mediocrity, 47, 48–49, 205 regression to the mean, 106 regret minimization, 152–154, 187–188 regulation, 91, 101, 133 Reinhart, Vincent, 133 Retail Liquidity Program, 117 risk, 32, 36, 65, 66, 78, 95, 96, 99, 102, 120, 133, 144–145, 153, 156, 171, 184, 216 Ritz Club, 1–2, 20, 21 Robinson, Michael, 97–98 robots (bots) and the ability to learn, 151, 161, 163, 173, 174, 176, 177, 187, 188, 190, 217 in backgammon, 172–173 betting exchanges and, 112–113, 116–117 as bookmakers, 130 in checkers, 155–156, 157–158, 159–160, 167, 168, 190 in chess, 166, 167, 168, 171, 176, 189, 190 cognitive, other useful applications for, 166, 188 different types of, 129–130 faulty, 116–117, 118, 119, 120 in horse racing, 115–117 hybrid, 184 in Jeopardy!
asset allocation, corporate governance, diversification, diversified portfolio, index fund, market fundamentalism, money market fund, Myron Scholes, passive investing, prediction markets, random walk, risk tolerance, risk-adjusted returns, risk/return, transaction costs, Vanguard fund, zero-sum game
. • The system often fails to measure risk, thereby exposing investors to portfolios that are far too risky, with terrible consequences. • Many hyperactive brokers and advisors in this system have successfully avoided being held to a fiduciary standard because they know they cannot meet that standard in their relationships with investors. 38 Your Broker or Advisor Is Keeping You from Being a Smart Investor In short, being a Hyperactive Investor is a fool's errand. It is a zero-sum game (or worse, when you consider transaction costs), except from the perspective of the hyperactive brokers and advisors. They make out just fine. Chapter 11 Brokers Aren't on Your Side It [is} a fundamental dishonesty, a fundamental problem that cuts to the core of the lack of integrity on Wall Street. -Eliot L. Spitzer, attorney general of New York. Interview on NOW with Bill Moyers, May 24, 2002 You need to have utmost trust, faith and confidence in your financial advisor and in the firm that employs him or her.
The investor essentially pays 1.5% to 3% of his or her assets for the privilege of investing with fund managers who have no better chance of beating market returns than mutual fund managers who charge a lower fee-and you have seen how unlikely it is that even these managers can beat the markets. It really doesn't matter if you invest in a mutual fund or a wrap account. If either or both are hyperactively managed, they are poor choices. The bottom line is that the combination of higher costs, lower performance and greater tax consequences make all investments touted as being able to beat the markets worse than a zero-sum game, which is why Smart Investors avoid them. Chapter 20 Brokers Understand Fees but Not Risk Odds are you don't know what the odds are. -Gary Belsky and Thomas Gilovich, Why Smart Peopk Make Big Monry Mistake; Costs incurred are one of the twO major differences between Smart Investors and H yperactive Investors. The orner differ· eDee is that Smarr Investors understand risk and Hyperactive Investors do not.
How Markets Fail: The Logic of Economic Calamities by John Cassidy
Albert Einstein, Andrei Shleifer, anti-communist, asset allocation, asset-backed security, availability heuristic, bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Black-Scholes formula, Bretton Woods, British Empire, capital asset pricing model, centralized clearinghouse, collateralized debt obligation, Columbine, conceptual framework, Corn Laws, corporate raider, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Daniel Kahneman / Amos Tversky, debt deflation, diversification, Elliott wave, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, George Akerlof, global supply chain, Gunnar Myrdal, Haight Ashbury, hiring and firing, Hyman Minsky, income per capita, incomplete markets, index fund, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, laissez-faire capitalism, Landlord’s Game, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, margin call, market bubble, market clearing, mental accounting, Mikhail Gorbachev, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, Naomi Klein, negative equity, Network effects, Nick Leeson, Northern Rock, paradox of thrift, Pareto efficiency, Paul Samuelson, Ponzi scheme, price discrimination, price stability, principal–agent problem, profit maximization, quantitative trading / quantitative ﬁnance, race to the bottom, Ralph Nader, RAND corporation, random walk, Renaissance Technologies, rent control, Richard Thaler, risk tolerance, risk-adjusted returns, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, technology bubble, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, unorthodox policies, value at risk, Vanguard fund, Vilfredo Pareto, wealth creators, zero-sum game
The key to this process was thought to lie in extending the solution methods that von Neumann and Morgenstern had introduced, most of which applied to zero-sum games, such as coin-tossing and poker. In games of that nature, the players compete against one another, and one player’s winnings are another player’s losses. But many types of economic activity, such as international trade and investing in the stock market, involve the possibility of cooperation and mutual gains: they are positive-sum games. During the late 1940s, some progress was made in tackling this broader category of problems when John Nash, a Princeton mathematician, introduced a general method for solving non-zero-sum games, but much remained unclear. Merrill Flood and Melvin Dresher were two mathematicians working at the RAND Corporation, which the Pentagon had founded in the aftermath of World War II to engage in scientific research “for the public welfare and security of the United States of America.”
According to William Poundstone, the author of an illuminating account of early game theory, from which I have taken some historical details, the founders of the problem felt the same way. “Both Flood and Dresher say they initially hoped that someone at RAND would ‘resolve’ the prisoner’s dilemma,” Poundstone writes. “They expected Nash, Von Neumann, or someone to mull over the problem and come up with a new and better theory of non-zero-sum games. The theory would address the conflict between individual and collective rationality typified by the prisoner’s dilemma. Possibly it would show, somehow, that cooperation is rational after all. The solution never came.” One criticism that is often made of the prisoner’s dilemma is that the noncooperative solution (Confess, Confess) can’t possibly be the rational outcome, because rational decision-makers would never choose an inferior outcome.
The administration has said new mandatory capital requirements will be extended to any financial firm “whose combination of size, leverage and interconnectedness could pose a threat to financial stability if it failed,” but none of these terms has been defined, and it isn’t clear how far the new rules will be applied to big hedge funds, private equity firms, and the finance arms of industrial companies. If there is any wiggle room, excessive risk-taking and other damaging behavior will simply migrate to the unregulated sector. Imposing restrictions on the biggest hedge funds and private equity firms could well lead to a drastic shrinkage in these industries, which would be no great loss. Much of the activity that such firms engage in amounts to a zero-sum game, which doesn’t yield any economic gains for society at large. The proposed central clearinghouse for derivatives transactions is a good idea that doesn’t go far enough. By imposing leverage limits on traders, and demanding adequate collateral for exposed positions, the clearinghouse could eliminate a lot of counterparty credit risk. Unfortunately, the administration’s proposal applies only to “standardized” derivatives.
Darwin Among the Machines by George Dyson
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, Donald Davies, 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, zero-sum game
“The main achievement of the [von Neumann-Morgenstern] book lies, more than in its concrete results, in its having introduced into economics the tools of modern logic and in using them with an astounding power of generalization,” wrote Jacob Marschak in the Journal of Political Economy in 1946.5 Von Neumann’s central insight was his proof of the “minimax” theorem on the existence of good strategies, demonstrating for a wide class of games that a determinable strategy exists that minimizes the expected loss to a player when the opponent tries to maximize the loss by playing as well as possible. This conclusion has profound but mathematically elusive consequences; many complexities of nature, not to mention of economics or politics, can be treated formally as games. A substantial section of the 625-page book is devoted to showing how seemingly intractable situations can be rendered solvable through the assumption of coalitions among the players, and how non-zero-sum games can be reduced to zero-sum games by including a fictitious, impartial player (sometimes called Nature) in the game. Game theory was applied to fields ranging from nuclear deterrence to evolutionary biology. “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.
Ampère analyzed the effects of probability rather than strategy, ignoring more deliberate collusion among the players of a game. Having suffered the first of a series of misfortunes that would follow him through life, Ampère saw games of chance as “certain ruin” to those who played indefinitely or indiscriminately against multiple opponents, “who must then be considered as a single opponent whose fortune is infinite.”4 He observed that a zero-sum game (where one player’s loss equals the other players’ gain) will always favor the wealthier player, who has the advantage of being able to stay longer in the game. Von Neumann’s initial contribution to the theory of games, extending the work of Émile Borel, was published in 1928. Where Ampère saw chance as holding the upper hand, von Neumann sought to make the best of fate by determining the optimum strategy for any game.
Proposing, in 1851, that mechanical processing of ideas would require a relational and differential machine the size of the City of London, Smee failed to notice from his quarters on Threadneedle Street that the Bank of England’s network of linked transactions, mediated by a hive of accountants, already constituted such a machine. “The average daily transactions in the London Bankers’ Clearing House amount to about twenty millions of pounds sterling, which if paid in gold coin would weigh about 157 tons,” reported Stanley Jevons in 1896.46 John von Neumann, although halted in midstream, was working toward a theory of the economy of mind. In the universe according to von Neumann, life and nature are playing a zero-sum game. Physics is the rules. Economics—which von Neumann perceived as closely related to thermodynamics—is the study of how organisms and organizations develop strategies that increase their chances for reward. Von Neumann and Morgenstern showed that the formation of coalitions holds the key, a conclusion to which all observed evidence, including Nils Barricelli’s experiments with numerical symbioorganisms, lends support.
Ethics in Investment Banking by John N. Reynolds, Edmund Newell
accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, banking crisis, capital controls, collapse of Lehman Brothers, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, discounted cash flows, financial independence, index fund, invisible hand, light touch regulation, margin call, moral hazard, Nick Leeson, Northern Rock, quantitative easing, shareholder value, short selling, South Sea Bubble, stem cell, the market place, The Wealth of Nations by Adam Smith, too big to fail, zero-sum game
An investment bank’s fees are normally success-related, so regardless of the financing fees the incentive for the investment bank is (almost) invariably to advise a client to complete a transaction, and it is unusual for an investment bank to advise against a deal that a client is willing and capable of completing. The conflict may come in the investment bank’s advice about which financing structure to use to complete a transaction. Syndication and restructuring – Zero-sum games There are a number of areas in investment banking that can be typified by relatively aggressive behaviour, and it is usefully to consider each separately. We have taken two areas that involve situations where the outcome Ethical Issues – Clients 119 of a transaction can be a “zero-sum game” or the distribution of a finite pool of value, increasing the incentives for aggressive behaviour. Syndication In the sale of securities (whether a primary or secondary issue), a syndicate made up of a number of investment banks may be appointed.
., 78 “people-based” activity, 67 P:E ratio, 27 performance, 8–10 personal abuse, 159 personal account investments, 128, 156 personal account trading, 128 personal conflicts of interest, 45 pitching, 102, 159 Plato, 37 practical issues, 110–15 competitors, relationships with, 113 equity research, 113–15 pitching, 111 sell-side advisers, 111–13 pre-IPO financing, 110 prescriptive regulations, 31, 145 price tension, 79, 113 primary market, 103 prime-brokerage, 2 principal investment, 15, 28 private equity, 2–3, 12, 110 private trading, 94 Project Merlin, 133, 141 promises, 100–1 proprietary investment, 29 proprietary trading, 15, 25, 66, 150, 155 Prudential Regulation Authority (PRA), 26 public ownership, bonus pools in, 136–9 “pump and dump” strategy, 86 qualifying instruments, 70, 87 qualifying markets, 70, 82 quality-adjusted life year (QALY), 36 Quantitative Easing (QE), 23 Queen Elizabeth II, 42 Qu’ran, 54 rated debt, 77 rates attrition, 132 discount, 27 interest, 60 market, 117 tax, 140 rating agencies, 76 Rawls, John, 35, 136 recognised exchanges, 71 Regal Petroleum, 84 regulations banking, 16 compliance with, 28 external, 19, 31 light-touch, 4 prescriptive, 31, 145 regulatory changes and, 18–20 securities, 114 self, and impact on legislation, 19 regulatory compliance, 18 religion, business ethics in, 51–62 Buddhism, 56 Christianity, 52–4 Governments, 59 Hinduism, 56–7 interest payments, 59–60 Islam, 54–5 Judaism, 56 lending, 59–60 thresholds, 60 usury, 59–60 remuneration, 132–9 bonus pools in public ownership and, 136–9 claiming credit, 134 ethical issues with, 142–3 internal review process, managing, 134 1 Timothy 6:10, 135–6 Index research, 156 resources, abuse of, 127–8 restricted creditors, 120 restructuring of fees, 121–2 financial, 119–20 syndication and, 118–22 retail banks, 16 returns, 28, 156 Revised Code of Ethics, 47 right livelihood, 57 rights-based ethics, 66–8 rights vs. duties advisory vs. trading/capital markets, 73 conflict between, reconciling, 68–70 duty-based ethics, 66–8 off-market trading, ethical standards to, 71–2 on-market trading, ethical standards in, 70–1 opposing views of, 63–74 reconciling conflict between, 68–70 rights-based ethics, 66–8 Roman Catholic Church, 52 Royal Dutch Shell, 85 Sarbanes–Oxley Act, 20 Schwarzman, Stephen, 20 scope of ethical issues, 7–8 secondary market, 103 sector exclusions for investment banking, 58–9 securities investment grade, 76 issuing, 103–5 overvalued, 155 Securities and Exchange Commission (SEC), 7, 16 Goldman Sachs, charges against, 78 rating agencies, review by, 77 short-selling, review of, 96–7 securities insider dealing, 70 securities mis-selling, 77–9 securities regulations, 114 self-regulation, 19 sell recommendation, 115 177 sell-side advisers, 107, 111–13 Senate Permanent Subcommittee on Investigations, 46 senior debt, 118 sexist entertainment, 159 shareholders, 27–9 shares, deferred, 133 Shariah finance, 55 short-selling, 94–7, 154–5 Smith, Adam, 14, 35–6 social cohesion, 53 socially responsible investment (SRI), 56 Société Générale, 44, 80 solidarity, 53 Soros, George, 17 South Sea Bubble, 90 sovereign debt, 17 speculation, 91–4, 155 in financial crisis, 93 traditional views of, 91–3 speculative casino capitalism, 16, 91 spread, 21 stabilisation, 89 stock allocation, 94–7 stockholders, 41–2 stocks, dotcom, 17 Strange, Susan, 43 strategic issues with business ethics, 30–1 syndication, 119 and restructuring, 118–22 systemic risk, 24–5 Takeover Panel, 109 Talmud, 56 taxes, 139–41 tax optimisation, 158 tax rates, 140 tax structuring, 140 Terra Firma Capital Partners, 79, 112 Theory of Moral Sentiments, The (Smith), 14 3iG FCI Practitioners’ Report, 51 thresholds, 60 1 Timothy 6:10, 135–6 178 Index too big to fail concept, 21–7 ethical duties, and implicit Government guarantee, 22–3 ethical implications of, 26–7 in government, 22–3 insolvency, systemic risk and, 24–5 legislative change, 25–6 Lehman, failure of, 23 systemic risk, 24–5 toxic financial products, 5 trading abusive, 93 emissions, 14 insider, 12 market, 41 normal market, 71 off-market, 71–83, 90, 155 on-market, 70–1 personal account, 128 private, 94 proprietary, 15, 25, 66, 150, 155 unauthorised, 7 “trash and cash” strategy, 86 Travellers, 19 Treasury Select Committee, 26 Trinity Church, 53 Trouble with Markets, The (Bootle), 4 trust, 40, 53 trusted adviser, 108–9, 125 truth, 101–5 bait and switch, 102–3 misleading vs. lying, 101 securities, issuing, 103–5 2 and 20 fee, 13 UBS Investment Bank, 9 unauthorised trading, 7, 80–1, 155 unethical behaviour, 68 UK Alternative Investment Market, 89 UK Business Growth Fund, 133 UK Code of Practice, 141 UK Independent Banking Commission, 4, 22 United Methodist Church, 54, 59 United Methodist Investment Strategy Statement, 59 US Federal Reserve, 24, 25 US Financial Crisis Inquiry Commission, 4 US Open, 126 US Senate Permanent Subcommittee on Investigations, 64, 73 US Treasury Department, 132 universal banks, 2, 21, 28, 67 untoward movement, 85 usury, 59–60 utilitarian, 84 utilitarian ethics, 49, 84, 139 values, 9, 46, 119–21, 148 Vedanta, 57 victimless crime, 82 virtue ethics, 37–8, 43–4 virtues, 9, 34 virtuous behaviours, 37 Vishnu, 57 Volcker, Paul, 25 Volcker Rule, 2, 25 voting shareholders, 29 Wall Street, 12, 19, 53 Wall Street Journal, 20 Wealth of Nations, The (Smith), 14 Wesley, John, 53 Wharf, Canary, 18 Williams, Rowan, 53 Wimbledon, 127 WorldCom, 12, 17, 20, 76 write-off, 80 zakat, 55 zero-sum games, 118–22
Broken Markets: A User's Guide to the Post-Finance Economy by Kevin Mellyn
banking crisis, banks create money, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, bonus culture, Bretton Woods, BRICs, British Empire, call centre, Carmen Reinhart, central bank independence, centre right, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, creative destruction, credit crunch, crony capitalism, currency manipulation / currency intervention, disintermediation, eurozone crisis, fiat currency, financial innovation, financial repression, floating exchange rates, Fractional reserve banking, global reserve currency, global supply chain, Home mortgage interest deduction, index fund, information asymmetry, joint-stock company, Joseph Schumpeter, labor-force participation, labour market flexibility, light touch regulation, liquidity trap, London Interbank Offered Rate, lump of labour, market bubble, market clearing, Martin Wolf, means of production, mobile money, money market fund, moral hazard, mortgage debt, mortgage tax deduction, negative equity, Ponzi scheme, profit motive, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, rising living standards, Ronald Coase, seigniorage, shareholder value, Silicon Valley, statistical model, Steve Jobs, The Great Moderation, the payments system, Tobin tax, too big to fail, transaction costs, underbanked, Works Progress Administration, yield curve, Yogi Berra, zero-sum game
It is equally misleading to think that a country’s ﬁnances can be viewed in isolation from those of all other countries it trades with and in which it invests money or raises capital. Yet that is precisely what the political class and the general public naturally do. Global Trade Is Not a Zero-Sum Game The basic math is simple. If one country sells more stuff to another country than it buys in return, a trade deﬁcit arises in the ﬁrst country and a trade surplus in the second. These add up to zero, being mirror images of each other, and it is natural to assume that this is a zero-sum game where surplus countries win and deﬁcit countries lose. However, bilateral trade is actually almost never in balance because countries have different stages of economic development and different business cycles, as well as different advantages in producing speciﬁc goods, services, and commodities. 94 Chapter 5 | Global Whirlwinds This is even more true when looking at multilateral trade, since every country actually trades and invests with many other countries at once.
eBook <www.wowebook.com> 170 Index Global whirlwinds (continued) economic primacy, 113 European banking crisis ECB, 102–103 federal funds market, 102 Federal Reserve, 103 global money market, 102 interbank market, 101 interbank-lending market, 102 interest rate and currency risks, 101 investment-banking industry, 101 recession, 103 short-and medium-term credit, 101 short-term funding and liquidity, 101 sovereign risk, 102 steroids, 103 globalization, 113 global money pump, 103–105 global trade, zero-sum game ants and grasshoppers, 96 cheap TV deal, 94–95 Chinese Central Bank, 94 currency manipulation, 95–96 multilateral trade, 94 political demagoguery, 94 hegemon, 113–116 sustainable development, 112 technology vs. friction, 105–106 US global economic leadership, 112 US losing clout, 111–112 war, settlement risk, 108–109 Western decline acceleration, 113 Government-sponsored enterprises (GSEs), 17 Graham-Leach-Bliley Act, 36 Great Depression, 5, 44, 61 Great Moderation, 16–18, 21, 61 “Green” economy, 85 Growth-killing austerity, 111 H Home equity lines of credit (HELOCs), 16 I Industrial Revolution, 77 Inﬁnite customization, 68 J Joint-stock banking, 63, 76 L Laissez-faire economy, 84–86 Liberal arts, 132 Life after ﬁnance, 75 credit-driven economy, 76–77 death knell, consumer credit American optimism, 90 big data, 90 entrepreneurs starvation, 91–92 loan factories, 90 per-account/per-transaction, 90 securitization, 90 unbanking, 91 ﬁnancial repression Bretton Woods system, 79 capital exports and foreignexchange transactions, 79 captive domestic audience, 79 debt restructuring, 78 GDP, 79 government banks ownership, 79 industrial policy, 86 monopolies, 86 negative real interest rates, 78, 79 prudential regulation, 79 rules, 80 subsidized green energy, 86 tax raising and lowering, 81–82 World War II, 79 Government expenditure, 75–76 low interest rates, 77–78 political direction, credit and investment formal taxation, 82 government-run utility, 83 Japanese banks, 83 laissez-faire economy myth, 84–86 Index market-driven banking system, 83 winners and losers, 83–84 risky business amalgamation, 88 coincidence, 88 competition, 89–90 joint-stock banks, 87 often-contradictory rules and requirements, 88 private partnerships, 87 separation of functions, 87 shareholder-owned banks, 87 small-town banks, 87 Life-line banking, 70 R Liquidity trap, 72 Ring fencing, 88 London Interbank Offered Rate (LIBOR), 102 Rules-based regulation, 59, 61 M S “Market-centric” ﬁnancial system, 110 Real Time Gross Settlement (RTGS), 108 Regulation process “Anglo-Saxon” world, 36 balance sheets and trading desks, 35 deﬁnition, 36 ﬁnance deregulation, 35–36 Graham-Leach-Bliley Act, 36 Triple A–rated bonds, 37 “ultra-safe” money market mutual fund, 37 Regulatory arbitrage, 61 Resolution Trust Corporation (RTC), 31 Savings-and-loan (S&L) industry, 28, 30 Mass-market retail banking, 66 Securities and Exchange Commission (SEC) rules, 33 McKinsey Global Institute (MGI), 110 S&L industry.See Savings-and-loan industry Micro-regulation, 92 Ministry of International Trade and Industry (MITI), 83 Society for Worldwide Interbank Financial Telecommunications (SWIFT), 107 Moral hazard, 18 Straight-through procession, 107 N National Bank Act, 49 National Bureau of Economic Research (NBER), 78 O Outsourcing, 13 P Personal Consumption Expenditure (PCE), 90 Price discovery, 104 Principles-based regulation, 59 Printing money, 78 Professional/proprietary trading, 12 Subprime mortgage market, 66 T The Dodd-Frank Act, 49 Trillion-pound banking groups, 60 Troubled Asset Relief Program (TARP), 39 U US Federal Reserve, 6 V Volcker rule, 88 W Working capital, 11 171 Broken Markets A User’s Guide to the Post-Finance Economy Kevin Mellyn Broken Markets: A User’s Guide to the Post-Finance Economy Copyright © 2012 by Kevin Mellyn All rights reserved.
3D printing, Amazon Web Services, augmented reality, call centre, clockwatching, cloud computing, Firefox, future of work, ghettoisation, Google Chrome, Google Glasses, Google Hangouts, Khan Academy, Kickstarter, Kodak vs Instagram, Lean Startup, Marc Andreessen, Mark Zuckerberg, Network effects, new economy, Occupy movement, place-making, prediction markets, pre–internet, QR code, recommendation engine, Richard Florida, risk tolerance, self-driving car, Silicon Valley, Silicon Valley startup, Skype, social graph, social web, Steve Jobs, Steve Wozniak, Thomas L Friedman, Tim Cook: Apple, Tony Hsieh, white picket fence, WikiLeaks, zero-sum game
In my first book, Six Pixels of Separation, I engaged in the argument that it’s not about how many people your brand connects to (which is the main metric that traditional advertising looks at), it’s that now we can better understand who these people are and what they’re really about (wants, desires, level of care). The thinking was fairly basic: Having ten raving fans is better than blasting thousands of people who couldn’t care less, and now these fans are self-identifying in places like Facebook, YouTube, Twitter… It seemed to make a plausible argument. My thinking has since evolved (dramatically). It’s not a zero-sum game anymore. A business that is strong must have both components: a mass number of fans who are also deeply engaged. In a Facebook world of over one billion people connected and sharing, you can have both a mass number of people as well as a better understanding of who they are and what their needs are. Some fans want simple promotions, while others might want a much richer type of engagement and brand experience.
If you think about this integration of e-commerce at the retail level (be it on a smartphone or a touchscreen installation), retailers may discover that a store in Sioux Falls sells as much inventory on certain products (or maybe more) than a flagship store in Times Square. Thinking that e-commerce kills the retail experience is simply bad thinking. People still like to go out, wander the malls, touch and see what’s new and exciting. It’s not a zero-sum game. The smarter retailers are going to wake up and realize that e-commerce will no longer be a vertical business within their retail experience… it’s going to quickly become horizontal across the organization. The digitization and ability for consumers to hit the retail level, but have access to the full inventory (and maybe even more products… some of which can even be virtual goods), is going to be the true shopping experience of the soon-to-be-future for retail.
Kids do not need Google, a great math teacher is much better than an iPad app, and it’s important that kids know what an actual book is. But there’s something else we need to remember: Our values were created in a different time and in a different place. Let’s rephrase the question: Am I doing my children a service or disservice by not allowing their education to include computers, technology, and connectivity? This is not a zero-sum game. Think about it this way: The jobs that the majority of my friends are currently working at didn’t even exist as occupations when I was in high school. Should children be lugging around five textbooks in a backpack, or does an iPad give them not only a lighter load but also the ability to create, collaborate, and engage more with their peers (when used correctly)? What do you see in the near future?
Naked Economics: Undressing the Dismal Science (Fully Revised and Updated) by Charles Wheelan
affirmative action, Albert Einstein, Andrei Shleifer, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, capital controls, Cass Sunstein, central bank independence, clean water, collapse of Lehman Brothers, congestion charging, creative destruction, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, Daniel Kahneman / Amos Tversky, David Brooks, demographic transition, diversified portfolio, Doha Development Round, Exxon Valdez, financial innovation, fixed income, floating exchange rates, George Akerlof, Gini coefficient, Gordon Gekko, greed is good, happiness index / gross national happiness, Hernando de Soto, income inequality, index fund, interest rate swap, invisible hand, job automation, John Markoff, Joseph Schumpeter, Kenneth Rogoff, libertarian paternalism, low skilled workers, lump of labour, Malacca Straits, market bubble, microcredit, money market fund, money: store of value / unit of account / medium of exchange, Network effects, new economy, open economy, presumed consent, price discrimination, price stability, principal–agent problem, profit maximization, profit motive, purchasing power parity, race to the bottom, RAND corporation, random walk, rent control, Richard Thaler, rising living standards, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, school vouchers, Silicon Valley, Silicon Valley startup, South China Sea, Steve Jobs, The Market for Lemons, the rule of 72, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, transaction costs, transcontinental railway, trickle-down economics, urban sprawl, Washington Consensus, Yogi Berra, young professional, zero-sum game
If one farmer is raising 2 percent more corn and hogs every year and his neighbor is raising 4 percent more, then they are eating more every year (or trading more away). If this disparity goes on for a long time, one of them will become significantly richer than the other, which may become a source of envy or political friction, but they are both growing steadily better off. The important point is that productivity growth, like so much else in economics, is not a zero-sum game. What would be the effect on America if 500 million people in India became more productive and gradually moved from poverty to the middle class? We would become richer, too. Poor villagers currently subsisting on $1 a day cannot afford to buy our software, our cars, our music, our books, our agricultural exports. If they were wealthier, they could. Meanwhile, some of those 500 million people, whose potential is currently wasted for lack of education, would produce goods and services that are superior to what we have now, making us better off.
But the larger philosophical debate will rage on: If the pie is growing, how much should we care about the size of the pieces? The subject of human capital begs some final questions. Will the poor always be with us, as Jesus once admonished? Does our free market system make poverty inevitable? Must there be losers if there are huge economic winners? No, no, and no. Economic development is not a zero-sum game; the world does not need poor countries in order to have rich countries, nor must some people be poor in order for others to be rich. Families who live in public housing on the South Side of Chicago are not poor because Bill Gates lives in a big house. They are poor despite the fact that Bill Gates lives in a big house. For a complex array of reasons, America’s poor have not shared in the productivity gains spawned by Microsoft Windows.
That’s it. All the frantic activity on Wall Street or LaSalle Street (home of the futures exchanges in Chicago) fits into one or more of those buckets. The world of high finance is often described as a rich man’s version of Las Vegas—risk, glamour, interesting personalities, and lots of money changing hands. Yet the analogy is terribly inappropriate. Everything that happens in Las Vegas is a zero-sum game. If the house wins a hand of blackjack, you lose. And the odds are stacked heavily in favor of the house. If you play blackjack long enough—at least without counting cards—it is a mathematical certainty that you will go broke. Las Vegas provides entertainment, but it does not serve any broader social purpose. Wall Street does. Most of what happens is a positive-sum game. Things get built; companies are launched; individuals and companies manage risk that might otherwise be devastating.
Unconventional Success: A Fundamental Approach to Personal Investment by David F. Swensen
asset allocation, asset-backed security, capital controls, cognitive dissonance, corporate governance, diversification, diversified portfolio, fixed income, index fund, law of one price, Long Term Capital Management, market bubble, market clearing, market fundamentalism, money market fund, passive investing, Paul Samuelson, pez dispenser, price mechanism, profit maximization, profit motive, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, shareholder value, Silicon Valley, Steve Ballmer, survivorship bias, technology bubble, the market place, transaction costs, Vanguard fund, yield curve, zero-sum game
If the aggregate mutual-fund performance deficit corresponds to the aggregate active management cost, one reasonable explanation implies that mutual-fund portfolio managers as a group exhibit no active management skill. Skillful security-selection on the part of active equity managers produces returns above the market return. Since active management constitutes a zero-sum game, mutual-fund managers win only if another set of market participants lose. Conversely, inept security-selection on the part of active equity managers produces returns below the market return. In the zero-sum game of active management, underperforming mutual-fund managers subsidize the gains of another set of market participants. Because the costs of playing the active management game correspond closely to the long-term performance deficit, it appears that mutual-fund managers produce results neither better nor worse than the aggregate of the other equity market players.
Obviously, based on subsequent performance, the overweighters and underweighters turn into winners and losers (or losers and winners). If the stock in question performs well relative to the market, the overweighters win and the underweighters lose. If the stock performs poorly relative to the market, the overweighters lose and the underweighters win. Before considering transaction costs, active management appears to be a zero-sum game, a contest in which the winners’ gains exactly offset the losers’ losses. Unfortunately for active portfolio managers, investors incur significant costs in pursuit of market-beating strategies. Stock pickers pay commissions to trade and create market impact with buys and sells. Mutual-fund purchasers face the same market-related transactions costs in addition to management fees paid to advisory firms and distribution fees paid to brokerage firms.
SUMMARY OF VISIBLE ACTIVE MANAGEMENT COSTS The costs to play the active management game consume a material portion of market returns. Consider the median U.S. equity mutual-fund manager. In 2002, management fees amounted to approximately1.5 percent of assets. Commissions consumed around 0.25 percent. Market impact extracted an estimated 0.60 percent. In aggregate, a total of 2.35 percent of assets disappeared from the median active investor’s account, representing a high price to pay to play a zero-sum game. Note that the annual 2.35 percent fails to include the debilitating costs of up-front sales loads or deferred contingent sales charges. Investors foolish enough to make a direct contribution to the financial well-being of a financial advisor face much worse odds of winning the active management game. Note also that the annual 2.35 percent ignores the adverse tax consequences from portfolio turnover or mutual-fund churn.
additive manufacturing, Atul Gawande, backtesting, Benoit Mandelbrot, buy low sell high, Checklist Manifesto, computerized trading, deliberate practice, diversification, Elliott wave, endowment effect, loss aversion, mandelbrot fractal, margin call, offshore financial centre, paper trading, Ponzi scheme, price stability, psychological pricing, quantitative easing, random walk, risk tolerance, short selling, South Sea Bubble, systematic trading, The Wisdom of Crowds, transaction costs, transfer pricing, traveling salesman, tulip mania, zero-sum game
Markets need a fresh supply of losers just as builders of the ancient pyramids needed a fresh supply of slaves. Losers bring money into the markets, which is necessary for the prosperity of the trading industry. A Minus-Sum Game Winners in a zero-sum game make as much as losers lose. If you and I bet $20 on the direction of the next 100-point move in the Dow, one of us will collect $20 and the other will lose $20. A single bet has a component of luck, but the more knowledgeable person will keep winning more often than losing over a period of time. People buy the industry's propaganda about trading being a zero-sum game, take the bait, and open accounts. They don't realize that trading is a minus-sum game. Winners receive less than what losers lose because the industry drains money from the markets. For example, roulette in a casino is a minus-sum game because the casino sweeps away between three and six percent of every bet.
In January 2010, the CFTC identified a “number of improper practices” in the retail foreign exchange market, “among them solicitation fraud, a lack of transparency in the pricing and execution of transactions, unresponsiveness to customer complaints, and the targeting of unsophisticated, elderly, low net worth and other vulnerable individuals.” It proposed new rules limiting leverage to 10 to 1. Frauds may include churning customer accounts, selling useless software, improperly managing “managed accounts,” false advertising, and Ponzi schemes. All the while, promoters claim that trading foreign exchange is a road to profits. The real forex market is a zero sum game, in which well-capitalized professional traders, many of whom work for banks, devote full-time attention to trading. An inexperienced retail trader has a significant information disadvantage. The retail trader always pays the bid-ask spread, which lowers his odds of winning. Retail forex traders are almost always undercapitalized and subject to the problem of “gambler's ruin.” Even in a fair game between two players, the one with the lower amount of capital has a higher probability of going bust in the long run.
See also Success bending the rules after desire for difficulty of and emotional trading essential components for and self-control vs. controlling markets by taking charge of your life and volume of trading Wisdom of crowds Wisdom of Crowds, The (James Surowiecki) Wishful thinking with classical charting giving trades “more room” as and stops Worldwide crowds Writing options Y Yahoo Finance Z Zero-sum game: forex market as trading as WILEY END USER LICENSE AGREEMENT Go to www.wiley.com/go/eula to access Wiley’s ebook EULA. Table of Contents PREFACE Introduction 1. Trading—The Last Frontier 2. Psychology Is the Key 3. The Odds against You PART 1: Individual Psychology 4. Why Trade? 5. Reality versus Fantasy 6. Self-Destructiveness 7. Trading Psychology 8. Trading Lessons from AA 9.
The Happiness Hypothesis: Finding Modern Truth in Ancient Wisdom by Jonathan Haidt
crack epidemic, delayed gratification, feminist movement, Ignaz Semmelweis: hand washing, invisible hand, job satisfaction, Lao Tzu, meta analysis, meta-analysis, Peter Singer: altruism, PIHKAL and TIHKAL, placebo effect, prisoner's dilemma, Ralph Waldo Emerson, selective serotonin reuptake inhibitor (SSRI), stem cell, Steven Pinker, telemarketer, the scientific method, ultimatum game, Walter Mischel, zero-sum game
Do to others wha t they do unt o you . Specifically , the tit-for-tat strategy is to be nice on the first round of interaction; b u t after that, do to your partner whatever your partner did to you on the previo u s r o u n d . 1 0 Tit for tat takes us way b e y o n d kin altruism. It o p e n s t h e possibility of forming cooperative relationships with strangers. Most interactions among animals (other than close kin) are zero-sum games: O n e animal's gain is the other's loss. But life is full of situations in which cooperation would expand the pie to be shared if only a way could be found to cooperate without being exploited. Animals that hunt are particularly vulnerable to the variability of s u c c e s s : They may find far more food than they can eat in one day, and then find no food at all for three weeks. Animals that can trade their surplus on a day of plenty for a loan on a day of need are m u c h more likely to survive the vagaries of chance.
And when you do pass on a piece of juicy gossip, what happens? Your friend's reciprocity reflex kicks in and she feels a slight pressure to return the favor. If she knows something about the person or event in question, she is likely to speak up: " O h really? Well, I heard that he . . ." Gossip elicits gossip, and it enables us to keep track of everyone's reputation without having to witness their good and bad deeds personally. Gossip creates a non-zero-sum game because it costs us nothing to give each other information, yet we both benefit by receiving information. B e c a u s e I'm particularly interested in the role of gossip in our moral lives, I was p l e a s e d when a graduate student in my d e p a r t m e n t , Holly Horn, told me that she wanted to study gossip. In one of Holly's studies,?1 we asked fifty-one people to fill out a short questionnaire each time over the course of a week that they took part in a conversation that went on for at least ten minutes.
T h e s e goods are subject to a kind of arms race, where their value comes not so much from their objective properties as from the statement they make about their owner. W h e n everyone wore Timex watches, the first person in the office buy a Rolex stood out. W h e n everyone moved up to Rolex, it took a $ 2 0 , 0 0 0 Patek Philip to achieve high status, and a Rolex no longer gave as m u c h satisfaction. C o n s p i c u o u s c o n s u m p t i o n is a zero-sum game: Each person's move up devalues the possessions of others. Furthermore, it's difficult to persuade an entire group or subculture to ratchet down, even though everyone would be better off, on average, if they all went back to simple watches. Inconspicuous consumption, on the other hand, refers to goods and activities that are valued for themselves, that are usually consumed more privately, and that are not bought for the purpose of achieving status.
Chaos Monkeys: Obscene Fortune and Random Failure in Silicon Valley by Antonio Garcia Martinez
Airbnb, airport security, always be closing, Amazon Web Services, Burning Man, Celtic Tiger, centralized clearinghouse, cognitive dissonance, collective bargaining, corporate governance, Credit Default Swap, crowdsourcing, death of newspapers, drone strike, El Camino Real, Elon Musk, Emanuel Derman, financial independence, global supply chain, Goldman Sachs: Vampire Squid, hive mind, income inequality, information asymmetry, interest rate swap, intermodal, Jeff Bezos, Malcom McLean invented shipping containers, Marc Andreessen, Mark Zuckerberg, Maui Hawaii, means of production, Menlo Park, minimum viable product, move fast and break things, move fast and break things, Network effects, Paul Graham, performance metric, Peter Thiel, Ponzi scheme, pre–internet, Ralph Waldo Emerson, random walk, Ruby on Rails, Sand Hill Road, Scientific racism, second-price auction, self-driving car, Silicon Valley, Silicon Valley startup, Skype, Snapchat, social graph, social web, Socratic dialogue, source of truth, Steve Jobs, telemarketer, urban renewal, Y Combinator, zero-sum game, éminence grise
What followed was a convoluted imbroglio of haggling that would have made a Somali pirate-ransom negotiation look orderly. The net conclusion of all this was that Mick would go to Facebook, while Zynga would get James and the company. The major problem here was that both Zynga and Facebook had to make concessions to get the deal done, but neither wanted to subsidize the other’s acquisition by offering more value for the hybrid sale. They perceived themselves to be locked in a zero-sum game with a company they didn’t particularly like. The final terms, which I never got out of Mick, were some weird combo of cash up front, equity on separate vesting schedules in both companies, and a corollary deal that got the investors paid. As I would come to learn, my situation wasn’t unusual, though not generally talked about. Companies with acquisition wherewithal and the nerve to use it bid for what they wanted in deals.
Also, you may have a legitimate emotional bond with your investors. After all, they often stood by you when nobody else did and, like Sacca, potentially helped get the company sold. Thus, founders face a moral choice that’s quite ticklish. They can opt to reward their investors for their investments in time and money, but they’re essentially paying them out of their wallet. The deal is very much a zero-sum game between founders and investors in the final stages. To give you an idea of just how indifferent the acquiring company is to investors, keep in mind that Sacca was reputedly Twitter’s largest equity shareholder after its founders, and a vocal champion of the company. He had helped arrange its last funding round, and, somewhat notoriously, was helping insiders sell their stakes in Twitter early to Wall Street speculators.
Somerset, 200 Mayer, Marissa, 78 Mayfield Capital, 154, 156, 159, 162–63 McAfee, 382 McCorvie, Ryan, 16–17 McDonald’s, 82, 450 McEachen, Matthew (“MRM”), 41, 46, 62–63 call to, 123 CEO position, 249 chaos monkey suggestion, 103 codebase and, 66, 73, 184, 234 coding, 146 comrade-in-arms, 91 as daredevil, 136–37 deal details and, 251–52 earnestness, 68 Facebook and, 223, 225 family, 135, 205 getting to know, 88 irritation, 102–3 lost with, 109 paying off mortgage, 494 as resourceful savior, 100–101 as steadfast, 67 McGarraugh, Charlie, 14–15 McLean, Malcom, 447 media publishers, 387 MediaMath, 390 Menlo Park, 84 bedroom community, 338 conferences, 119 headquarters, 469 moving to, 337 schools, 306 meritocracy, 74 Merkle, 384 mesothelioma, 81 Miami drug trade, 304 Michelangelo, 334 Microsoft Adchemy and, 153–54, 161–62 Atlas, 383, 453–55 calendar, 340 dogfooding, 43 monopolist, 286 program managers, 272 middle managers, 359 Miller, Arthur, 104 Miller, Frank, 434 Milton, John, 475 minimum viable product (MVP), 434 miracles, 51 misleading, offensive, or sexually inappropriate (MOSI), 310 Mixpanel, 62 mobile commerce, 484–89 mobile data, 382, 477, 484, 486 Mobile Marketing Association (MMA), 448 monetary value, 317–19 monetization bet, 4 data-per-pixel, 274 digital, 184 Facebook, 5, 209, 275, 278, 298, 318, 425, 444 folly, 361–72 Google, 186 growth, 141 influences, 9 savvy, 486–89 tug-of-war, 379 Twitter, 190 zero-sum game, 319 money fuck-you money, 102, 415–16 investors, 74 outside, 155 pre-money valuation, 212 seed, 96 of VCs, 174 Moore’s law, 25 MoPub, 476–77, 479–81 morality, 226, 256, 284 Morgenstern, Jared, 218 Morishige, Sara, 183 Morris, Robert Tappan, 60–61 Mortal Kombat 3, 178 Moscone, George, 181 Moskovitz, Dustin, 284 Motwani, Rajeev, 138 Museum of Natural History, 366 My Life as a Quant (Derman), 16 MySpace, 283–84 N00b, 269 Nanigans, 480–81 Narasin, Ben, 128–31, 143–44 NASDAQ, 405, 410 National Socialism, 356 native ad formats, 448–49 Neko, 482 Netflix, 83, 103, 328 Netscape Navigator, 286 Neustar, 384, 386 New Rich, 357 New York Times, 448, 486 New Zealand, 318 News Feed addictive, 482 ads, 482–84, 488, 492 click-through rates, 487 content, 309 creation, 2 distribution, 364 as magic real estate, 362 spamming users, 372 versions, 444 newspaper advertising, 36–37 Nielsen, 385 1984 (Orwell), 433 noncash valuation, 212 no-shop contract, 201 Nukala, Murthy crossing paths, 167–68 ego, 42–43 greed, 44 hazing by, 71 immigrant worker, 72 lecture from, 65–66 manipulative rage, 136 pep rally, 36 saying good-bye to, 73 self-preservation and, 162–63 tantrums, 45 as tyrant, 158 vindictiveness, 134 wooing by, 154 Obama, Barack, 299–300 obscenity, 268 OkCupid, 54 Olivan, Javier, 410 Omnicom, 437, 443 on-boarding, 260–67, 271 one shot, one kill motto, 298 one-on-one, 434, 457, 469 online dating, 54–55 Opel, John, 148 Open Graph, 280, 364 optimization, 276, 302 Oracle investors, 111 job at, 193 logo, 124 product shindigs, 181 recruiting, 70 Orkut, 379 Orrick, Herrington & Sutcliffe, 193, 203, 253 Orwell, George, 433 outside money, 155 Ovid, 316 Oxford English Dictionary, 80 Page, Larry, 112, 428, 431 Pahl, Sebastien, 119 Palantir, 272 Palihapitiya, Chamath, 265–66 Palo Alto bosom of, 116 climate, 123 downtown, 333, 338 East, 404 hub, 109 old, 112, 158 posh, 84 shuttles, 289, 339 Stanford grads, 63 Pamplona running of bulls, 106–7 Pan-Arabism, 356 Pansari, Ambar, 210 Paper, 283 Parse, 155 Patel, Satya, 249–50 Patton, 369 Payne, Jim, 476 PayPal, 78, 124 personal wealth, 415 personally identifiable information (PII), 395 photo sharing, 286, 490–91, 493 photo-comparison software, 310 Pickens, Slim, 102 Piepgrass, Brian, 374 pings, 188, 327, 422 PMMess, 347–51, 407, 409 poker playing, 396–97 polyandry, 483 Polybius, 172, 316, 336 Pong, 150 Ponzi scheme, 16 pornography, 167, 262, 268, 312, 314, 315 post-valuation, 212 pregnancy, 58–59 pre-money valuation, 212 La Presse, 37 privacy Facebook and, 316–29 Irish Data Privacy Audit, 278, 320–23 PRIZM Segments, 385 product development, 47, 94, 191, 220, 334, 370, 389 product managers (PMs) as Afghan warlords, 273 earning money, 302 everyday work, 294 Facebook, 4, 6–7, 10, 91, 97, 202, 210, 271–79 Google, 192 habitat, 341 high-value, 246 ideal, 219 information and, 295 internal and external forces and, 316–17 last on buck-passing chain, 327 managing, 276 stupidity, 313 tech companies, 272 tiebreaker role, 292 product marketing manager (PMM), 277, 366 product navigators, 272 production, 94 product-market fit, 175 programmatic media-buying technology, 38 Project Chorizo, 296 pseudorandomness, 75 publishers, 37, 39 Putnam, Chris, 284 Qualcomm, 70 quants, 16–18, 24, 29, 141, 207 Quick and Dirty Operating System (QDOS), 149 Rabkin, Mark, 3, 312, 389, 398, 435 Rajaram, Gokul, 8, 10 accepting offer from, 248 banter with, 472–73 as boss, 3 bribery, 471 FBX and, 435 go big or go home ethos, 300 in great debate, 459 influence, 202 insubordination toward, 465 interview with, 221–22 leadership, 309 loss of trust, 468 lot with, 373 management of, 434 middle manager, 463–64 one-on-one and, 469 as product leader, 276–77 riding by, 346 stripping of duties, 452 word of, 252 Ralston, Geoff, 93 Rapportive, 96–97, 106 real-time bidding (RTB), 40–41 real-time data synchronization, 38 Red Rock Coffee, 84 RedLaser, 51 Reesman, Ben, 308, 389, 399–400, 475, 477 relativity, 25 replicating portfolio, 247–48 retargeting, 9, 381, 395, 438, 461 return of advertising spend (ROAS), 81 revenue dashboards, 274–75, 295–96 Right Media, 37–38 The Road Warrior, 134 Roetter, Alex, 185, 190, 493–94 romantic liaisons, 55–56 Romper Stomper, 202 Rosenblum, Rich, 21–22 Rosenn, Itamar, 368 Rosenthal, Brian, 389, 390 Ross, Blake, 444 Rossetti, Dante Gabriel, 303 rounds, 156 routing system, 324 Rubinstein, Dan, 312–13 Ruby on Rails, 155 Russia, 375–76 Sacca, Chris, 128, 141, 143 acquisition advice, 187–88, 212–13, 245–47 on deals, 205–7 ignoring inquiries, 201 pseudoangel, 113, 117–19 wisdom, 202 Safari, 484 safe sex, 58 safeguarding role, 315 sailboat living, 307, 332, 337–38 salaries, 358 San Francisco Museum of Modern Art (SFMOMA), 181 Sandberg, Sheryl, 2, 10 data joining and, 465 gatekeeper, 4–5 intimates, 3–4 leadership, 410 managerial prowess, 311–13 meetings, 371, 382, 459 PowerPoint and, 7 recommendations to, 462 schmoozing, 367 wiles of, 408 Sarna, Chander, 67–68, 71, 72 sausage grinder, 296 scale, 300 Scalps@Facebook, 314 scavenging foray, 116 schadenfreude, 16–17 Schopenhauer, Arthur, 282 Schrage, Elliot, 3–4, 410 Schreier, Bryan, 123–25 Schrock, Nick, 400 Schroepfer, Mike, 2 Schultz, Alex, 374 scientific racism, 122 Scoble, Robert, 100 Scott, George C., 24, 369 security, 314–15 seed money, 96 Sequoia, 122–25, 130, 159 severance package, 470–71 severity-level-one bug (SEV1), 323 sexual molestation, 17 Shaffer, Justin, 219–21, 444 Shakespeare, William, 120, 427, 456 Shapiro, Scott, 378, 459 Shelly, Percy Bysshe, 337 Shockley, William, 122 shuttles, 289, 339 Siegelman, Russell, 146, 201, 213, 397 angel investor, 110–13 commitment, 141–43 negotiations, 116–17 Silicon Valley.
If You're So Smart, Why Aren't You Happy? by Raj Raghunathan
Broken windows theory, business process, cognitive dissonance, deliberate practice, en.wikipedia.org, epigenetics, fundamental attribution error, job satisfaction, Mahatma Gandhi, market clearing, meta analysis, meta-analysis, new economy, Phillip Zimbardo, placebo effect, science of happiness, Skype, The Fortune at the Bottom of the Pyramid, Thorstein Veblen, Tony Hsieh, working poor, zero-sum game, Zipcar
Happiness Is Our Nature How could it be that mindfulness mitigates negativity even as it enhances positivity? There appear to be several reasons for this. One reason has to do with something I call the BAA phenomenon, which is short for Behavior Affects Attitude. We all know that our attitudes affect our behavior. For instance, we can all see how a person who believes that “life is a zero-sum game”—that one can only win if someone else loses—is more likely to seek superiority than one who believes that “life’s pie can be grown.” Likewise, we can also see how a person who trusts others by default is more likely to be willing to sign off a deal on a handshake than one who distrusts others by default. What many of us don’t realize, however, is that our behaviors can affect our attitudes too.
In the case of Autonomy, the two routes are the need for external control and the need for internal control. As you can see from the figure above, I’ve labeled the first set of routes the “scarcity” route and the second set the “abundance” route. The word “scarcity” captures an important element common to all three of the first set of routes. A person who seeks superiority over others is someone who believes that life is a zero-sum game. This person thinks that the things (wealth, power, fame, etc.) she needs to be happy are scarce, which is why she ends up seeking superiority over others. If she didn’t perceive these things to be scarce, but believed they were in fact abundant, she wouldn’t be as motivated to seek superiority over others. Likewise, a person who is desperate for the love of others believes that his cup of love is not full—or not full enough—which is why he feels incomplete and needs someone else to “complete” him.
A Win-Win-Win-Win Solution To summarize, it appears that the recipe for a happy and fulfilling life is, in fact, not just a “win-win-win” solution, but a “win-win-win-win” solution. Specifically, apart from boosting happiness levels, chances of success, and altruism at the personal level, it is likely to boost meaningful productivity at the societal level. Those who believe that “life’s a zero-sum game” and “people are lazy by nature” will find it difficult to come to terms with the idea that there’s seemingly no catch in the recipe for happiness. “If,” they may ask, “the recipe for happiness offers a win-win-win-win solution, how come no one seems to know this? Why hasn’t the recipe caught on? Why do people continue to feverishly pursue material wealth, power, and fame? Why don’t we see more evidence of altruism and generosity?”
Currency Wars: The Making of the Next Gobal Crisis by James Rickards
Asian financial crisis, bank run, Benoit Mandelbrot, Berlin Wall, Big bang: deregulation of the City of London, Black Swan, borderless world, Bretton Woods, BRICs, British Empire, business climate, capital controls, Carmen Reinhart, Cass Sunstein, collateralized debt obligation, complexity theory, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, Daniel Kahneman / Amos Tversky, Deng Xiaoping, diversification, diversified portfolio, Fall of the Berlin Wall, family office, financial innovation, floating exchange rates, full employment, game design, German hyperinflation, Gini coefficient, global rebalancing, global reserve currency, high net worth, income inequality, interest rate derivative, John Meriwether, Kenneth Rogoff, labour mobility, laissez-faire capitalism, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Mexican peso crisis / tequila crisis, money market fund, money: store of value / unit of account / medium of exchange, Myron Scholes, Network effects, New Journalism, Nixon shock, offshore financial centre, oil shock, one-China policy, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, private sector deleveraging, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, Ronald Reagan, sovereign wealth fund, special drawing rights, special economic zone, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, time value of money, too big to fail, value at risk, War on Poverty, Washington Consensus, zero-sum game
Still, it was one more swipe at the dollar and a nice parting shot from O.D. Finally, the white cell seemed to be impressed with Russia’s tenacity on the alternative currency, especially its overture to OPEC, and awarded the country additional national power points. This was a complete turnaround from day one, when Russia’s play had been ridiculed. China was awarded more points mostly for doing nothing. It was a case study in how to win a zero-sum game just by keeping your head down while everyone else blundered around. The United States lost national power, partly because of Russia’s dollar assault, but also because it appeared that East Asia was coalescing around a China-Japan bloc that would eventually include most of the region and exclude the United States from its key decisions on trade and capital flows. In the end, China gained the most by doing the least while Russia and East Asia gained slightly and the United States was the biggest loser.
It was in these policy-driven adjustments, rather than the operation of gold itself, that the system eventually began to break down. One of the peculiarities of paper money is that it is simultaneously an asset of the party holding it and a liability of the bank issuing it. Gold, on the other hand, is typically only an asset, except in cases—uncommon in the 1920s—where it is loaned from one bank to another. Adjustment transactions in gold are therefore usually a zero-sum game. If gold moves from England to France, the money supply of England decreases and the money supply of France increases by the amount of the gold. The system could function reasonably well as long as France was willing to accept sterling in trade and redeposit the sterling in English banks to help maintain the sterling money supply. However, if the Banque de France suddenly withdrew these deposits and demanded gold from the Bank of England, the English money supply would contract sharply.
State capitalism is the in-vogue name for a new version of mercantilism, the dominant economic model of the seventeenth through nineteenth centuries. Mercantilism is the antithesis of globalization. Its adherents rely on closed markets and closed capital accounts to achieve their goal of accumulating wealth at the expense of others. Classical mercantilism rests on a set of principles that seem strange to modern ears. The main forms of wealth are tangible and found in land, commodities and gold. The acquisition of wealth is a zero-sum game in which wealth acquired by one nation comes at the expense of others. International economic conduct involves granting advantages to internal industries and imposing tariffs on foreign goods. Trading is done with friendly partners to the exclusion of rivals. Subsidies and discrimination are legitimate tools to achieve economic goals. In its most succinct form, the mercantilist takes the view that trade is war.
Present Shock: When Everything Happens Now by Douglas Rushkoff
algorithmic trading, Andrew Keen, bank run, Benoit Mandelbrot, big-box store, Black Swan, British Empire, Buckminster Fuller, cashless society, citizen journalism, clockwork universe, cognitive dissonance, Credit Default Swap, crowdsourcing, Danny Hillis, disintermediation, Donald Trump, double helix, East Village, Elliott wave, European colonialism, Extropian, facts on the ground, Flash crash, game design, global supply chain, global village, Howard Rheingold, hypertext link, Inbox Zero, invention of agriculture, invention of hypertext, invisible hand, iterative process, John Nash: game theory, Kevin Kelly, laissez-faire capitalism, Law of Accelerating Returns, loss aversion, mandelbrot fractal, Marshall McLuhan, Merlin Mann, Milgram experiment, mutually assured destruction, negative equity, Network effects, New Urbanism, Nicholas Carr, Norbert Wiener, Occupy movement, passive investing, pattern recognition, peak oil, price mechanism, prisoner's dilemma, Ralph Nelson Elliott, RAND corporation, Ray Kurzweil, recommendation engine, selective serotonin reuptake inhibitor (SSRI), Silicon Valley, Skype, social graph, South Sea Bubble, Steve Jobs, Steve Wozniak, Steven Pinker, Stewart Brand, supply-chain management, the medium is the message, The Wisdom of Crowds, theory of mind, Turing test, upwardly mobile, Whole Earth Catalog, WikiLeaks, Y2K, zero-sum game
Most simply, a person who wants to start a business borrows $100,000 from the bank, with the requirement that he pay back, say, $200,000 over the next ten years. He has a decade to double his money. Where does the additional $100,000 come from? Ultimately, from other people and businesses who are in the same position, spending money that they have borrowed. Even the wages that workers receive to buy things with were borrowed somewhere up the chain. But this seems to suggest a zero-sum game. Each borrower must win some other borrower’s money in order to pay back the bank. If the bank has loaned out $100,000 to ten different businesses, all competing to earn the money they need to pay back their loans, then at least half of them have to fail. Unless, of course, someone simply borrows more money from the bank, by proposing an additional business or expansion. Therein lies the beauty and horror of interest-bearing currency.
But the more we ponder the future in this way, the more paralyzed we become by the prospect of the long now—frozen with that plastic bottle over the trash can. Inconvenient truths tend to create more anxious neurotics than they do enlightened stakeholders. Those most successfully navigating the short forever seem to be the ones who learn to think wider, not longer. We must be able to expand our awareness beyond the zero-sum game of individual self-interest. It’s not the longer time horizon that matters so much to alleviating our present shock as it is our awareness of all the other prisoners in the same dilemma. This is why the commons offers us not only the justification for transcending self-interested behavior but also the means to mitigating the anxiety of the short forever. The greater community becomes the way we bank our time and experience.
What if it allows the shooter to return to the camp with medical supplies that save a dying child? This was the climax of just one episode of The Walking Dead, which—like many others—spawned countless pages of online discussion. The Prisoner’s Dilemma–like clarity of the scenario reassures modern audiences the way Cain and Abel simplified reality for our ancestors. But in our case, there’s no God in judgment; rather, it’s the zero-sum game of people with none of civilization’s trappings to mask the stark selfishness of every choice, and no holy narrative to justify those choices. The zombie legend originated in the spiritual practices of Afro-Caribbean sects that believed a person could be robbed of his soul by supernatural or shamanic means and forced to work as an uncomplaining slave. Canadian ethnobotanist Wade Davis studied Haitian voodoo rituals in the 1980s and determined that a kind of “zombie” state can be induced with powerful naturally derived drugs.
Zero-Sum Future: American Power in an Age of Anxiety by Gideon Rachman
Asian financial crisis, bank run, battle of ideas, Berlin Wall, Big bang: deregulation of the City of London, Bonfire of the Vanities, borderless world, Bretton Woods, BRICs, capital controls, centre right, clean water, collapse of Lehman Brothers, colonial rule, currency manipulation / currency intervention, deindustrialization, Deng Xiaoping, Doha Development Round, energy security, failed state, Fall of the Berlin Wall, financial deregulation, Francis Fukuyama: the end of history, full employment, global reserve currency, greed is good, Hernando de Soto, illegal immigration, income inequality, invisible hand, Jeff Bezos, laissez-faire capitalism, Live Aid, market fundamentalism, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, Mikhail Gorbachev, moral hazard, mutually assured destruction, Naomi Klein, offshore financial centre, open borders, open economy, Peace of Westphalia, peak oil, pension reform, Plutocrats, plutocrats, popular capitalism, price stability, RAND corporation, reserve currency, rising living standards, road to serfdom, Ronald Reagan, shareholder value, Sinatra Doctrine, sovereign wealth fund, special economic zone, Steve Jobs, Stewart Brand, The Chicago School, The Great Moderation, The Myth of the Rational Market, Thomas Malthus, trickle-down economics, Washington Consensus, Winter of Discontent, zero-sum game
An international poll taken in November 2005 found that 76 percent of Chinese and 75 percent of Indians counted themselves personally optimistic about the future—much higher figures than those recorded in the United States or Europe.11 Mahbubani was well aware that rising optimism in Asia could cause pessimism in the West. But he embraced a version of Bill Clinton’s view of a “win-win world,” in which globalization and rising prosperity potentially laid the foundation for a new era of peace and international harmony. He wrote: “Competition in the nineteenth century for political influence and territorial control was a zero-sum game. Competition in the second half of the twentieth century could become a positive-sum game. Growing economies could benefit, not harm, each other.”12 Unlike many thinkers in the West, Mahbubani was not a believer in democratic-peace theory. As far as he was concerned, democracy did not have much to do with it. The real underpinning of international peace was rising prosperity. “At the root of the reason why North Americans and Europeans do not wage war among themselves is a powerful middle class that has little desire to sacrifice its comfortable life.”13 The rise of an Asian middle class was therefore a massive force for global peace and meant that “world peace is not a pipe dream.”14 And, as Lee Kuan Yew liked to argue, if it took a period of authoritarianism to secure the stability necessary to create a Chinese middle class, wasn’t that a price worth paying?
One American who teaches at a Chinese university and is deeply sympathetic to the country nonetheless told me in 2007 that he was “disturbed by how many of the kids I teach have been taught that war with America is inevitable.”18 On his first visit to China, Barack Obama stuck doggedly to the mantras of the win-win world that he had inherited from Bill Clinton and George W. Bush. “We welcome China’s efforts to play a greater role on the world stage,” he declared. “Power does not need to be a zero-sum game and nations need not fear the success of each other.”19 And yet this is not entirely true. A more powerful China will inevitably threaten America’s ability to play the role in Asia and the Pacific to which it has become accustomed. This reality of growing rivalry with China was beginning to be reflected in U.S. foreign policy by the end of 2010. As the Obama administration saw it, China was becoming increasingly assertive in territorial disputes with its neighbors from Japan to India and increasingly difficult to deal with, on a range of issues from climate to currency.
That led to the formation of the G20, where genuine efforts have been made to advance international cooperation in the interests of all nations. But when the G20 gets close to the really hard issues, zero-sum logic takes over. Fearful that it will be put under pressure to revalue its currency, China has effectively prevented all serious discussion of “global economic imbalances.” National interest and ideology also turn a potential win-win situation over climate change into a zero-sum game. In principle, all nations have an overriding shared interest in stopping global warming. But in fact all governments treat climate change as an argument about sharing economic pain—a lose-lose situation. Politicians often speak hopefully about the potential economic gains from “green growth”—all those jobs insulating houses and producing hybrid cars. But the truth is that cutting emissions of greenhouse gases will carry a heavy economic cost, at least in the short term.
Switched On: My Journey From Asperger's to Emotional Awakening by John Elder Robison
The excitement I’d felt with new TMS experiences was great, but I was now experiencing deeper low periods than I’d previously known in my life. I sure didn’t want to end up like those two, but I didn’t know how much power I had over my fate. The Thompson quote felt disturbingly apt—my emotions were taking me for a ride, and all I could do was see where it led. * Flowers for Algernon was the basis for the Academy Award-winning 1968 movie Charly, starring Cliff Robertson. The Zero-Sum Game WE’VE ALL HEARD this myth: humans only use 10 percent of our brainpower. Usually, when people say that, they are suggesting that if we could learn to use the idle 90 percent we would become intellectual giants. Various supplements and therapies have been hawked over the years in pursuit of this lofty goal, but none of them has turned out to enrich minds, though I’m sure a few enriched their marketers.
Recognizing people, in contrast, would only make me ordinary. It was a real conundrum. I hated the idea of losing my special abilities, but I also felt alone so much of the time. And TMS had relieved that loneliness, at least temporarily. I had a return visit to the lab scheduled for more TMS in the not-too-distant future. But I was torn now that I’d come to believe that changing my brain might well be a zero-sum game. When I went back to the TMS lab for the last round of stimulations in their initial study, I was ready for anything. In earlier sessions I’d seen my emotions amped up and my senses fine-tuned. What would come next? The answer, to my dismay, was . . . nothing. The first round of TMS study concluded quietly, without a bang. As much as I’d hoped for further positive transformation, I realized that wasn’t going to happen every time.
When doctors use a tool like TMS in ways that are not FDA approved it’s called “off-label.” That’s what my next session would be—the hospital’s first off-label use of TMS to treat autism, one whose findings would guide a larger study. I was excited and hopeful but also a little bit afraid as I returned to the lab on August 12, the day before I turned fifty-one. The possibility of pain or medical catastrophe didn’t scare me anymore, but I was still preoccupied with the “zero-sum game” idea, the thought that enhancing my emotional sensitivity could somehow dull my mechanical awareness. In the absence of any proof one way or the other, in the months that had passed that idea had taken firm root in my mind. My new emotional insight seemed like just such a trade-off, given the emotional fragility I’d also had to contend with. I’d quickly learned that it takes practice to handle the strong emotions.
Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity by Douglas Rushkoff
3D printing, activist fund / activist shareholder / activist investor, Airbnb, algorithmic trading, Amazon Mechanical Turk, Andrew Keen, bank run, banking crisis, barriers to entry, bitcoin, blockchain, Burning Man, business process, buy low sell high, California gold rush, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, centralized clearinghouse, citizen journalism, clean water, cloud computing, collaborative economy, collective bargaining, colonial exploitation, Community Supported Agriculture, corporate personhood, corporate raider, creative destruction, crowdsourcing, cryptocurrency, disintermediation, diversified portfolio, Elon Musk, Erik Brynjolfsson, ethereum blockchain, fiat currency, Firefox, Flash crash, full employment, future of work, gig economy, Gini coefficient, global supply chain, global village, Google bus, Howard Rheingold, IBM and the Holocaust, impulse control, income inequality, index fund, iterative process, Jaron Lanier, Jeff Bezos, jimmy wales, job automation, Joseph Schumpeter, Kickstarter, loss aversion, Lyft, Marc Andreessen, Mark Zuckerberg, market bubble, market fundamentalism, Marshall McLuhan, means of production, medical bankruptcy, minimum viable product, Naomi Klein, Network effects, new economy, Norbert Wiener, Oculus Rift, passive investing, payday loans, peer-to-peer lending, Peter Thiel, post-industrial society, profit motive, quantitative easing, race to the bottom, recommendation engine, reserve currency, RFID, Richard Stallman, ride hailing / ride sharing, Ronald Reagan, Satoshi Nakamoto, Second Machine Age, shareholder value, sharing economy, Silicon Valley, Snapchat, social graph, software patent, Steve Jobs, TaskRabbit, The Future of Employment, trade route, transportation-network company, Turing test, Uber and Lyft, Uber for X, unpaid internship, Y Combinator, young professional, zero-sum game, Zipcar
Fewer people find alternative paths as they are corralled toward the limited outcomes of their statistical profiles. Companies depending on big data must necessarily reduce the spontaneity of their customers, so that they are satisfied with what amounts to fewer available choices. It’s a digitally complexified version of the one-size-fits-all values of industrialism. On the surface, the increase in customers for a product looks like growth. But it’s a limited, zero-sum game, in which the reduction in new possibilities cuts both ways. Many of the companies I’ve visited have been cutting back on expensive, unpredictable research and development (R & D) and spending resources instead on big data analysis. Why ideate in an open-ended fashion, they argue, when they’ve already got the data on what consumers are going to want next quarter? It’s virtually risk free. What they don’t get is that using big data to develop new products is like looking in the rearview mirror to drive forward.
Must we accept “the books”—presumably, the double-entry ledger—as the fundamental operating system? The problem with trying to get all human activity back on the books is that the books themselves are not neutral. They are artifacts of a very specific moment in human history—the beginning of the Renaissance—when the two-column ledger was instituted and everything came to be understood as a credit or a debit in a zero-sum game of capital management. Feeding more activity to the ledger simply cedes more of humanity and business alike to a growth-centric industrial model that was invented to thwart us to begin with. That’s the problem with any of the many new ways we have of earning income through previously off-the-books activities. On the one hand, they create thrilling new forms of peer-to-peer commerce. eBay lets us sell our attic junk.
However, I do believe that once we’ve developed a sense of the direction in which we want the economy to go, we can reposition our careers and our businesses to become less parts of the problem than participants in the solution. There’s a lot of hope here, if for no reason other than the fact that the best choices for your own and your business’s future sustainability are the very same choices that make our collective economy more resilient and responsive to long-term human interests. Unlike industrialism, genuinely sustainable economics is not an either-or, zero-sum game. As I hope I’ve shown, digital commerce can be a whole lot more than taking traditional corporate capitalism to the next level. Actually—or at least potentially—it’s retrieving something much older and, to my mind, more positive for people and businesses alike. While the unimaginative big businesses of today see in the Internet a new way to automate labor, devalue human contributions, securitize wealth, build platform monopolies, and stage spectacular exits, stakeholders in tomorrow’s economy should be able to see an opportunity to participate in self-sustaining, highly reciprocal, peer-to-peer, worker-owned, and community-defined marketplaces.
business climate, credit crunch, Deng Xiaoping, Donald Trump, facts on the ground, glass ceiling, high net worth, illegal immigration, income per capita, indoor plumbing, job-hopping, Maui Hawaii, price stability, quantitative easing, Silicon Valley, Skype, South China Sea, Steve Jobs, thinkpad, trade route, trickle-down economics, upwardly mobile, urban planning, women in the workforce, young professional, zero-sum game
As more Americans lost their jobs, China came to be viewed as a scapegoat for U.S. unemployment, rather than for the real reasons: poor regulation of Wall Street; a bickering political system; and average Americans’ addiction to debt, which went on for far too long. Now one hears the constant refrain from politicians and commentators on TV that China is stealing U.S. manufacturing jobs and that Americans should only buy products made in America. For these talking heads, China’s rise is a zero-sum game with the United States. While such arguments appeal to patriotic pride, giving in to these sentiments hurts Americans more than it helps them. Without China, many American families would not be able to afford quality furniture or the latest technology. If businesses like Laura or Apple were forced to bring their factories back to America, their prices would rise tenfold, causing rampant inflation and further hurting consumer sentiment and it is even doubtful these jobs would build consumer confidence if they came back.
They also adhere to the view that companies and countries constantly need to evolve and innovate to seize advantages in changes in the world, rather than erecting tariffs and other trade barriers in order to maintain their strength. This group tends to view China as a mix of white knight and mystical superhero who can magically save the world’s economy and increase global security. The other camp views China’s rise as a zero-sum game that will negatively impact the Western world’s ideological and economic dominance. They fear that China is a job stealer that manipulates currency in a mercantilist economic policy, and that it is a potential military enemy, to the detriment of America. They also feel that the Communist ideological strain in China, and the nation’s stance on human rights, are misguided at best but most likely evil, and that both threaten the American way of life.
The Flat White Economy by Douglas McWilliams
access to a mobile phone, banking crisis, Big bang: deregulation of the City of London, bonus culture, Chuck Templeton: OpenTable, cleantech, cloud computing, computer age, correlation coefficient, Edward Glaeser, en.wikipedia.org, Erik Brynjolfsson, eurozone crisis, George Gilder, hiring and firing, income inequality, informal economy, knowledge economy, loadsamoney, low skilled workers, mass immigration, Metcalfe’s law, Network effects, new economy, offshore financial centre, Pareto efficiency, Peter Thiel, Productivity paradox, Robert Metcalfe, Silicon Valley, smart cities, special economic zone, Steve Jobs, working-age population, zero-sum game
The Economist claimed “That is contemptibly naive and also a shame”.13 Nigel Farage leader of UKIP and never one to be short of a pithy comment responded in a tweet “What utter drivel, highlighting a major lack of critical thinking and compassion”.14 There is a second way in which inequality can be a problem in itself – if the economy operates such that either production or consumption is a zero-sum game. On the production side, the issue is whether those who become wealthy do so at the expense of others. Here there seems to be a correlation between concern about inequality in and of itself with those countries where there has been a feudal history – for example most of Europe – and conversely those newer societies which do not have a feudal history. In a feudal society, land is the scarce resource and is in limited supply.
There is fairly good statistical information on the relationship between wealth creation and the extent to which that wealth is taken by the government in taxation.15 So in general it is reasonable to suppose that in an information society much of the wealth created is additional rather than being taken from someone else as in a feudal society. In these circumstances redistribution to reduce inequality alone is likely to destroy a proportion of the wealth that is redistributed. It is not a zero-sum game. Because of the different historical sources of wealth, public opinion in relatively new economies like the US, Hong Kong and Singapore that have not experienced a feudal system appears much less concerned about inequality than opinion in countries with a feudal history like much of Europe, where I suspect that because of the feudal origins of society, wealth is considered highly suspect by a significant proportion of the population.
Utopia or Bust: A Guide to the Present Crisis by Benjamin Kunkel
anti-communist, Bretton Woods, capital controls, Carmen Reinhart, creative destruction, David Graeber, declining real wages, full employment, Hyman Minsky, income inequality, late capitalism, liberal capitalism, liquidity trap, means of production, money: store of value / unit of account / medium of exchange, mortgage debt, Occupy movement, peak oil, price stability, profit motive, savings glut, Slavoj Žižek, The Wealth of Nations by Adam Smith, transatlantic slave trade, War on Poverty, We are the 99%, women in the workforce, Works Progress Administration, zero-sum game
In America, the Ford and Carter administrations attempted to stimulate the economy by deficit spending and tax cuts, but so long as workers were not producing a supply of goods and services commensurate with the increased monetary demand, what could the prices of existing goods and services do but rise? Another solution would have been to create new jobs, turning out new commodities, to soak up excess currency. But this could only have been achieved at the cost, unthinkable to business, of greater power for labor. In the event, the international economy of the long downturn ever more closely approximated a zero-sum game in which no economy’s success could be purchased except at another’s expense. (See Brenner’s account of the seesawing fortunes of Germany, Japan, and the US.) The path toward prosperity for later-developing large economies lay in exporting “tradeables” to the international market. In Germany and Japan, and then in China, catering to external markets won out over nurturing internal demand. Domestic wage repression, usually in combination with an undervalued currency, formed the precondition of international competitiveness.
If the loaning of money at interest, stigmatized as usury during the Middle Ages, has seemed a more tolerable practice during much of the history of capitalism, its acceptance has been purchased through growth: increased income for rentiers didn’t necessarily imply a corresponding decrease for everyone else, only a share in the common expansion. The more nearly property relations approach a zero-sum game, the less we will be able to distinguish between what Adam Smith called productive and consumptive loans, the former contributing to the borrower’s prosperity and the latter merely draining it. Positive real interest rates per se will come to seem consumptive or parasitic, a straightforward transfer of wealth from debtor to creditor. It’s not inconceivable that financial rents could grow even as the economy stalls, with the subjects of capitalism submitting to an age of declining standards of living, as occurred in much of Europe during the eighteenth century.
Dream Hoarders: How the American Upper Middle Class Is Leaving Everyone Else in the Dust, Why That Is a Problem, and What to Do About It by Richard V. Reeves
affirmative action, Affordable Care Act / Obamacare, assortative mating, Bernie Sanders, Branko Milanovic, Capital in the Twenty-First Century by Thomas Piketty, circulation of elites, cognitive dissonance, desegregation, Donald Trump, Downton Abbey, full employment, ghettoisation, glass ceiling, helicopter parent, Home mortgage interest deduction, housing crisis, income inequality, knowledge economy, land value tax, mortgage tax deduction, obamacare, Occupy movement, Plutocrats, plutocrats, positional goods, race to the bottom, randomized controlled trial, unpaid internship, upwardly mobile, War on Poverty, We are the 99%, working-age population, zero-sum game
We will work hard to put a “glass floor” under them, to prevent them from falling down the chutes. Inequality and immobility thus become self-reinforcing. Downward mobility is not a wildly popular idea, to say the least. But it is a stubborn mathematical fact that, at any given time, the top fifth of the income distribution can accommodate only 20 percent of the population. Relative intergenerational mobility is necessarily a zero-sum game. For one person to move up the ladder, somebody else must move down. Sometimes that will have to be one of our own children. Otherwise the glass floor protecting affluent kids from falling acts also as a glass ceiling, blocking upward mobility for those born on a lower rung of the ladder. The problem we face is not just class separation, but class perpetuation. There are two factors driving class perpetuation at the top: the unequal development of “market merit” and some unfair “opportunity hoarding.”
Americans were likely to be better off than their parents but no more likely to move up or down the rungs of the income ladder. Politically, there is a critical difference between the two kinds of mobility. There is no limit to the number of people who can be absolutely upwardly mobile; everybody could, in theory, enjoy a higher standard of living than his or her parents. But relative mobility is by definition a zero-sum game—one reason it is more controversial. FIGURE 4-1 The Inheritance of Income Status Source: R. Chetty, N. Hendren, K. Kline, and others, “Where Is the Land of Opportunity? The Geography of Intergenerational Mobility in the United States.” Quarterly Journal of Economics 129 (2014): 1553–623. There are lots of ways to measure and illustrate relative mobility rates, including elasticity of income or earnings, rank-rank slopes, conditional transition probabilities, and rank directional mobility.
The Blank Slate: The Modern Denial of Human Nature by Steven Pinker
affirmative action, Albert Einstein, Alfred Russel Wallace, anti-communist, British Empire, clean water, cognitive dissonance, Columbine, conceptual framework, correlation coefficient, correlation does not imply causation, cuban missile crisis, Daniel Kahneman / Amos Tversky, Defenestration of Prague, desegregation, epigenetics, Exxon Valdez, George Akerlof, germ theory of disease, ghettoisation, glass ceiling, Hobbesian trap, income inequality, invention of agriculture, invisible hand, long peace, meta analysis, meta-analysis, More Guns, Less Crime, Murray Gell-Mann, mutually assured destruction, Norman Mailer, Peter Singer: altruism, phenotype, Plutocrats, plutocrats, Potemkin village, prisoner's dilemma, profit motive, QWERTY keyboard, Richard Feynman, Richard Feynman, Richard Thaler, risk tolerance, Robert Bork, Rodney Brooks, Saturday Night Live, speech recognition, stem cell, Steven Pinker, The Bell Curve by Richard Herrnstein and Charles Murray, the new new thing, theory of mind, Thomas Malthus, Thorstein Veblen, ultimatum game, urban renewal, War on Poverty, women in the workforce, Yogi Berra, zero-sum game
The biologists John Maynard Smith and Eörs Szathmáry and the journalist Robert Wright have explained how evolution can lead to greater and greater degrees of cooperation.19 Repeatedly in the history of life, replicators have teamed up, specialized to divide the labor, and coordinated their behavior. It happens because replicators often find themselves in non-zero-sum games, in which particular strategies adopted by two players can leave them both better off (as opposed to a zero-sum game, where one player’s profit is another player’s loss). An exact analogy is found in the play by William Butler Yeats in which a blind man carries a lame man on his shoulders, allowing both of them to get around. During the evolution of life this dynamic has led replicating molecules to team up in chromosomes, organelles to team up in cells, cells to agglomerate into complex organisms, and organisms to hang out in societies.
Long ago these endowments put our species on a moral escalator. Our mental circle of respect-worthy persons expanded in tandem with our physical circle of allies and trading partners. As technology accumulates and people in more parts of the planet become interdependent, the hatred between them tends to decrease, for the simple reason that you can’t kill someone and trade with him too. Non-zero-sum games arise not just from people’s ability to help one another but from their ability to refrain from hurting one another. In many disputes, both sides come out ahead by dividing up the savings made available from not having to fight. That provides an incentive to develop technologies of conflict resolution, such as mediation, face-saving measures, measured restitution and retribution, and legal codes.
That is why we expect similar bodies of mathematical results to emerge from different cultures or even different planets. If so, the number sense evolved to grasp abstract truths in the world that exist independently of the minds that grasp them. Perhaps the same argument can be made for morality. According to the theory of moral realism, right and wrong exist, and have an inherent logic that licenses some moral arguments and not others.12 The world presents us with non-zero-sum games in which it is better for both parties to act unselfishly than for both to act selfishly (better not to shove and not to be shoved than to shove and be shoved). Given the goal of being better off, certain conditions follow necessarily. No creature equipped with circuitry to understand that it is immoral for you to hurt me could discover anything but that it is immoral for me to hurt you. As with numbers and the number sense, we would expect moral systems to evolve toward similar conclusions in different cultures or even different planets.
The Global Auction: The Broken Promises of Education, Jobs, and Incomes by Phillip Brown, Hugh Lauder, David Ashton
active measures, affirmative action, barriers to entry, Branko Milanovic, BRICs, business process, business process outsourcing, call centre, collective bargaining, corporate governance, creative destruction, credit crunch, David Ricardo: comparative advantage, deindustrialization, deskilling, Frederick Winslow Taylor, full employment, future of work, glass ceiling, global supply chain, immigration reform, income inequality, industrial cluster, industrial robot, intangible asset, job automation, Joseph Schumpeter, knowledge economy, knowledge worker, labour market flexibility, low skilled workers, manufacturing employment, market bubble, market design, neoliberal agenda, new economy, Paul Samuelson, pensions crisis, post-industrial society, profit maximization, purchasing power parity, QWERTY keyboard, race to the bottom, Richard Florida, Ronald Reagan, shareholder value, Silicon Valley, sovereign wealth fund, stem cell, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, Thomas L Friedman, trade liberalization, transaction costs, trickle-down economics, winner-take-all economy, working poor, zero-sum game
This has long been a feature of the competitive strategies of the United States, but it now characterizes virtually all the afﬂuent economies, including Canada, Britain, and France. It reﬂects demographic trends, a need to overcome skill shortages, and a global competition to be a net importer rather than exporter of inventors, scientists, and entrepreneurs.19 Again, this was not understood as a zero-sum game, robbing emerging economies of some of their most educated and, in some cases, essential workers, such as doctors and nurses, but as brain circulation rather than brain drain.20 It is thought that workers from emerging economies could gain invaluable knowledge and experience while working in the West, which they could then use to contribute to the economic development of their country of origin when they eventually return home.
See also high-skill, low-wage workforce hourly wages, 117, 118 income inequalities, 124–25 industrial policy, lack of, 158 industrial revolutions, 21 Wilensky, Harold, 80 Williamson, Peter, 43, 57–58 Wilson, Timothy, 68 The Winner-Take-All Society, 122 IT revolution, 127 knowledge wars, 45–48 winner-takes-all, 11, 123, 160, 165n7 win-win scenario, 20, 111, 152–53 National Institute on Drug Abuse, 146 opportunity trap, 137 R&D (research and development), 44, 45 World Bank, 59, 130, 149 The World Is Flat, 66 World Trade Organization (WTO), 41 STEM subjects studies, 37–38, 39, 153 trade imbalance, 108–9 World University Rankings, 95 WTO (World Trade Organization), 41, 52 war for talent, 86 working poor, 163 universities. See colleges and universities 198 wage inequalities, 59–60 Wall Street, 111, 148 war for talent, 9, 83–90, 93–97, 148, 176n8, Young, Michael, 133, 182n3 value chain, 52, 54–56, 58, 98, 108–10, 128 Zeng, Ming, 43, 57–58 zero-sum game, 22 venture capital, 114–15 vertical integration, 103 Zhou, Eve, 45 ZTE, 42 Index
Albert Einstein, Build a better mousetrap, Burning Man, cognitive bias, correlation does not imply causation, deskilling, fear of failure, functional fixedness, Mahatma Gandhi, Mark Zuckerberg, school choice, Silicon Valley, The Wealth of Nations by Adam Smith, zero-sum game
The defendant gets excited and says to the judge, “But, Your Honor, what really happened was . . .” The judge then says to the defendant, “You’re right.” Hearing this, a spectator in the courtroom says, “Wait a minute, Your Honor; they can’t both be right.” The judge responds, saying, “You’re right.” The point here is that seemingly contradictory things can all be correct. Most real-world activities are not zero-sum games. Ways can be found in which everyone, and especially the team, moves forward. If it is done out of respect and caring, controversy is not a bad thing. It can even be a good thing. It is important that the controversy not get personal and damage the team’s sense of mutual support and understanding. It is also important that everyone on the team have an intention to make things work. Things go awry when people have different levels of commitment and different goals for the team.
It is important to ask yourself what kind of satisfaction you’ll derive from being that kind of person, even if it does mean you get the title you want. Don’t lose sight of your humanity in the pursuit of a fancier car. Many businesses and academic organizations use competition as a means of encouraging people to do their best—they literally have contests (sales contests, design contests, etc.) pitting people against each other. Although our culture is habituated to winner-take-all athletics and other zero-sum games, I’m not a fan of this. While it can have a strong upside for the winner, it has a strong downside for everyone else. It can lower morale, foster jealousy, and hurt relationships. It’s important to learn to be motivated to do your personal best, regardless of what happens around you. I have found that contests bring out the worst in students, whereas learning to cooperate and share brings out the best.
Brave New World of Work by Ulrich Beck
affirmative action, Asian financial crisis, basic income, Berlin Wall, collective bargaining, conceptual framework, Fall of the Berlin Wall, feminist movement, full employment, future of work, Gunnar Myrdal, hiring and firing, illegal immigration, income inequality, informal economy, job automation, knowledge worker, labour market flexibility, labour mobility, low skilled workers, McJob, means of production, mini-job, postnationalism / post nation state, profit maximization, purchasing power parity, rising living standards, Silicon Valley, working poor, working-age population, zero-sum game
World society is here a society of societies, which contains in itself all the national-territorial social blocs but, for that very reason, never amounts to an independent presence transcending them. This conception of globalization is ‘simple’ and ‘linear’, because it accepts largely without question the basic premise of territoriality and applies it to the very globalization which calls that basic premise into question. Two further assumptions underlie ‘simple’ globalization. First, the relationship between transnational and national actors or spaces is conceived as a zero-sum game: that which is won transna-tionally – sovereignty, military decision-making power, democratic qualities – must be lost by the national space. It might almost be said that the transnational here appears as an enemy ‘of the third kind’. Globalization threatens national sovereignty and the identity of the ‘homeland’, but it does so not through open rivalry, con-quest or subjugation but by ‘subversively’ intensifying economic dependence, transnational decision-making powers and multicultural influences.
A critique of the future work scenarios One way or another, the ten scenarios listed in Table 1 play an important role in this book. In varying degrees, however, their leap into the future always lands too short, still within the magic circle of the work society – and they also appear inadequate for a number of other major reasons. Feminization of work All scenarios in which multiple activity and multiple tracks replace ‘monogamous work’ (Peter Gross) easily end up in a zero-sum game of gender-divided labour. They make a virtue out of necessity by elevating shadow activities – housework, parental work, self-employed work, voluntary work – into the centre and source of meaning beyond the work society. The road to hell is often paved with good intentions. What is here pictured as the society of the future may accordingly be identified and criticized as precarious feminization of the world of work.
banking crisis, British Empire, collective bargaining, corporate governance, corporate social responsibility, financial deregulation, Fractional reserve banking, Hernando de Soto, income inequality, invisible hand, Joseph Schumpeter, laissez-faire capitalism, means of production, medical malpractice, Menlo Park, minimum wage unemployment, Norman Mailer, Plutocrats, plutocrats, price stability, profit maximization, profit motive, Ralph Nader, rent control, rent-seeking, Robert Bork, Ronald Coase, Ronald Reagan, Silicon Valley, statistical model, The Wealth of Nations by Adam Smith, transcontinental railway, union organizing, Upton Sinclair, wealth creators, working poor, Works Progress Administration, zero-sum game
Unfortunately, this simple fact of economic life is misunderstood or ignored by many commentators who cling to the discredited Marxist notion that one person gains in business at the expense of someone else. This nonsense is spread throughout the popular culture. It was on display in the movie Wall Street, for instance, in the now-famous “greed” speech, when Michael Douglas’s character explained that business “is all a zero-sum game: somebody wins, and somebody loses.” Nothing could be further from the truth, but Hollywood is full of movie scripts that spread silly, neo-Marxist propaganda such as this. And it is not just movies that perpetuate these myths. Many American universities are quite hostile toward capitalism, and during the twentieth century an entire class of intellectuals, journalists, television executives, private foundations, and others coalesced to form what might be called the anti-industry industry.
It is the cheap cloth, the cheap cotton and rayon fabric, boots, motorcars and so on that are the typical achievements of capitalist production, and not as a rule improvements that would mean much to the rich man. Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within reach of factory girls.3 These are the facts that the neo-Marxist propagandists ignore when bashing capitalism as a zero-sum game in which “somebody wins, somebody loses.” CONSUMER SOVEREIGNTY We all observe corporate executives, bankers, and businesspeople in general managing the day-to-day affairs of business, from the smallest dry cleaner to the largest multinational corporation. This has led many to believe that they—the public—have no say in their economy, which is largely in the hands of these “plutocrats.” But this is a myth, for as Mises pointed out: Neither the entrepreneurs nor the farmers nor the capitalists determine what has to be produced.
Just as there will be writers with more success and less talent than you, some of your writer friends will do better than you, by whatever standard you decide "better" counts as. And you know what you should do? Be happy for them, you neurotic twit. Because it's more than likely that their success has almost nothing to do with you— which is to say that if they were less successful, you would probably still be no more or less successful than you are. Life is not a zero-sum game; the fortunes of others do not mean our own fortunes are diminished. I mean, for God's sake, there are 280 million people in the United States. Do you really think the success of one of them in your field of work negates your ability to be successful? Jesus. A little self-centered, aren't we. So, suck it up. Be happy for your friend. Not only is it what you're supposed to do as a friend, and thus its own very good reason, but it's also the way to make your friend get the idea that now that he or she is successful, they're going to go out of their way to help you.
You have to train yourself not to begrudge it to others, and indeed to want others to succeed in your field. Writers are supremely passive-aggressive (again part and parcel of that whole spending too much time in your own head thing), and it's an effort not to wonder what someone else's success means for your own or your own lack thereof. Eventually you have to realize that success is not a zero-sum game (well, technically it is, because there's a finite number of publishers with a finite amount of resources, publishing a finite amount of books every year—but all those numbers are large enough that for the individual author, the point is moot). Despite what you may think, the success of others is not a referendum on you. Eventually you realize there's a positive value in the success of others, especially if you know them or are connected to them in some way.
Progress: Ten Reasons to Look Forward to the Future by Johan Norberg
agricultural Revolution, anti-communist, availability heuristic, Bartolomé de las Casas, Berlin Wall, British Empire, business climate, clean water, continuation of politics by other means, Daniel Kahneman / Amos Tversky, demographic transition, desegregation, Donald Trump, Flynn Effect, germ theory of disease, Gini coefficient, Gunnar Myrdal, Haber-Bosch Process, Hans Island, Hans Rosling, Ignaz Semmelweis: hand washing, income inequality, income per capita, indoor plumbing, Isaac Newton, Jane Jacobs, John Snow's cholera map, Kibera, Louis Pasteur, Mahatma Gandhi, meta analysis, meta-analysis, Mikhail Gorbachev, more computing power than Apollo, moveable type in China, Naomi Klein, open economy, place-making, Rosa Parks, sexual politics, special economic zone, Steven Pinker, telerobotics, The Wealth of Nations by Adam Smith, transatlantic slave trade, very high income, working poor, Xiaogang Anhui farmers, zero-sum game
We know that there are well-funded terrorist groups working hard to kill as many civilians as possible. And at some point a terrorist group might lay their hands on a nuclear device. But the overall trends are strong. Increasing wealth and health and smaller families seem to have made us value life more, and this has resulted in more humanitarian attitudes and a stronger interest in peace. Commerce and trade has made countries more interested in mutually beneficial exchange than in zero-sum games. To this we may add an entirely new phenomenon among affluent liberal democracies: something we might call a true peace. Their people and leaders can’t even dream of going to war against each other again, even traditional arch enemies like France and Germany. It seems that democracies very rarely go to war against each other, perhaps because voters rarely want war, leaders rarely gain politically from it, and perhaps also because democracy’s rule-based domestic negotiations have been externalized.
Their father was not stupid, but he was bound to a concrete way of thinking which had no room for hypothetical worlds where we explore consequences and rethink moral commitments.6 Additional factors behind increased tolerance are open markets and rising affluence. As Voltaire pointed out, at the Royal Exchange in London the Jew, the Muslim and the Christian transacted with and trusted each other and each gave the name infidel only to the bankrupts. Adam Smith and the classical economists showed that the economy does not have to be a zero-sum game. If all transactions are voluntary, no deal is ever made unless both sides believe they will benefit. In a commercial transaction, foreigners and ethnic and religious minorities are not necessarily our enemies, since we do not have to fight them or discriminate against them to protect ourselves. None other than Karl Marx and Friedrich Engels pointed out, in the Communist Manifesto, that free markets and free trade, ‘to the great chagrin of Reactionists’, tore down feudal ties and nationalist sentiments: All fixed, fast-frozen relations, with their train of ancient and venerable prejudices and opinions, are swept away, all new-formed ones become antiquated before they can ossify.
The Haves and the Have-Nots by Branko Milanovic
Berlin Wall, Branko Milanovic, colonial rule, crony capitalism, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, endogenous growth, Fall of the Berlin Wall, financial deregulation, full employment, Gini coefficient, high net worth, illegal immigration, income inequality, income per capita, Joseph Schumpeter, means of production, open borders, Pareto efficiency, Plutocrats, plutocrats, purchasing power parity, Simon Kuznets, very high income, Vilfredo Pareto, Washington Consensus, zero-sum game
The birth of fascism in Italy in 1922, with its many imitators in Central and Eastern Europe, further “downplayed” the role of economics because fascist states, while being capitalist (in the sense that they protected private property rights even more fiercely than the liberal regimes they overthrew), imposed a much greater role for the state in the economy and tended to see trade in mercantilist terms, that is, as a zero-sum game, not as mutually beneficial. The chaos of the civil war in China and the brutal colonization of Africa (again, a noneconomic action) further limited the scope of “free” economics. And the final nail in the coffin was the rise of National Socialism in Germany. Thus, economists believe that the interwar period can teach us, if anything, that politics à l’outrance cannot be good for economic development.
Keynes, The Economic Consequences of the Peace (1920; reprint, New York: Penguin, 1971), chap. 2, pt. 3 (emphasis in the original). 7 Stefan Zweig, The World of Yesterday (Lincoln: University of Nebraska Press, 1964), 7-8. 8 This is the so-called median-voter hypothesis developed by Kevin Roberts, “Voting over Income Tax Schedules,” Journal of Public Economics 8 (1977): 329-340, and Allan Meltzer and Scott Richard, “A Rational Theory of the Size of Government,” Journal of Political Economy 89 (1981): 914-927. 9 It could even happen that there is no real redistribution but that the effects on growth still remain negative. For example, in order to prevent the political takeover by the poor, the rich can combine and through lobbying buy votes and legislation, thus preventing the redistribution. But this effort at lobbying, a non-productive activity par excellence (because it is a zero-sum game, concerned only with redistribution and not creation of new wealth), will be a sheer waste from the point of view of economic growth, and a slower growth will ensue again. 10 See Oded Galor, “Income Distribution and the Process of Development,” European Economic Review 44 (2002): 706-712; and Oded Galor and Omer Moav, “From Physical to Human Capital Accumulation: Inequality and the Process of Development,” Review of Economic Studies 71 (2004): 1001-1026. 11 “He” in this dialogue is Adeimanus, Socrates’ older brother. 12 Plato, The Republic, translated by Desmond Lee (New York: Penguin, 1973), pt.
The End of Traffic and the Future of Transport: Second Edition by David Levinson, Kevin Krizek
2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 3D printing, American Society of Civil Engineers: Report Card, autonomous vehicles, barriers to entry, Bay Area Rapid Transit, big-box store, Chris Urmson, collaborative consumption, commoditize, crowdsourcing, DARPA: Urban Challenge, dematerialisation, Elon Musk, en.wikipedia.org, Google Hangouts, Induced demand, intermodal, invention of the printing press, jitney, John Markoff, labor-force participation, lifelogging, Lyft, means of production, megacity, Menlo Park, Network effects, Occam's razor, oil shock, place-making, Ray Kurzweil, rent-seeking, ride hailing / ride sharing, Robert Gordon, self-driving car, sharing economy, Silicon Valley, Skype, smart cities, technological singularity, Tesla Model S, the built environment, Thomas Kuhn: the structure of scientific revolutions, transaction costs, transportation-network company, Uber and Lyft, Uber for X, urban renewal, women in the workforce, working-age population, Yom Kippur War, zero-sum game, Zipcar
A similar argument would apply to bus lanes or pedestrian spaces; we leave those as an exercise for the reader. Once urban environments are created, people sort themselves, selecting the environment that best enables them to lead the lifestyle the want. People who want to cycle will move to places where cycling is easier. People who want to park will do likewise. ———————— In one sense, the amount of space in a right-of-way is a zero-sum game. In another, because that space is not fully utilized, better allocation of that space makes this a positive-sum game, the gain for 'the winners' outweighs the loss for 'the losers'. The trick, which is why local city officials and city planners are handsomely rewarded in their occupations, is to share that gain somehow so as to convince 'the losers' to not fight what is best for society as a whole
The antagonism between the two draws from a great struggle that has been playing out in the twentieth century between Mass Motorization and Mass Transit.337 It is a conflict that continues to this day and has spawned a morality play in the culture wars. While transit and cars mostly serve different markets, at the margins they compete for users, roadspace, funding, and the hearts and minds of travelers. They are competing on old turf though. While limited resource issues still suggest a zero-sum game, new modes and new fusions of existing modes will change the calculus. Transit advocates, fortunately, can now stop trying to put the (transit) genie back in the bottle because the bottle itself has now changed radically. Given the demise of modal warfare, more reliable transport services will form around the passenger rather than the facility or vehicle. On the other hand, the battles between the new modes could be quite significant, as we see with Uber's largely illegal invasion of cities and the varying public sector responses, from acquiescence to arresting drivers. ———————— In 'the more of the same' category, extrapolation of historical trends gives more travel.
Amazon Mechanical Turk, Any sufficiently advanced technology is indistinguishable from magic, autonomous vehicles, business process, call centre, combinatorial explosion, corporate governance, creative destruction, crowdsourcing, David Ricardo: comparative advantage, easy for humans, difficult for computers, Erik Brynjolfsson, factory automation, first square of the chessboard, first square of the chessboard / second half of the chessboard, Frank Levy and Richard Murnane: The New Division of Labor, hiring and firing, income inequality, intangible asset, job automation, John Markoff, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Khan Academy, Kickstarter, knowledge worker, labour mobility, Loebner Prize, low skilled workers, minimum wage unemployment, patent troll, pattern recognition, Paul Samuelson, Ray Kurzweil, rising living standards, Robert Gordon, self-driving car, shareholder value, Skype, too big to fail, Turing test, Tyler Cowen: Great Stagnation, Watson beat the top human players on Jeopardy!, wealth creators, winner-take-all economy, zero-sum game
It may also understate the division of income between capital and labor, insofar as CEOs and other top executives may have bargaining power to capture some of the “capital’s share” that would otherwise accrue to owners of common stock. Inequality Can Affect the Overall Size of the Economy Technology changes the shares of income for the skilled vs. unskilled, for superstars vs. the rest, and for capital vs. labor. Is this simply a zero-sum game where the losses of some are exactly offset by gains to others? Not necessarily. On the positive side of the ledger, inequality can provide beneficial incentives for skill acquisition, efforts toward superstardom, or capital accumulation. However, there are also several ways it can hurt economic well-being. First, one of the most basic regularities of economics is the declining marginal utility of income.
Berlin Wall, Bernie Sanders, Bob Geldof, cognitive dissonance, Downton Abbey, gender pay gap, glass ceiling, income inequality, light touch regulation, precariat, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, unpaid internship, upwardly mobile, We are the 99%, zero-sum game
There is no meritocratic justification for keeping ethnic minorities and women out of the boardroom; but similarly, nor can justification be found for taxing the bonuses of the elite once superficial ‘equality’ has been achieved. Class politics must certainly evolve with the times – at the very least it should take account of the legitimate grievances of people who feel marginalised for reasons other than their class. It must also recognise that today’s class distinctions are not always the categorical divisions of the past. However, liberal identity politics is increasingly a zero-sum game – a game in which ‘white men’ must invariably lose out so that women, ethnic minorities and LGBT individuals can prosper. With no account for the impact of class, this will simply give rise to another injustice; or, more accurately, it will compound an existing one. As in Michael Young’s meritocratic dystopia, Britain’s individual winners and losers will continue to occupy vastly different worlds and will remain firmly pitted against each other in the sharp-elbowed race to the top. 102 ‘Men Explain Hillary to Me’, Michelle Goldberg, Slate, 6 November 2015. 103 ‘Ranks of Socialist Workers Party are split over handling of rape allegation’, Jerome Taylor, The Independent, 11 January 2013. 104 Equal Pay Portal, http://www.equalpayportal.co.uk/statistics. 105 ‘Inequality, housing and employment statistics’, Institute of Race Relations, http://www.irr.org.uk/research/statistics/poverty. 106 ‘Prison: the fact’, Prison Reform Trust, summer 2013 briefing, http://www.prisonreformtrust.org.uk/ Portals/0/Documents/Prisonthefacts.pdf. 107 ‘“To unite the many”: an interview with Adolph L.
Liars and Outliers: How Security Holds Society Together by Bruce Schneier
airport security, barriers to entry, Berlin Wall, Bernie Madoff, Bernie Sanders, Brian Krebs, Broken windows theory, carried interest, Cass Sunstein, Chelsea Manning, commoditize, corporate governance, crack epidemic, credit crunch, crowdsourcing, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Graeber, desegregation, don't be evil, Double Irish / Dutch Sandwich, Douglas Hofstadter, experimental economics, Fall of the Berlin Wall, financial deregulation, George Akerlof, hydraulic fracturing, impulse control, income inequality, invention of agriculture, invention of gunpowder, iterative process, Jean Tirole, John Nash: game theory, joint-stock company, Julian Assange, mass incarceration, meta analysis, meta-analysis, microcredit, moral hazard, mutually assured destruction, Nate Silver, Network effects, Nick Leeson, offshore financial centre, patent troll, phenotype, pre–internet, principal–agent problem, prisoner's dilemma, profit maximization, profit motive, race to the bottom, Ralph Waldo Emerson, RAND corporation, rent-seeking, RFID, Richard Thaler, risk tolerance, Ronald Coase, security theater, shareholder value, slashdot, statistical model, Steven Pinker, Stuxnet, technological singularity, The Market for Lemons, The Nature of the Firm, The Spirit Level, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, too big to fail, traffic fines, transaction costs, ultimatum game, UNCLOS, union organizing, Vernor Vinge, WikiLeaks, World Values Survey, Y2K, zero-sum game
What matters here is the scope of defection: the number of overfishers, but also the frequency of overfishing, and the magnitude of each overfishing incident. At some scope of defection, stocks will be so depleted that everyone's catch in future years will be jeopardized. There's more at stake than whether Alice gets her fair share. In game theory, this is called a non-zero-sum game because wins and losses don't add up to zero: there are outcomes where everyone loses, and loses big.7 A fishery is non-zero-sum. Other societal dilemmas might seem like zero-sum games with a finite resource: if one person takes more, others get less. But even in these instances, there is a potential for catastrophe in widespread defection. If a community can't share a common water resource, everyone's crops will die because farmers can't plan on water use. If a few people constantly hog the exercise equipment, others won't come to the gym, which will lose membership and close.
When parents decide whether or not to immunize their child, they are faced with a societal dilemma. They can choose to cooperate and vaccinate their child, or they can choose to defect and refuse. As long as most children are vaccinated, a child is better off not being immunized: he avoids the chance of adverse effects, but reaps the benefit of herd immunity. But if there are too many defectors, everyone suffers the increased risk of epidemics. And it's a non-zero-sum game; there's a point where epidemics suddenly become much more likely. Societal Dilemma: Vaccination. Society: Society as a whole. Group interest: No epidemics. Competing interest: Avoid the small risk of adverse side effects (encephalopathy, allergic or autoimmune reactions, or—in extreme cases—contracting the disease from the vaccination). Group norm: Vaccinate. Corresponding defection: Avoid vaccination.
Dealers of Lightning by Michael A. Hiltzik
Apple II, Apple's 1984 Super Bowl advert, beat the dealer, Bill Duvall, Bill Gates: Altair 8800, computer age, creative destruction, Douglas Engelbart, Dynabook, Edward Thorp, El Camino Real, index card, Jeff Rulifson, John Markoff, Joseph Schumpeter, Marshall McLuhan, Menlo Park, oil shock, popular electronics, Robert Metcalfe, Ronald Reagan, Silicon Valley, speech recognition, Steve Ballmer, Steve Crocker, Steve Jobs, Steve Wozniak, Steven Levy, Stewart Brand, the medium is the message, Vannevar Bush, Whole Earth Catalog, zero-sum game
This isn’t a system suitable for a publishing application.” “So stick around and help us figure out what will work for Ginn. That’s why we’re here.” Taylor’s proposal to Mott was not an entirely disinterested one. At that moment POLOS and the Alto were moving along parallel paths toward the same goal—delivering computing cycles interactively to users. Taylor figured the two programs were almost certain to end up vying for money and staff in a zero-sum game. He was not alone: Even observers with little stake in the success of either system realized that when the smoke cleared only one would be left standing. No one could be surprised that Taylor would do anything to ensure the Alto was the one that would prevail. By 1974, when his conversation with Mott took place, this rivalry was already creating tension between the Computer Science and Systems Science labs.
“They didn’t seem to recognize that we were principled scientists who had our own self-check on things.” She was right: CSL was profoundly dubious. “I didn’t like what Lynn Conway’s group was doing and I didn’t think it was very productive,” Lampson complained, troubled to see valuable PARCresources draining down a speculative rathole. Adding to the pain, Xerox was again tightening up the budget just as CSL was hoping to launch a few new initiatives. “There was a zero-sum game in PARC resources and we thought there were all kinds of great opportunities for things we might do,” he recalled. “We wanted to get into databases and things like spreadsheets which we had completely ignored in the past. We wanted to do a lot of work on user interfaces and programming environments, all sorts of things. We did what we could, but it seemed clear that with more resources we could do a lot more.”
Perhaps failing to recognize that virtually since the day of PARC’s opening the physics lab had played the role in Pake’s mind of a political counterweight to Bob Taylor, Spinrad in March 1980 took a step that forever marked him, unfairly or not, as Taylor’s cat’s-paw. This was his preparation for Pake of a five-year plan in which he proposed reallocating PARC’s budget in favor of the puter labs (including SSL) and reducing the money spent on the General Science Lab. “I figured if I had a zero-sum game”—that is, if PARC’s budget were to remain static overall—“I was going to have to cut back slowly in some areas,” he recalled. “It would not be sudden, but some people’s oxen were going to get gored more than others. I was going to change the status quo.” Spinrad’s plan violated PARC and Xerox orthodoxy in at least one important respect. Xerox’s corporate culture always treated budget cuts as burdens to be shared equally by every cell of the organism.
Why We Can't Afford the Rich by Andrew Sayer
accounting loophole / creative accounting, Albert Einstein, asset-backed security, banking crisis, banks create money, basic income, Bretton Woods, British Empire, call centre, capital controls, carbon footprint, collective bargaining, corporate raider, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, crony capitalism, David Graeber, David Ricardo: comparative advantage, debt deflation, decarbonisation, declining real wages, deglobalization, deindustrialization, delayed gratification, demand response, don't be evil, Double Irish / Dutch Sandwich, en.wikipedia.org, Etonian, financial innovation, financial intermediation, Fractional reserve banking, full employment, G4S, Goldman Sachs: Vampire Squid, high net worth, income inequality, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), investor state dispute settlement, Isaac Newton, James Dyson, job automation, Julian Assange, labour market flexibility, laissez-faire capitalism, land value tax, low skilled workers, Mark Zuckerberg, market fundamentalism, Martin Wolf, mass immigration, means of production, moral hazard, mortgage debt, negative equity, neoliberal agenda, new economy, New Urbanism, Northern Rock, Occupy movement, offshore financial centre, oil shale / tar sands, patent troll, payday loans, Philip Mirowski, Plutocrats, plutocrats, popular capitalism, predatory finance, price stability, pushing on a string, quantitative easing, race to the bottom, rent-seeking, Ronald Reagan, shareholder value, short selling, sovereign wealth fund, Steve Jobs, The Nature of the Firm, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transfer pricing, trickle-down economics, universal basic income, unpaid internship, upwardly mobile, Washington Consensus, wealth creators, Winter of Discontent, working poor, Yom Kippur War, zero-sum game
There may be some administration costs in providing a loan, but these tend to be low and can be charged to the borrower. Like rent, interest presupposes that those who produce goods and services for their income produce a surplus that the lenders can buy with their unearned income. Like rent, therefore, interest is parasitic on producers. As Michael Hudson puts it, it is a ‘deadweight cost’ on the economy.42 It is not merely a transfer, a zero-sum game (where gains equal losses), but a negative-sum game – that is, one that, other things being equal, leaves the economy worse off. Blocking a possible misuse of the argument In societies in which National Socialism or fascism took hold, the argument that asset-based unearned income was parasitic was hijacked and used explicitly or implicitly in a specifically anti-Semitic way, to attack Jewish people involved in finance.
These are normal in capitalism – more in recessions than in booms, and more in areas of deindustrialisation, like Liverpool or Detroit. To the extent that such areas have any jobs at all, they tend to be low paid and unskilled. Right-wing politicians love to point to individuals from disadvantaged backgrounds who, through heroic struggle, find a job and then get ahead, and they castigate others for not doing the same. But where there are not enough jobs to go round, it’s a zero-sum game: if one person gets a job, it means that another does not. The same applies even if the jobseekers upgrade their skills. Yet, with boring predictability, the neoliberal media turn stories of lack of jobs into tales of lack of skills, or ‘welfare dependency’. This fallacy of imagining that what is possible for one must therefore be possible for all – a fallacy of composition, as logicians call it – is a staple of neoliberal politics and evangelists of meritocracy; it’s central to the so-called ‘American Dream’.
Chapter Six: Profit from production 82 David Schweikart’s (2000) After capitalism, New York: Rowman & Littlefield Publishers, develops this point well. 83 There are other kinds of capitalist too: merchant capitalists make money simply by buying and selling without producing, acting as intermediaries between producers and consumers; financial capitalists make money out of lending at interest, and are in effect rentiers. 84 Applicants to public sector jobs have to convince the employer that they can do the job effectively enough to justify being paid. While the public sector has to work within budgets, neoliberal governments have tried to make public organisations compete in zero-sum games for funds to make them more like the private sector, in the belief that this will make them more efficient and effective. Or, as in health and education, they have allowed capitalist businesses to compete for them. 85 Strangely, this point is missed by Thomas Piketty (2014) Capital in the 21st century, Cambridge, MA: Belknap Press, p 423. 86 Some readers might be wondering at this point, isn’t this like Marx’s labour theory of value, and hasn’t it been discredited?
Commodity Trading Advisors: Risk, Performance Analysis, and Selection by Greg N. Gregoriou, Vassilios Karavas, François-Serge Lhabitant, Fabrice Douglas Rouah
Asian financial crisis, asset allocation, backtesting, capital asset pricing model, collateralized debt obligation, commodity trading advisor, compound rate of return, constrained optimization, corporate governance, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, discrete time, distributed generation, diversification, diversified portfolio, dividend-yielding stocks, fixed income, high net worth, implied volatility, index arbitrage, index fund, interest rate swap, iterative process, linear programming, London Interbank Offered Rate, Long Term Capital Management, market fundamentalism, merger arbitrage, Mexican peso crisis / tequila crisis, p-value, Pareto efficiency, Ponzi scheme, quantitative trading / quantitative ﬁnance, random walk, risk-adjusted returns, risk/return, selection bias, Sharpe ratio, short selling, stochastic process, survivorship bias, systematic trading, technology bubble, transaction costs, value at risk, zero-sum game
This process 8Dale and Zyren (1996) report a similar level of explanatory power for positive feedback regressions applied to noncommercial positions in crude oil, gasoline, heating oil, and treasury bond futures. 9As Weiner (2002) points out, no conclusions should be drawn about price effects of noncommercial versus commercial trading based on the results in Tables 8.11 and 8.12. Since all futures markets are zero-sum games, correlations between noncommercial positions and past price movements necessarily imply just the opposite correlations between commercial positions and past price movements (assuming minimal trading volume on the part of nonreporting “small” traders). The results reported in Tables 8.11 and 8.12 are not sufficient to determine whether noncommercials (“speculators”) move prices and commercials (“hedgers”) follow, or vice versa.
This part of the graphed line is flat, indicating a constant, consistent return to managed futures when the stock market earns positive returns. In this part of the graph, the excess return provided by the Commodity Trading Index is almost zero. That is, after taking into account the opportunity cost of capital (investing cash in treasury bills), the return to this style of managed futures is effectively zero, when there is no volatility event. This result highlights a point about the managed futures industry: It is a zero-sum game, similar to Newton’s law of physics: For every action, there is an equal and opposite reaction. However, to the left side of the kink, there is a distinct linear relationship between the returns to managed futures and the S&P 100. Declines in the stock market driven by volatility events result in large, positive returns for the Barclay Commodity Trading Index. In fact, the fitted regression line in Figure 9.1 mirrors the payoff function for a long put option.
That is, the trend-following or momentum strategies of CTAs provide an economic exposure that is similar to a long put option. This synthetic put option exposure can be used to offset the short volatility exposure of other hedge fund strategies such as merger arbitrage and event driven. When we formed our mimicking portfolios, we observed that the mean return to these portfolios was zero. This underlines the fact that the futures market is a zero-sum game. However, managed futures should not be considered in isolation; their risk-reducing properties vis-à-vis short-volatility strategies provides measurable portfolio benefits. In sum, while the glory days of global macro funds may be over, there is a new reason to seek the benefits of CTAs. CHAPTER 10 CHAPTER 10 The Interdependence of Managed Futures Risk Measures Bhaswar Gupta and Manolis Chatiras ractitioners today are faced with a wide choice of methods to measure return and risk in portfolios, either in absolute or relative terms.
Homo Deus: A Brief History of Tomorrow by Yuval Noah Harari
23andMe, agricultural Revolution, algorithmic trading, Anne Wojcicki, anti-communist, Anton Chekhov, autonomous vehicles, Berlin Wall, call centre, Chris Urmson, cognitive dissonance, Columbian Exchange, computer age, Deng Xiaoping, don't be evil, drone strike, European colonialism, experimental subject, falling living standards, Flash crash, Frank Levy and Richard Murnane: The New Division of Labor, glass ceiling, global village, Intergovernmental Panel on Climate Change (IPCC), invention of writing, invisible hand, Isaac Newton, job automation, John Markoff, Kevin Kelly, lifelogging, means of production, Mikhail Gorbachev, Minecraft, Moneyball by Michael Lewis explains big data, mutually assured destruction, new economy, pattern recognition, Peter Thiel, placebo effect, Ray Kurzweil, self-driving car, Silicon Valley, Silicon Valley ideology, stem cell, Steven Pinker, telemarketer, The Future of Employment, too big to fail, trade route, Turing machine, Turing test, ultimatum game, Watson beat the top human players on Jeopardy!, zero-sum game
It sounds simple on paper. Why, then, did humankind have to wait until the modern era for economic growth to gather momentum? For thousands of years people had little faith in future growth not because they were stupid, but because it contradicts our gut feelings, our evolutionary heritage and the way the world works. Most natural systems exist in equilibrium, and most survival struggles are a zero-sum game in which one can prosper only at the expense of another. For example, each year roughly the same amount of grass grows in a given valley. The grass supports a population of about 10,000 rabbits, which contains enough slow, dim-witted or unlucky rabbits to provide prey for a hundred foxes. If one fox is very diligent, and captures more rabbits than usual, then another fox will probably starve to death.
If all foxes somehow manage to capture more rabbits simultaneously, the rabbit population will crash, and next year many foxes will starve. Even though there are occasional fluctuations in the rabbit market, in the long run the foxes cannot expect to hunt, say, 3 per cent more rabbits per year than the preceding year. Of course, some ecological realities are more complex, and not all survival struggles are zero-sum games. Many animals cooperate effectively, and a few even give loans. The most famous lenders in nature are vampire bats. These vampires congregate in their thousands inside caves, and every night they fly out to look for prey. When they find a sleeping bird or a careless mammal, they make a small incision in its skin, and suck its blood. Not all bats find a victim every night. In order to cope with the uncertainty of their life, the vampires loan blood to each other.
Much of the credit for overcoming famine and plague belongs to the ardent capitalist faith in growth. Capitalism even deserves some kudos for reducing human violence and increasing tolerance and cooperation. As the next chapter explains, there are additional factors at play here, but capitalism did make an important contribution to global harmony by encouraging people to stop viewing the economy as a zero-sum game, in which your profit is my loss, and instead see it as a win–win situation, in which your profit is also my profit. This has probably helped global harmony far more than centuries of Christian preaching about loving your neighbour and turning the other cheek. From its belief in the supreme value of growth, capitalism deduces its number one commandment: thou shalt invest thy profits in increasing growth.
Capital Ideas: The Improbable Origins of Modern Wall Street by Peter L. Bernstein
Albert Einstein, asset allocation, backtesting, Benoit Mandelbrot, Black-Scholes formula, Bonfire of the Vanities, Brownian motion, buy low sell high, capital asset pricing model, corporate raider, debt deflation, diversified portfolio, Eugene Fama: efficient market hypothesis, financial innovation, financial intermediation, fixed income, full employment, implied volatility, index arbitrage, index fund, interest rate swap, invisible hand, John von Neumann, Joseph Schumpeter, Kenneth Arrow, law of one price, linear programming, Louis Bachelier, mandelbrot fractal, martingale, means of production, money market fund, Myron Scholes, new economy, New Journalism, Paul Samuelson, profit maximization, Ralph Nader, RAND corporation, random walk, Richard Thaler, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, stochastic process, the market place, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, transfer pricing, zero-coupon bond, zero-sum game
There is little to be gained from buying US Steel simply because it is a steel stock or IBM simply because it is a computer stock. Investors demand higher returns for stocks with risks that cannot be diversified away—stocks that move up and down in sympathy with the portfolio—but they do not expect to earn a premium for stocks with risks that can be diversified away. Holding stocks with risks like that turns out to be a zero-sum game, with some investors winning what others lose. If that is what the world is like, then security analysts trained in the tradition of Graham and Dodd will soon be obsolete. If beta is all that matters in determining expected returns, and if beta can be estimated with a hand-held calculator, who needs security analysis? That question overstates the case. Betting against the market is not doomed to be a losing proposition, but an investor’s appetite for unsystematic risk should reflect the quality of the information that leads to the decision.
He then lists his views of the investment management business, reflecting both the theoretical sophistication he had acquired and his realistic sense of what the security markets are all about. He emphasizes the difference between earning an above-market return by taking above-average risks and winning at the expense of other players who lose more than the winners win because “the costs of trading make the contest less than a zero-sum game.” He expresses skepticism about winning consistently at the expense of other players in a market that is “extremely efficient,” because it is so difficult to tell the smart winners from those who are just lucky. He warns about the “quicksand premise that increasing knowledge about a company guarantees greater forecasting success” and scorns the “trend and fetish that skillful account managers should reduce the number of names in their portfolios so as to be conversant with their individual holdings.”
Rosenberg offers interesting insights into the reason for the early resistance of practitioners to the new theoretical concepts. He refers to certain “unattractive motivations”: defense of entrenched power, fear of the unknown, intellectual laziness, and naive pride of place. These motivations were most apparent in the stubborn refusal to understand that one investors gain against the rest of the market had to be another investor’s loss, and that active investment management is a zero-sum game, and less than zero after transaction costs are figured in. This disagreeable but logically irrefutable feature of investing was a challenge to the fraternity’s conviction that they could all be winners. It was what had bruised my ego that day in New York when Sharpe subjected me to his persistent interrogation. Rosenberg was still encountering stubborn resistance as late as 1977. Charles Ellis recalls the occasion when Rosenberg addressed the Tenth Annual Institutional Investor conference at the New York Hilton, at a time when his popularity and following were firmly established.
The Googlization of Everything: by Siva Vaidhyanathan
1960s counterculture, activist fund / activist shareholder / activist investor, AltaVista, barriers to entry, Berlin Wall, borderless world, Burning Man, Cass Sunstein, choice architecture, cloud computing, computer age, corporate social responsibility, correlation does not imply causation, creative destruction, data acquisition, death of newspapers, don't be evil, Firefox, Francis Fukuyama: the end of history, full text search, global village, Google Earth, Howard Rheingold, informal economy, information retrieval, John Markoff, Joseph Schumpeter, Kevin Kelly, knowledge worker, libertarian paternalism, market fundamentalism, Marshall McLuhan, means of production, Mikhail Gorbachev, moral panic, Naomi Klein, Network effects, new economy, Nicholas Carr, PageRank, pirate software, Ray Kurzweil, Richard Thaler, Ronald Reagan, side project, Silicon Valley, Silicon Valley ideology, single-payer health, Skype, social web, Steven Levy, Stewart Brand, technoutopianism, The Nature of the Firm, The Structural Transformation of the Public Sphere, Thorstein Veblen, urban decay, web application, zero-sum game
Its readers, and Web readers in general, have approved of its content by linking to its articles despite the fact that they have always sat behind a paywall, largely inaccessible to those without a subscription to the paper. Second, the fact that Google makes ad revenue off search results for a subject does not necessarily undermine the value of the site itself on the advertising market. There is no zero-sum game going on here. Although it’s true 34 R END E R UNTO CAESA R that Google presents a potentially cheaper and more effective way for ﬁrms to purchase advertising space, that is true regardless of whether Google includes news results in its general searches (Google does not place ads on the Google News front page but does so on the ﬁrst page of search results). In the meantime, Google ofﬁcials have been working with news organizations to ﬁgure out ways to generate new interfaces that would privilege “mainstream” content over the noise generated by blogs and aggregation sites such as Hufﬁngton Post.41 It is these secondary sites, not Google News or Google Web Search, that pose the real problem for news organizations, and potentially for Google.
More important, the behavior of more than seventy million people who offered and received copyrighted ﬁles without payment did not undermine the foundations of copyright. The system continues to work. Songwriters still write. Producers still produce. Distributors still distribute. Lawyers still sue. Downloaders still download. We learned three essential truths from the downloading debate: a shared ﬁle is not a lost sale; there is a signiﬁcant difference between a crisis and a moral panic; and culture is not a zero-sum game. See Siva Vaidhyanathan, The Anarchist in the Library: How the Clash between Freedom and Control Is 250 NOTES TO PAGES 166– 68 Hacking the Real World and Crashing the System (New York: Basic Books, 2004), 43–50. 26. MGM Studios, Inc. v. Grokster Ltd., 380 F.3d 1154, 1158 (9th Cir. 2004). 27. Brief for Media Studies Professors as Amici Curiae Supporting Respondents at 4, 10, MGM Studios, Inc. v.
The End of Growth: Adapting to Our New Economic Reality by Richard Heinberg
3D printing, agricultural Revolution, back-to-the-land, banking crisis, banks create money, Bretton Woods, carbon footprint, Carmen Reinhart, clean water, cloud computing, collateralized debt obligation, computerized trading, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, David Graeber, David Ricardo: comparative advantage, dematerialisation, demographic dividend, Deng Xiaoping, Elliott wave, en.wikipedia.org, energy transition, falling living standards, financial deregulation, financial innovation, Fractional reserve banking, full employment, Gini coefficient, global village, happiness index / gross national happiness, I think there is a world market for maybe five computers, income inequality, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Kenneth Rogoff, late fees, liberal capitalism, mega-rich, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, naked short selling, Naomi Klein, Negawatt, new economy, Nixon shock, offshore financial centre, oil shale / tar sands, oil shock, peak oil, Ponzi scheme, post-oil, price stability, private military company, quantitative easing, reserve currency, ride hailing / ride sharing, Ronald Reagan, short selling, special drawing rights, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, trade liberalization, tulip mania, working poor, zero-sum game
However, when the bumps are averaged out, the general trend-line of the economy (measured in terms of production and consumption of real goods) will be level or downward rather than upward from now on. Nor will it be impossible for any region, nation, or business to continue growing for a while. Some will. In the final analysis, however, this growth will have been achieved at the expense of other regions, nations, or businesses. From now on, only relative growth is possible: the global economy is playing a zero-sum game, with an ever-shrinking pot to be divided among the winners. Why Is Growth Ending? Many financial pundits have cited serious troubles in the US economy — including overwhelming, un-repayable levels of public and private debt, and the bursting of the real estate bubble — as immediate threats to economic growth. The assumption generally is that eventually, once these problems are dealt with, growth can and will resume at “normal” rates.
Jon Talton, “With Oil Prices Around $90, Recovery is Over a Barrel,” The Seattle Times, December 9, 2010; David Murphy, “Further Evidence of the Influence of Energy on the US Economy,” The Oil Drum, posted April 16, 2009, netenergy.theoildrum.com/node/5304; Jeff Rubin, “We Have Run Out of Oil We Can Afford to Burn,” The Globe and Mail, October 6, 2010; “Oil Price is Risk to Economic Recovery, Says IEA,” BBC News, posted January 5, 2011; Derek Thompson, “How Oil Could Kill the Recovery,” The Atlantic, posted January 6, 2011. 37. Cameron Leckie, “Economic Growth: A Zero Sum Game,” On Line Opinion, posted November 25, 2010. 38. Carey W. King, “Energy Intensity Ratios as Net Energy Measures of United States Energy Production and Expenditures,” Environmental Research Letters 5 (October to December 2010). 39. Recent reports warn that groundwater is depleting at increasing rates “Groundwater Depletion Rate Accelerating Worldwide,” Science Daily, posted September 23, 2010; and that the world’s rivers are in a “crisis state.”
air freight, banking crisis, big-box store, BRICs, carbon footprint, collateralized debt obligation, collective bargaining, creative destruction, credit crunch, David Ricardo: comparative advantage, decarbonisation, energy security, food miles, hydrogen economy, illegal immigration, immigration reform, Intergovernmental Panel on Climate Change (IPCC), invisible hand, James Watt: steam engine, Just-in-time delivery, market clearing, megacity, North Sea oil, oil shale / tar sands, oil shock, peak oil, profit maximization, reserve currency, South Sea Bubble, the market place, The Wealth of Nations by Adam Smith, trade liberalization, zero-sum game
That is no doubt a liberating experience for them, bestowing comforts and convenience that Westerners take for granted. But at the same time it gives each of those new car owners a straw to start sucking at what are already rapidly depleting world oil reserves. And the more they suck through those newly found straws, the less there will be for everyone else—and the higher the price we pay for what we are able to slurp up. Thinking of driving as a zero-sum game is not something that comes naturally to us. If we think about car ownership in other countries at all, we are probably not fretting that drivers on the other side of the world are pumping what would have been our gasoline into their tanks. But there is a strong sense in which that is exactly what is happening. There can be only so many cars on the road in the world, because there is only so much oil to keep them running.
Just as climate change is already affecting the poorer nations near the equator more cruelly than it does the richer, more temperate countries, rising fuel prices hit those places a lot harder as well. According to the International Energy Agency, every $10 increase in the price of oil causes the countries of sub-Saharan Africa to lose 3 percent of their GDP. What happens to their economies when the global oil market becomes a zero-sum game and the poor countries are unable to keep up with the bidding? When the developed world starts to tighten its belt, the economies of the developing world get strangled. Everyone, rich and poor, bought into globalization because everyone benefited. Incomes rose globally, and at historically impressive rates. Because we wanted to pay less for shoes, someone in Vietnam moved from the rice fields to a factory.
Affordable Care Act / Obamacare, bank run, banking crisis, Bernie Madoff, clean water, collateralized debt obligation, correlation does not imply causation, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, disintermediation, fiat currency, financial innovation, Fractional reserve banking, full employment, high net worth, housing crisis, invisible hand, life extension, low skilled workers, market bubble, market clearing, minimum wage unemployment, money market fund, moral hazard, negative equity, obamacare, Paul Samuelson, price mechanism, price stability, profit maximization, quantitative easing, race to the bottom, reserve currency, risk/return, Robert Shiller, Robert Shiller, The Bell Curve by Richard Herrnstein and Charles Murray, too big to fail, transaction costs, yield curve, zero-sum game
Yes, but the “at risk” sum is a small fraction of the face amount. In addition, remember that, in derivatives, for every loser there is an equal winner (less transaction fees, which are trivial). In the example we just gave, the counterparty to our contract has lost $20 million because rates fell. (He was making $10 million and now is paying $10 million.) However, BB&T has made $20 million. This is a zero-sum game. Zero-sum games cannot possibly crash an economic system. In addition, the better brokers have found a second counterparty with an opposite risk from BB&T’s. In this case, BB&T will make less profit if rates fall, which is why we entered into the derivatives contract. There are many financial institutions that will make less profit if interest rates rise. This type of institution, while losing on the derivatives contract when interest rates are falling, will make higher profits in its core business with falling interest rates, and therefore is neutral overall in terms of the change in its derivatives position.
How Much Is Enough?: Money and the Good Life by Robert Skidelsky, Edward Skidelsky
banking crisis, basic income, Bertrand Russell: In Praise of Idleness, Bonfire of the Vanities, call centre, creative destruction, David Ricardo: comparative advantage, death of newspapers, financial innovation, Francis Fukuyama: the end of history, full employment, happiness index / gross national happiness, income inequality, income per capita, informal economy, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, lump of labour, market clearing, market fundamentalism, Paul Samuelson, profit motive, purchasing power parity, Ralph Waldo Emerson, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, Tobin tax, union organizing, University of East Anglia, Veblen good, wage slave, wealth creators, World Values Survey, zero-sum game
To that extent they are unrealistic, since the expression of wants always has a social character. The main sociological explanation of insatiability hinges, therefore, on the relative character of wants. At no level of material wealth will I feel satisfied with what I have, because someone will always have more than I do. Once competition for wealth—or the consumption by which it is normally signified—turns into competition for status, it becomes a zero-sum game, because everyone, by definition, cannot have high status. As I spend more on prestige goods, I gain status but cause others to lose it. As they spend more to regain status they reduce my own. There is no reason why the escalation of income to maintain and acquire status should ever end. Oddly enough, Keynes was well aware of status spending. Human needs, he wrote in an important aside in his essay, fall into two classes: those needs which are absolute in the sense that we feel them whatever the situation of our fellow human beings may be, and those which are relative in the sense that we feel them only if their satisfaction lifts us above, makes us feel superior to, our fellows.
A slew of influential books—The Affluent Society by J. K Galbraith, One-Dimensional Man by Herbert Marcuse and The Joyless Economy by Tibor Scitovsky—questioned the equation of “utility” and happiness. Rousseauesque anxieties were rekindled. What if technological progress creates new wants as fast as it satisfies old ones? What if humans crave relative rather than absolute advantage, making market competition a zero-sum game? Such questions took economists outside the remit of their discipline into the previously forbidden territory of psychology. Meanwhile, psychology itself was undergoing a revolution. The behaviorist veto on introspection was lifted, allowing self-reports to be admitted as evidence. Happiness surveys were first conducted in America in the 1940s and have been repeated, in increasing bulk and sophistication, every decade since.
The Alpha Masters: Unlocking the Genius of the World's Top Hedge Funds by Maneet Ahuja, Myron Scholes, Mohamed El-Erian
activist fund / activist shareholder / activist investor, Asian financial crisis, asset allocation, asset-backed security, backtesting, Bernie Madoff, Bretton Woods, business process, call centre, collapse of Lehman Brothers, collateralized debt obligation, computerized trading, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, en.wikipedia.org, family office, fixed income, high net worth, interest rate derivative, Isaac Newton, Long Term Capital Management, Marc Andreessen, Mark Zuckerberg, merger arbitrage, Myron Scholes, NetJets, oil shock, pattern recognition, Ponzi scheme, quantitative easing, quantitative trading / quantitative ﬁnance, Renaissance Technologies, risk-adjusted returns, risk/return, rolodex, short selling, Silicon Valley, South Sea Bubble, statistical model, Steve Jobs, systematic trading, zero-sum game
But, in my view, the classic definition of generating alphas are returns that are earned by those who can forecast future cash flows or the beta factor returns (macro factors) more accurately than other market participants, which, as alluded to in the book, is a zero-sum game. Not all can outperform—those that do are paid by those who don’t—and it is extremely difficult for those that do to replicate their successes over many periods. This is not at all the story I read in this book. There is a systematic bias that favors them. They don’t believe that they are investing in a zero-sum game; they are paid for their expertise. I have defined the true earning power of these hedge fund managers as not alpha but “omega” after Ohm’s law, where omega is the varying amounts of resistance in the market. As resistance increases (decreases), they are willing to step in (step out by short-selling or exiting positions) and reduce (increase) the resistance and earn a profit by so doing as other market participants change their holdings of securities over time.
What's the Matter with White People by Joan Walsh
affirmative action, Affordable Care Act / Obamacare, banking crisis, clean water, collective bargaining, David Brooks, desegregation, Donald Trump, Edward Glaeser, full employment, global village, Golden Gate Park, hiring and firing, impulse control, income inequality, invisible hand, knowledge worker, labor-force participation, mass immigration, new economy, obamacare, Occupy movement, Plutocrats, plutocrats, Ralph Nader, Ronald Reagan, upwardly mobile, urban decay, War on Poverty, We are the 99%, white flight, women in the workforce, zero-sum game
In the mid-1970s, under Gerald Ford, the NLRB sided with business 35 percent of the time; by the early 1980s, that jumped to 72 percent. The percentage of workers represented by unions dropped from a high of 35 percent in 1955 to less than 25 percent in the mid-1970s and continued to decline, to only about 12 percent today (and only 7 percent of private sector workers). Sadly, even as unions were opening up to blacks and women, the industries they represented were shrinking. Those who feared that integration was a zero-sum game, in which white men would lose jobs to blacks and women, turned out to be partly right in some sectors. While the percentage of black steelworkers, for instance, climbed during the seventies, the overall number of black steelworkers actually declined. There was no cause and effect here; it just so happened that just as American industry began to integrate, the economic structure beneath it was starting to disintegrate.
In a world where Fox, Rush Limbaugh, and a blogsophere of dittoheads did nothing but fan white fears that Obama himself was just a younger, paler Jeremiah Wright, a liberal expressing concern about Wright seemed traitorous. And indeed, MSNBC’s Joe Scarborough got me in trouble by noting on the air one morning that even the well-known liberal Joan Walsh was uncomfortable with Wright’s remarks. The only person who seemed able to feel empathy for both Ferraro and Wright, two older people bitter about sexism and racism, was Obama himself. In his remarkable March 2008 speech on race, he described the “zero-sum game” of racial politics that has divided Democrats for two generations. The country tried to improve the lot of black Americans, the candidate noted, with social and educational programs and affirmative action, just as the living standards of the white working class began to erode. Most working- and middle-class whites “worked hard all their lives, many times only to see their jobs shipped overseas or their pension dumped after a lifetime of labor.”
The Price of Everything: And the Hidden Logic of Value by Eduardo Porter
Alvin Roth, Asian financial crisis, Ayatollah Khomeini, banking crisis, barriers to entry, Berlin Wall, British Empire, capital controls, Carmen Reinhart, Cass Sunstein, clean water, Credit Default Swap, Deng Xiaoping, Edward Glaeser, European colonialism, Fall of the Berlin Wall, financial deregulation, Ford paid five dollars a day, full employment, George Akerlof, Gordon Gekko, guest worker program, happiness index / gross national happiness, housing crisis, illegal immigration, immigration reform, income inequality, income per capita, informal economy, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jean Tirole, John Maynard Keynes: technological unemployment, Joshua Gans and Andrew Leigh, Kenneth Rogoff, labor-force participation, laissez-faire capitalism, loss aversion, low skilled workers, Martin Wolf, means of production, Menlo Park, Mexican peso crisis / tequila crisis, new economy, New Urbanism, peer-to-peer, pension reform, Peter Singer: altruism, pets.com, placebo effect, price discrimination, price stability, rent-seeking, Richard Thaler, rising living standards, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, Silicon Valley, stem cell, Steve Jobs, Stewart Brand, superstar cities, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade route, transatlantic slave trade, transatlantic slave trade, ultimatum game, unpaid internship, urban planning, Veblen good, women in the workforce, World Values Survey, Yom Kippur War, young professional, zero-sum game
As Adam Smith put it 250 years ago, the idea that we can achieve happiness amounts to a “deception, which rouses and keeps in continual motion the industry of mankind.” But surely we would have caught onto the con by now? If Easterlin was right, economic growth would be a glum proposition. If everybody’s income rose equally, people’s relative position wouldn’t change. If growth benefited some more than others, the increase in happiness among the winners would balance out the loss of happiness among the losers in a zero-sum game. Adaptation proposes a world with even less hope, running pointlessly on our treadmill of happiness, rooted to the same place. The founding fathers of the United States included the pursuit of happiness as one of the inalienable rights they thought its citizens should have. But if we truly adapt to everything, what point is there in striving to be happy? Some psychologists have even suggested happiness is hardwired, determined not by changes in our environment but by our individual genetic makeup.
Halting economic growth wouldn’t just boost poverty. As people and societies were forced to compete fiercely for economic output, religion’s set of ethical norms would come in handy to help societies cohere. God would be called upon to provide a supernatural narrative, a balm that reconciled humanity to its un-improvable lot; or maybe to help in war and conquest as access to resources became a zero-sum game. To many in this dystopian future, faith would be worth the price, whatever sacrifices religion demanded in return. CHAPTER NINE The Price of the Future FOR MORE THAN a century, economics has been known as the dismal science, peddling doom and despair, with little hope to offer. It owes this reputation to the work of the Scottish reverend Thomas Robert Malthus, who two hundred years ago delivered a crippling blow to his era’s burgeoning optimism about the prospects for human progress.
accounting loophole / creative accounting, airline deregulation, Andrei Shleifer, asset allocation, Bretton Woods, buy low sell high, capital asset pricing model, commodity trading advisor, corporate governance, discounted cash flows, diversification, diversified portfolio, fixed income, frictionless, high net worth, index fund, inflation targeting, invisible hand, John Meriwether, law of one price, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, market bubble, merger arbitrage, money market fund, new economy, passive investing, Paul Samuelson, price mechanism, purchasing power parity, risk tolerance, risk-adjusted returns, risk/return, Ronald Reagan, selection bias, shareholder value, Sharpe ratio, short selling, statistical arbitrage, survivorship bias, the market place, transaction costs, Y2K, yield curve, zero-sum game
Any deviation from the portfolio, such as a portfolio holding a greater proportion of stocks than the market, implies, on net, there must be someone holding portfolios that add to a lower proportion of stocks in such a way that the two cancel one another out. The world is a good benchmark all investors, as a group, cannot evade. The investment process must begin by conceding this point: Absent any information, one wants to hold the world portfolio. Such an allocation ensures the investor will in fact receive average returns. In a static world, the implication is a zero-sum game in which one person’s gains are someone else’s losses. This is not to say investing is a zero-sum game—quite the contrary. I believe investing is a positive-sum activity. Through investment, one expands society’s opportunity set. In turn, those investments result in net wealth increases. It is the investors’ collective actions determining the net increments to wealth, and it is our investment decisions determining what share of the increments we receive.
Forty Signs of Rain by Kim Stanley Robinson
bioinformatics, business intelligence, double helix, experimental subject, Intergovernmental Panel on Climate Change (IPCC), phenotype, prisoner's dilemma, Ronald Reagan, stem cell, the scientific method, zero-sum game
Capitalism ruled, but money was too simplistic and inadequate a measure of the wealth that science generated. In science, one built up over the course of a career a fund of “scientific credit,” by giving work to the system in a way that could seem altruistic. People remembered what you gave, and later on there were various forms of return on the gift—jobs, labs. In that sense a good investment for the individual, but in the form of a gift to the group. It was the non zero-sum game that prisoners’ dilemma could become if everyone played by the strategies of always generous, or, better, firm but fair. That was one of the things science was—a place that one entered by agreeing to hold to the strategies of cooperation, to maximize the total return of the game. In theory that was true. It was also the usual troop of primates. There was a lot of tit for tat. Defections happened.
Hey listen, when Phil gets in, don’t be too hard on him. He already feels bad enough.” “He does?” “Well, no. Not really. I mean, when have you ever seen Phil feel bad about anything?” “Never.” “Right. But, you know. He would feel bad about this if he were to go in for that kind of thing. And you have to remember, he’s pretty canny at getting the most he can get from these bills. He sees the limits and then does what he can. It’s not a zero-sum game to him. He really doesn’t think of it as us-and-them.” “But sometimes it is us-and-them.” “True. But he takes the long view. Later some of them will be part of us. And meanwhile, he finds some pretty good tricks. Breaking the superbill into parts might have been the right way to go. We’ll get back to a lot of this stuff later.” “Maybe. We never tried the Chinese aerosols again.” “Not yet.”
The End of Growth by Jeff Rubin
Ayatollah Khomeini, Bakken shale, banking crisis, Berlin Wall, British Empire, call centre, carbon footprint, collateralized debt obligation, collective bargaining, Credit Default Swap, credit default swaps / collateralized debt obligations, decarbonisation, deglobalization, energy security, eurozone crisis, Exxon Valdez, Fall of the Berlin Wall, fiat currency, flex fuel, full employment, ghettoisation, global supply chain, Hans Island, happiness index / gross national happiness, housing crisis, hydraulic fracturing, illegal immigration, income per capita, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, labour mobility, McMansion, Monroe Doctrine, moral hazard, new economy, Occupy movement, oil shale / tar sands, oil shock, peak oil, Ponzi scheme, quantitative easing, race to the bottom, reserve currency, Ronald Reagan, South China Sea, sovereign wealth fund, The Chicago School, The Death and Life of Great American Cities, Thomas Malthus, Thorstein Veblen, too big to fail, uranium enrichment, urban planning, urban sprawl, women in the workforce, working poor, Yom Kippur War, zero-sum game
If the greenback were to plunge against the yuan, the decline would effectively transfer millions of barrels of oil consumption from the United States to China. So what is the likelihood that the US dollar falls against other major currencies? With the eurozone debt crisis still in the middle innings, it’s understandably hard to envision how the greenback might suffer a significant drop as well. After all, currency markets are also a zero-sum game. If one major currency is going down, another major currency must be going up. If Europe’s currency union eventually breaks apart, though, a realigned euro would rally against the US dollar. A currency backed by the strong northern European economies of Germany and France would quickly attract global capital flows. And when the reformulated euro went up, the greenback would go down. The United States government, as we saw in chapter 2, is heavily dependent on the savings of other countries to pay its bills.
Looking ahead, the gap between the world’s two economic heavyweights will only get wider. In a zero-sum world, if Chinese oil consumption doubles over time, the number of barrels going to the United States could be chopped in half (or something close) since the energy pie is only so big. It’s a simple notion that will soon become a stifling reality for the United States and other OECD countries. If oil is the fuel that drives economic growth, and oil consumption is a zero-sum game, then so too is economic growth. Ultimately, that might be all the reason China needs to abandon its cheap yuan policy and turn its back on US treasuries. Instead of a cheap yuan facilitating export-led growth, China will let a rising yuan power domestic growth. Only a decade ago, America was the engine of the global economy, a role that China has now assumed. With the notable exception of oil, China uses far more resources than the United States.
algorithmic trading, automated trading system, Bernie Madoff, buttonwood tree, commoditize, computerized trading, corporate governance, cuban missile crisis, financial innovation, Flash crash, Gordon Gekko, High speed trading, latency arbitrage, locking in a profit, Mark Zuckerberg, market fragmentation, Ponzi scheme, price discovery process, price mechanism, price stability, Sergey Aleynikov, Sharpe ratio, short selling, Small Order Execution System, statistical arbitrage, transaction costs, two-sided market, zero-sum game
Technological advances have empowered retail and institutional investors who can deal more directly in the marketplace, with fewer intermediaries, more control, and lower costs. The benefits have been substantial, to be sure. However, one class of market participants, HFT firms, has leveraged technology as well with automated programs that generate massive volumes for the stock exchanges. As they have grown, HFT firms have used their economic clout to extract an increasing number of perks and advantages from the exchanges, tilting the zero-sum game that is the stock market in the favor of HFTs versus investors. When Did HFT Start? We initially spotted HFT at work early in our careers, when we were sales traders at Institutional Network, otherwise known as Instinet, the world’s first electronic brokerage firm. Like the NYSE, Instinet was an order-driven market, but it was anonymous, with no specialists to facilitate order flow. In the 1990s, Instinet captured a huge market share in the block trading of NASDAQ stocks.
No doubt the regulations that were approved by the SEC forced the exchanges to change in order to survive. The exchanges realized that they must offer the fastest speed at the lowest price to their HFT clients because HFTs represented the majority of the exchanges’ business. The exchanges also realized that the HFT community was willing to spend billions of dollars per year to get an edge on their competitors. The problem with arms races, however, is that they are zero sum games. In a 2009 blog post commenting about HFT, Rick Bookstaber, now a senior policy adviser at the SEC, wrote: “Like any arms race, the result is a cycle of spending [that] leaves everyone in the same relative position, only poorer... What is happening with high frequency trading is a net drain on social welfare.”24 The stock exchange business is extremely competitive. The exchanges compete among themselves as well as the multitude of other market centers for order flow.
accounting loophole / creative accounting, affirmative action, bank run, banking crisis, Berlin Wall, bonus culture, Branko Milanovic, BRICs, call centre, Cass Sunstein, central bank independence, collapse of Lehman Brothers, conceptual framework, corporate governance, correlation does not imply causation, Credit Default Swap, deindustrialization, demographic transition, Diane Coyle, disintermediation, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Financial Instability Hypothesis, Francis Fukuyama: the end of history, George Akerlof, Gini coefficient, global supply chain, Gordon Gekko, greed is good, happiness index / gross national happiness, Hyman Minsky, If something cannot go on forever, it will stop - Herbert Stein's Law, illegal immigration, income inequality, income per capita, industrial cluster, information asymmetry, intangible asset, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jane Jacobs, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labour market flexibility, light touch regulation, low skilled workers, market bubble, market design, market fundamentalism, megacity, Network effects, new economy, night-watchman state, Northern Rock, oil shock, Pareto efficiency, principal–agent problem, profit motive, purchasing power parity, railway mania, rising living standards, Ronald Reagan, selective serotonin reuptake inhibitor (SSRI), Silicon Valley, South Sea Bubble, Steven Pinker, The Design of Experiments, The Fortune at the Bottom of the Pyramid, The Market for Lemons, The Myth of the Rational Market, The Spirit Level, transaction costs, transfer pricing, tulip mania, ultimatum game, University of East Anglia, web application, web of trust, winner-take-all economy, World Values Survey, zero-sum game
The sense of community, likewise, is a moral emotion of evolutionary origin, rather than a rational choice, although there may be many good objective reasons (or rationalizations) for our having it. Fairness is consistent with the “selfish” gene: very often acting in a seemingly nonselfish way delivers better outcomes for an individual, because so much of human life is characterized by the scope for mutual benefit (or by non–zero sum games, as a game theorist would express it). A woolly mammoth is more easily brought down by a group than by a lone hunter, while individuals in a modern economy are richer when working cooperatively and engaging in trade. The role of fairness, or reciprocal altruism, in economics was given a big boost by Robert Axelrod’s 1984 book, The Evolution of Cooperation. Axelrod translated the concept into the formalities of game theory and showed that in a tournament setting different strategies against each other, those involving being “fair” performed best, and best of all was the self-explanatory “tit for tat.”
Treasury, 100 utiltarianism, 31–32, 78, 237 U2, 194–98 values, 18; anomie and, 48, 51; balance and, 12–17; bankers and, 211, 213, 217, 223, 226–28, 233; capitalism and, 209–13, 218, 226, 230–32, 235–36; capitalism and, 230–38 (see also capitalism); consumption and, 229, 236; culture and, 230–38; decentralization and, 275; democracy and, 230–38; efficiency and, 210, 215–16, 221–35; face-to-face contact and, 7, 147, 165–68; freedom and, 237–38; globalization and, 210–11, 235; governance and, 211, 217, 238; government and, 14, 210–11, 215–20, 225–26, 229–30, 234; gross domestic product (GDP) and, 212, 218, 232; growth and, 13, 210–13, 222, 231–36; innovation and, 210, 216, 220, 236; institutions and, 240–42, 246–47, 258–60; intangible assets and, 149–52, 157, 161, 199–201; market failure and, 226–30; measurement and, 209, 212–13; merits of markets and, 211–17; morals and, 185, 210, 213, 220–25, 230–33; philosophy and, 237–39; policy recommendations for, 275–84; politics and, 209–13, 217–18, 223–24, 231–34, 237–38; price chasm and, 207–8; productivity and, 212–13, 224; Protestant work ethic and, 13–14, 236; public choice theory and, 220; public deliberation and, 258–60; public service and, 295; rational calculation and, 214–15; reform and, 218, 233, 275–78, 295; revalorization and, 275; role of government and, 14–15; self-interest and, 214, 221; statistics and, 13; stewardship and, 78, 80, 275; technology and, 212–13, 216, 218, 233–34, 237–38; World Values Survey and, 139 Veblen, Thorsten, 22–23 Velvet Revolution, 239 volunteering, 46–49, 205–7, 214, 249, 269, 287 von Bismarck, Otto, 112 voters, 12, 16; declining turnout of, 175; happiness and, 23, 33, 43; increased turnout and, 260, 285; institutions and, 242, 251, 258, 260, 297; Internet and, 260; knowledge levels of, 288; legitimacy and, 297; measurement and, 190, 206; nature and, 57, 61, 68–69, 76; posterity and, 86, 96, 100, 106, 111; technological effects on, 288–89; trust and, 175, 286; values and, 224, 233–34, 258 Waal, Frans de, 119 Wall Street, 147, 221 Wall Street (film), 221 Warwick Commission on International Financial Reform, 164 Wealth of Nations (Smith), 119–20 Weber, Axel, 99 Weber, Max, 236 weightless activities, 150 welfare, 310n25; aging population and, 4, 94–95, 105–6, 109, 112–13, 206, 267, 280, 287, 296; fairness and, 116, 127, 131, 136–37; growth and, 9–12; happiness and, 9–12, 24–26, 29–32, 35–36, 39–42, 50–53; inequality and, 4–5, 11, 17 (see also inequality); institutions and, 239–43, 259; markets and, 211–25; measurement and, 181–86, 193, 207; nature and, 57–58, 61–62, 71–75, 78–84; policy recommendations for, 270–71, 275–77, 286, 290, 296; posterity and, 85, 89–100, 103, 106, 111–12; trust and, 171, 175; values and, 209, 211, 217, 228, 231–38 well-being, 137–43 Western culture, 2, 16, 18, 181–82, 235; aging populations in, 94–95; anomie and, 48, 51; anxiety and, 1, 25, 47–48, 136–38, 149, 174; corrosion of trust in, 150, 156, 171–75, 255–56; downshifting and, 11, 55; Easterlin Paradox and, 39–44; government debt and, 104 (see also government debt); happiness and, 22–23, 26, 40, 48, 50–51; hedonic treadmill and, 40; increased management complexities of, 244; Industrial Revolution and, 27, 149, 290, 297; institutions and, 243–44, 255–58; nature and, 57–66, 76; policy recommendations for, 268–69, 273, 275, 278, 284–85, 287; prosperity and, 86, 94–97, 104–9; Slow Movement and, 27–28, 205; voter turnout and, 175; weightless activities and, 150 Whitehall Studies, 139 Wikipedia, 205, 291 Wilkinson, Richard, 137–40 Willetts, David, 98–99 Williamson, Oliver, 17, 220, 242, 250, 254, 261 Wolf, Naomi, 34 Wolfers, Justin, 41 World Bank, 38, 81, 163–64, 176, 211 WorldCom, 145 World Forum on Statistics, Knowledge, and Policy, 38 World Trade Organization (WTO), 162–63, 215, 297 World Values Survey, 139 World War II era, 4, 91, 97, 106, 141, 164, 257, 270, 281, 283 zero–sum games, 118 Zimbabwe, 89, 110, 122
Python for Finance by Yuxing Yan
asset-backed security, business intelligence, capital asset pricing model, constrained optimization, correlation coefficient, distributed generation, diversified portfolio, implied volatility, market microstructure, P = NP, p-value, quantitative trading / quantitative ﬁnance, Sharpe ratio, time value of money, value at risk, volatility smile, zero-sum game
The following program presents the payoff function for a call: >>>def payoff_call(sT,x): return (sT-x+abs(sT-x))/2 Applying the payoff function is straightforward, as shown in the following code: >>>payoff_call(25,30) 0 >>>payoff_call(40,30) 10 The first input variable, the stock price at the maturity T, could be an array as well, as shown in the following code: >>>import numpy as np >>>x=20 >>>sT=np.arange(10,50,10) >>>sT array([10, 20, 30, 40]) >>>payoff_call(s,x) array([ 0., 0., 10., 20.]) >>> [ 238 ] Chapter 9 To create a graphical representation, we have the following commands: >>>import numpy as np >>>s = np.arange(10,80,5) >>>x=30 >>>payoff=(abs(s-x)+s-x)/2 >>>ylim(-10,50) >>>plot(s,payoff) The graph is shown in the following screenshot: The payoff for a call option seller is the opposite of its buyer. It is important to remember that this is a zero-sum game: you win, I lose. For example, an investor sold three call options with an exercise price of $10. When the stock price is $15 on the maturity, the option buyer's payoff is $15, while the total loss to the option writer is $15 as well. If the call premium (option price) is c, the profit/loss function for a call option buyer is the difference between his/her payoff and his/her initial investment (c).
Later in the chapter, we will show how to use the binomial tree method, also called the CRR method, to price an American option. [ 242 ] Chapter 9 Cash flows, types of options, a right, and an obligation We know that for each business contract, we have two sides, a buyer and a seller. This is true for an option contract as well. A call buyer will pay upfront (cash output) to acquire a right. Since this is a zero-sum game, a call option seller would enjoy an upfront cash inflow and assumes an obligation. The following table presents those positions (buyer or seller), directions of the initial cash flows (inflow or outflow), the option buyer's rights (buy or sell), and the option seller's obligations (that is, to satisfy the option seller's demand): Call Put Cash Flow Buyer Seller European American (long position) (short position) options options A right to buy a security (commodity) at a prefixed price An obligation to sell a security (commodity) at a prefixed price A right to sell a security with a prefixed price An obligation to buy Are exercised on the maturity date only Could be exercised any time before or on the maturity date Upfront cash outflow Upfront cash inflow The preceding table displays long/short, call/put, European/American options and directions of initial cash flows.
Mind Wide Open: Your Brain and the Neuroscience of Everyday Life by Steven Johnson
Columbine, double helix, epigenetics, experimental subject, Gödel, Escher, Bach, James Watt: steam engine, l'esprit de l'escalier, pattern recognition, phenotype, Steven Pinker, theory of mind, zero-sum game
It makes intuitive sense to us that people who are better at processing language might be worse at processing visual data, or that blind people might have sharper hearing than people with eyesight. But you’re less likely to get a nod of agreement when you propose that people who are good at factoring pi in their heads are usually bad at tracking eye movements. Yet that is the brain’s reality. The more you understand the mind in the light of modern brain science, the more you recognize that isolated traits you possess aren’t necessarily isolated-the brain is full of zero-sum games, where one talent prospers at the expense of another. Sometimes those balancing acts involve related skills; sometimes the connection is more obscure. Thus our final principle: Your brain contains some strange bedfellows. Is mindreading one of our long-decay ideas, an idea that transforms your own sense of self? I believe it is, but to grasp that importance you can’t think of mindreading simply as another word for “empathy.”
accidents automobile adrenal glands adrenaline monitoring levels of surges of uncontrolled uplifting effect of Africa aggression airplanes air pollution AK-47s alcoholism Alzheimer’s disease amnesia temporary amphetamines amygdala brain stem links to central nucleus of fear and learning systems and memories captured by neocortex vs. removal of amyotrophic lateral sclerosis analogies androgens anger animal studies anthrax anxiety separation shifts in see also fear; stress aphasia musical Aristotle Armstrong, Lance arts Astral Weeks astrology attention assessment of relevance and component parts and skills of encoding data and kinesthetic limits of olfactory problems with sensory overload and supervisory sustaining of tactile testing of visual Attention Builders attention deficit disorder (ADD) treatment of attention deficit hyperactivity disorder (ADHD) Attention Trainer audiences audio encoding test autism brain damage in continuum of minor to extreme cases of diagnosis of emotional remoteness in in males vs. females mindblindness in strained social interaction in symptoms and characteristics of testing for autism quotient (AQ) Autism Spectrum Quotient test axons baby boomers Baron-Cohen, Simon bees Beethoven, Ludwig van behavior autonomia biological shaping of learned neurological vs. historical roots of prediction of quantum seeking and appetite study of weight of memories on behaviorists Berger, Hans beta-blockers Beyond the Pleasure Principle (Freud) biofeedback systems biological consilience biological determinism biology blindness blood: circulation of oxygen in blood sugar Blue, Tom Blume, Harvey body clocks body temperature bombs Borges, Jorge Luis Bowling Green University brain: charting pathways of conditioned fear in competing modular systems in damage of decoding chemical side effects of electrochemical activity in events in other brains perceived by evolution of expectations of haptic centers of internal architecture of language centers of linkage systems in macrostructures of measurement of electrical activity in of men vs. women network of nodes in pleasure center of primary hubs of removing specific parts of reward circuitry of right and left hemispheres of selectivity of specific tasks assigned to specific regions of technology and exploration of triune uniqueness of unknowable “black box” of zero-sum games of see also specific components Braincare, Inc., brain scans conventional MRI fMRI brain science arts and see also neuroscience brain stem amygdala link to brain waves: alpha beta collective rhythms of consciousness and delta measuring of theta breast-feeding breathing caffeine California, University of: at Irvine at Los Angeles (UCLA) Medical School of at San Francisco calmness carbohydrates Carlin, George Carter, Sue Castro, Fidel central facial paralysis cerebellum Checkerboard Test children abuse of birth of bonding of parents and development of disorders of games of memories of playing of rearing of chills chimpanzees chocolate cingulate gyrus Civilization and Its Discontents (Freud) Claparede, Edouard Clarke, Arthur C.
Conscious Capitalism, With a New Preface by the Authors: Liberating the Heroic Spirit of Business by John Mackey, Rajendra Sisodia, Bill George
Berlin Wall, Buckminster Fuller, business process, carbon footprint, collective bargaining, corporate governance, corporate social responsibility, creative destruction, crony capitalism, cross-subsidies, en.wikipedia.org, Everything should be made as simple as possible, Fall of the Berlin Wall, fear of failure, Flynn Effect, income per capita, invisible hand, Jeff Bezos, job satisfaction, lone genius, Mahatma Gandhi, microcredit, Occupy movement, profit maximization, Ralph Waldo Emerson, shareholder value, six sigma, Steve Jobs, Steven Pinker, The Fortune at the Bottom of the Pyramid, The Wealth of Nations by Adam Smith, too big to fail, union organizing, wealth creators, women in the workforce, zero-sum game
Customers have competitive alternatives in the marketplace, team members have competitive alternatives for their labor, investors have numerous alternatives to invest their capital, and suppliers have plenty of alternative customers for their products and services. Investors, labor, management, suppliers—they all need to cooperate to create value for customers. If they do, the joint value created is divided fairly among the creators of the value through competitive market processes based approximately on the overall contribution each stakeholder makes. In other words, business is not a zero-sum game with a winner and loser. It is a win, win, win, win game—and I really like that. I also discovered that despite my best intentions and desire to create a good business, there were many challenges. Our customers thought our prices were too high; our team members thought they were paid too little; our suppliers would not give us good prices, because we were too small; the local Austin nonprofit sector was continually asking us for donations; and various governments were slapping us with many fees, licenses, fines, and various business taxes.
Fourth, the selected companies did not squeeze their suppliers to secure the lowest possible price, and their suppliers were innovative and profitable. Fifth, the “firms of endearment” invested a lot in their communities, and in reducing the company’s impact on the environment. Finally, they provided great customer value and outstanding customer service. Most of us have become conditioned to believe that business is a zero-sum game that requires numerous trade-offs. Therefore, if these “firms of endearment” were spending all this extra money on team members, suppliers, customers, and communities, it has to come from somewhere else—probably from investors. Sisodia and coauthors expected that since these are well-managed businesses with loyal team members and customers, investors would do as well with these companies as they would with other companies.
In Defense of Global Capitalism by Johan Norberg
Asian financial crisis, capital controls, clean water, correlation does not imply causation, creative destruction, Deng Xiaoping, Edward Glaeser, Gini coefficient, half of the world's population has never made a phone call, Hernando de Soto, illegal immigration, income inequality, informal economy, Joseph Schumpeter, Kenneth Rogoff, land reform, Lao Tzu, liberal capitalism, manufacturing employment, market fundamentalism, Mexican peso crisis / tequila crisis, Naomi Klein, new economy, open economy, profit motive, race to the bottom, rising living standards, school vouchers, Silicon Valley, Simon Kuznets, structural adjustment programs, The Wealth of Nations by Adam Smith, Tobin tax, trade liberalization, trade route, transaction costs, trickle-down economics, union organizing, zero-sum game
Because we have the option of simply refraining from signing a contract or doing a business deal if we prefer some other solution, the only way of getting rich in a free market is by giving people something they want, something they will pay for of their own free will. Both parties to a free exchange have to feel that they benefit from it; otherwise there won’t be any deal. Economics, then, is not a zero-sum game. The bigger a person’s income in a market economy, the more that person has done to offer people what they want. Bill Gates and Madonna earn millions, but they don’t steal that money; they earn it by offering software and music that a lot of people think are worth paying for. In this sense, they are essentially our servants. Firms and individuals struggle to develop better goods and more efficient ways of providing for our needs.
It’s obvious that such thinking would lead to a tremendous loss of welfare: the self-sufficient family would be hard pressed just to keep food on the table. When you go to the store, you ‘‘import’’ food—being able to do so cheaply is a benefit, not a loss. You ‘‘export’’ when you go to work and create goods or services. Most of us would prefer to ‘‘import’’ so cheaply that we could afford to ‘‘export’’ a little less. Trade is not a zero-sum game, in which one party loses what the other party gains. On the contrary, there would be no exchange if both parties did not feel that they benefited. The really interesting yardstick is not the ‘‘balance of trade’’ (where a ‘‘surplus’’ means that we are exporting more than we are importing) but the quantity of trade, since both exports and imports are gains. Imports are often feared as a potential cause of unemployment: if we import cheap toys and clothing from China, then toy and garment manufacturers here will have to scale down.
2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, Airbnb, American Society of Civil Engineers: Report Card, asset-backed security, Bakken shale, banking crisis, BRICs, British Empire, business process, business process outsourcing, call centre, Carmen Reinhart, clean water, collapse of Lehman Brothers, collateralized debt obligation, commoditize, creative destruction, credit crunch, currency manipulation / currency intervention, demand response, Donald Trump, Frederick Winslow Taylor, high net worth, housing crisis, hydraulic fracturing, If something cannot go on forever, it will stop - Herbert Stein's Law, illegal immigration, index fund, intangible asset, intermodal, inventory management, Kenneth Rogoff, labor-force participation, LNG terminal, low skilled workers, Mark Zuckerberg, Martin Wolf, Maui Hawaii, McMansion, money market fund, mortgage debt, Network effects, new economy, obamacare, oil shale / tar sands, oil shock, peak oil, Plutocrats, plutocrats, price stability, quantitative easing, race to the bottom, reserve currency, reshoring, Richard Florida, rising living standards, risk tolerance, risk/return, Silicon Valley, Silicon Valley startup, six sigma, Skype, sovereign wealth fund, Steve Jobs, superstar cities, the High Line, transit-oriented development, Wall-E, Yogi Berra, zero-sum game, Zipcar
In the wake of the crash, rather than accept the inevitability of a Japan-style lost decade, America’s businesses and institutions tapped into the very strengths that built the nation’s economy into a global powerhouse in the first place: speed, ingenuity, adaptability, pragmatism, entrepreneurship, and, most significant, an ability to engage with the world. As the United States wallowed in self-pity, the world continued to see promise in what America has to offer—buying exports, investing in the United States, and adopting American companies and business models as their own. Global growth, it turns out, is not a zero-sum game. Better, Stronger, Faster is an account of the remarkable reconstruction and reorientation that started in March 2009, a period that Gross compares to March 1933—as both marked the start of unexpected recoveries. As the U.S. public sector undertook aggressive fiscal and monetary actions, the private sector sprang into action. Companies large and small restructured, tapped into long-dormant internal resources, and invested for growth, at home and abroad.
While growth has been fitful since the recovery began in July 2009, and the economy seems to be in constant danger of slipping back into recession, there’s no reason to think that America’s ability to grow is permanently impaired. Modern-day declinism rests on a simplistic view that all the structural forces transforming the global economy are arrayed against us. But that’s not true. In fact, many of them work in America’s favor. In viewing global growth as a zero-sum game, declinists underestimate the ability of the United States to benefit from the developments sweeping the world. Far from being a victim of global growth, the country has been a beneficiary of it. Since the recession, the United States has continued to lead the world in foreign direct investment, to lead the world in exports, and to develop new types of exports. American companies have successfully planted their flags in booming foreign markets.
In other words, 62% of Arabs, but only 37.5% of Jews, think that immigrants should be allowed to have their own educational and/or cultural organizations. The veterans’ attitudes show that most of the Jewish majority in Israel is still closed toward pluralism and multiculturalism even with regard to other Jewish groups (in this case, Russian immigrants). Their attitudes might also be aﬀected by zero-sum-game considerations, in which the emergence of a new ethnic group threatens to reduce the others’ potential inﬂuence. Based on these ﬁndings, we could argue that the Arabs in Israel are more supportive of the idea of pluralism and multiculturalism than the Jews are. This is because the Arabs, as a national minority, are more open toward and more knowledgeable about Israeli Jewish society than the other way around.
One could argue that Arabs support educational and cultural autonomy for Russian immigrants because they realize that the main competition in this ﬁeld is Jewish-Jewish, with no potential to harm the Arab population. This argument, though it sounds plausible, contradicts the fact that Arabs support the immigrants’ right to their own political parties, even though this is an area that does seem to be more of a zero-sum game. As mentioned in Chapter 6, the rise of the FSU immigrants’ political power has further decreased the Arabs’ potential political inﬂuence and reduced their bargaining power in the national political arena. Social Distance In the 1999 survey of immigrants, we measured the social distance between diﬀerent groups in Israeli society by asking respondents whether they were willing to have the following as their neighbors: secular Jews, religious Jews, Ashkenazim, Mizrahim, Arabs, Ethiopian immigrants, and immigrants from the FSU.
The Big Short: Inside the Doomsday Machine by Michael Lewis
Asperger Syndrome, asset-backed security, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, diversified portfolio, facts on the ground, financial innovation, fixed income, forensic accounting, Gordon Gekko, high net worth, housing crisis, illegal immigration, income inequality, index fund, interest rate swap, John Meriwether, London Interbank Offered Rate, Long Term Capital Management, medical residency, money market fund, moral hazard, mortgage debt, pets.com, Ponzi scheme, Potemkin village, quantitative trading / quantitative ﬁnance, Robert Bork, short selling, Silicon Valley, the new new thing, too big to fail, value at risk, Vanguard fund, zero-sum game
But then I read the news that a little-known New York hedge fund manager named John Paulson had made $20 billion or so for his investors and nearly $4 billion for himself. This was more money than anyone had ever made so quickly on Wall Street. Moreover, he had done it by betting against the very subprime mortgage bonds now sinking Citigroup and every other big Wall Street investment bank. Wall Street investment banks are like Las Vegas casinos: They set the odds. The customer who plays zero-sum games against them may win from time to time but never systematically, and never so spectacularly that he bankrupts the casino. Yet John Paulson had been a Wall Street customer. Here was the mirror image of the same incompetence Meredith Whitney was making her name pointing out. The casino had misjudged, badly, the odds of its own game, and at least one person had noticed. I called Whitney again to ask her, as I was asking others, if she knew anyone who had anticipated the subprime mortgage cataclysm, thus setting himself up in advance to make a fortune from it.
"I believe no other hedge fund on the planet has this sort of investment, nowhere near to this degree, relative to the size of the portfolio," he wrote to one of his investors, who had caught wind that his hedge fund manager had some newfangled strategy. Now he couldn't help but wonder who exactly was on the other side of his trades--what madman would be selling him so much insurance on bonds he had handpicked to explode? The credit default swap was a zero-sum game. If Mike Burry made $100 million when the subprime mortgage bonds he had handpicked defaulted, someone else must have lost $100 million. Goldman Sachs made it clear that the ultimate seller wasn't Goldman Sachs. Goldman Sachs was simply standing between insurance buyer and insurance seller and taking a cut. The willingness of whoever this person was to sell him such vast amounts of cheap insurance gave Mike Burry another idea: to start a fund that did nothing but buy insurance on subprime mortgage bonds.
2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, affirmative action, banking crisis, carried interest, collateralized debt obligation, collective bargaining, Credit Default Swap, credit default swaps / collateralized debt obligations, desegregation, full employment, Home mortgage interest deduction, job automation, Mahatma Gandhi, minimum wage unemployment, money market fund, new economy, Occupy movement, offshore financial centre, Plutocrats, plutocrats, Ponzi scheme, race to the bottom, Ronald Reagan, single-payer health, special drawing rights, The Wealth of Nations by Adam Smith, Tim Cook: Apple, too big to fail, trickle-down economics, women in the workforce, working poor, zero-sum game
Almost two-thirds of the measly growth in the economy in 2011 came from businesses rebuilding their inventories. But without more consumer spending, businesses won’t spend more. A robust economy can’t be built on inventory replacements. The wrongheaded idea that corporations need tax cuts to create jobs is also being used by regressive governors who are cutting business taxes willy-nilly in order to compete with other states that are doing the same. They’ve entered into a giant zero-sum game that doesn’t create a single new job overall but robs the states of money needed for critical investments in schools and infrastructure. In 2012, Florida’s governor, Rick Scott, said his corporate tax cuts “will give Florida a competitive edge in attracting jobs.” But Florida simultaneously cut education spending by $3 billion, when the state already ranked near the bottom in per-pupil spending and had one of the nation’s lowest graduation rates.
The Gated City (Kindle Single) by Ryan Avent
big-box store, carbon footprint, deindustrialization, edge city, Edward Glaeser, income inequality, industrial cluster, labor-force participation, low skilled workers, manufacturing employment, offshore financial centre, profit maximization, rent-seeking, Silicon Valley, Thorstein Veblen, transit-oriented development, Tyler Cowen: Great Stagnation, Veblen good, white picket fence, zero-sum game
Over the past six decades, America watched as one economy after another entered product markets, discomfiting American firms and workers. At present, the chief challenge comes from China and India. Increasingly, Americans worry that the torch of technological leadership is destined to pass from their hands, taking with it the promise of steady growth in incomes and living standards. Economic growth is not a zero-sum game. That is not to say that Americans never face costs related to growth abroad; they certainly do. It is to say that growth abroad is clearly good for the welfare of the world as a whole and is generally good for the welfare of Americans, particularly when American government policy is set appropriately. To the extent that Americans are interested in exporting goods or services or ideas rather than jobs, it's worth reflecting on the role of the productive city.
The New Prophets of Capital by Nicole Aschoff
3D printing, affirmative action, Affordable Care Act / Obamacare, Airbnb, American Legislative Exchange Council, basic income, Bretton Woods, clean water, collective bargaining, commoditize, crony capitalism, feminist movement, follow your passion, Food sovereignty, glass ceiling, global supply chain, global value chain, helicopter parent, hiring and firing, income inequality, Khan Academy, late capitalism, Lyft, Mark Zuckerberg, mass incarceration, means of production, performance metric, profit motive, rent-seeking, Ronald Reagan, Rosa Parks, school vouchers, shareholder value, sharing economy, Silicon Valley, Slavoj Žižek, structural adjustment programs, Thomas L Friedman, Tim Cook: Apple, urban renewal, women in the workforce, working poor, zero-sum game
If workers don’t like the way a company treats its employees, they can find a different job. But when investors, labor, management, and suppliers choose to cooperate, they can create unprecedented value. In a free market, this joint value is “divided fairly among the creators of the value through competitive market processes based approximately on the overall contribution each stakeholder makes. In other words, business is not a zero-sum game with a winner and a loser. It is a win, win, win, win game.”8 Sure, companies have been misbehaving recently, but before we throw the baby out with the bathwater, Mackey implores us to remember that most of the wonderful things we have in the world, like cars, computers, antibiotics, and the internet, are a product of free markets, not “government edict.” The “wondrous technologies that have shrunk time and distance” and freed us from “mindless drudgery” have become possible only because of free market capitalism—“unquestionably the greatest system for innovation and social cooperation that has ever existed.”9 Instead of blaming capitalism for inequality and environmental degradation, Mackey suggests that we should look at the actions of governments.
The Art of Execution by Lee Freeman-Shor
Black Swan, cognitive bias, collapse of Lehman Brothers, credit crunch, Daniel Kahneman / Amos Tversky, diversified portfolio, family office, I think there is a world market for maybe five computers, index fund, Isaac Newton, Jeff Bezos, Long Term Capital Management, loss aversion, price anchoring, Richard Thaler, Robert Shiller, Robert Shiller, rolodex, Skype, South Sea Bubble, Steve Jobs, technology bubble, The Wisdom of Crowds, too big to fail, tulip mania, zero-sum game
Around the table sat a motley crew of Connoisseurs, Hunters and Assassins – all leading investors of the very highest calibre – and you would struggle to find so many contradictory views among so few people. There is nothing quite like seeing a couple of investment titans debating the merits of an investment, one of them telling the other that he is insane to even consider the merits of a stock. You might reasonably assume that one would be a winner and the other a loser; after all, the market is a zero-sum game. Not so. All were successful despite having different and conflicting views about what to invest in, because they all shared the same habits. They had all mastered the art of executing their ideas. While many factors cause stock prices to rise and fall, the ultimate determinant of whether you will make or lose money is your actions. “Lots of people know what to do, but few people actually do what they know.
The Better Angels of Our Nature: Why Violence Has Declined by Steven Pinker
1960s counterculture, affirmative action, Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, Albert Einstein, availability heuristic, Berlin Wall, Bonfire of the Vanities, British Empire, Broken windows theory, California gold rush, Cass Sunstein, citation needed, clean water, cognitive dissonance, colonial rule, Columbine, computer age, conceptual framework, correlation coefficient, correlation does not imply causation, crack epidemic, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Brooks, delayed gratification, demographic transition, desegregation, Doomsday Clock, Douglas Hofstadter, Edward Glaeser, en.wikipedia.org, European colonialism, experimental subject, facts on the ground, failed state, first-past-the-post, Flynn Effect, food miles, Francis Fukuyama: the end of history, fudge factor, full employment, George Santayana, ghettoisation, Gini coefficient, global village, Henri Poincaré, Hobbesian trap, humanitarian revolution, impulse control, income inequality, informal economy, Intergovernmental Panel on Climate Change (IPCC), invention of the printing press, Isaac Newton, lake wobegon effect, libertarian paternalism, long peace, loss aversion, Marshall McLuhan, mass incarceration, McMansion, means of production, mental accounting, meta analysis, meta-analysis, Mikhail Gorbachev, moral panic, mutually assured destruction, open economy, Peace of Westphalia, Peter Singer: altruism, QWERTY keyboard, race to the bottom, Ralph Waldo Emerson, random walk, Republic of Letters, Richard Thaler, Ronald Reagan, Rosa Parks, Saturday Night Live, security theater, Skype, Slavoj Žižek, South China Sea, statistical model, stem cell, Steven Levy, Steven Pinker, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, theory of mind, transatlantic slave trade, transatlantic slave trade, Turing machine, ultimatum game, uranium enrichment, V2 rocket, Vilfredo Pareto, Walter Mischel, WikiLeaks, women in the workforce, zero-sum game
The era’s economic backwardness was enforced by laws which decreed that prices should be fixed at a “just” level reflecting the cost of the raw material and the value of the labor added to it. “To ensure that no one gained an advantage over anyone else,” Tuchman explains, “commercial law prohibited innovation in tools or techniques, underselling below a fixed price, working late by artificial light, employing extra apprentices or wife and under-age children, and advertising of wares or praising them to the detriment of others.”36 This is a recipe for a zero-sum game, and leaves predation as the only way people could add to their wealth. A positive-sum game is a scenario in which agents have choices that can improve the lots of both of them at the same time. A classic positive-sum game in everyday life is the exchange of favors, where each person can confer a large benefit to another at a small cost to himself or herself. Examples include primates who remove ticks from each other’s backs, hunters who share meat whenever one of them has felled an animal that is too big for him to consume on the spot, and parents who take turns keeping each other’s children out of trouble.
The insult is treated like a physical injury or theft, and it sets off an urge for violent revenge (which can make the psychology of dominance blend into the psychology of revenge, discussed in the next section). Studies of American street violence have found that the young men who endorse a code of honor are the ones most likely to commit an act of serious violence in the following year.102 They also have found that the presence of an audience doubles the likelihood that an argument between two men will escalate to violence.103 When dominance is reckoned within a closed group, it is a zero-sum game: if someone’s rank goes up, another’s has to go down. Dominance tends to erupt in violence within small groups like gangs and isolated workplaces, where a person’s rank within the clique determines the entirety of his social worth. If people belong to many groups and can switch in and out of them, they are more likely to find one in which they are esteemed, and an insult or slight is less consequential.104 Since the only commodity at stake in contests of dominance is information, once the point has been made about who’s the boss, the violence can come to an end without setting off rounds of vendetta.
Apollonian cultures discounting, temporal; see also self-control discrimination disgust Disney, Walt distress and sympathy-altruism hypothesis District of Columbia, homicides in Divinity, ethic of; see also disgust; Purity, ethic of Djilas, Milovan DNA testing Dodds, Graham dodgeball domestic violence outside U.S. dominance and anarchy and the brain as cause of war circuit in brain gender differences in group (tribalism) hierarchies of and information introduction of concept and nationalism dominance (cont.) and sadism and self-esteem and social identity as zero-sum game dominance hierarchy Dominica Donohue, John Doomsday Clock dopamine Dostoevsky, Fyodor Douglas, William O. Douglass, Frederick Dover Doctrine Dowd, Maureen Doyle, Arthur Conan Draco Draize procedure drones drugs: decriminalization of 1960s trafficking War on Drugs Druids Dubner, Stephen Duck Soup (film) Duckworth, Angela dueling Dukakis, Michael Dulles, John Foster Dumas, Alexandre père Durham, Margaret Dworkin, Andrea Dylan, Bob dynasties, see Age of Dynasties; monarchy Eastern Europe abortions in and democracy and genocide violence against women in wars in East Timor Easy Rider (film) Eckhardt, William Eden, William education and civil war and democracy IQ tests method and content of ego depletion egotism Egypt, ancient Egypt, modern Eichmann, Adolf 80:20 rule Eighty Years’ War Einstein, Albert Eisenhower, Dwight D.
China into Africa: trade, aid, and influence by Robert I. Rotberg
barriers to entry, BRICs, colonial rule, corporate governance, Deng Xiaoping, energy security, European colonialism, failed state, global supply chain, global value chain, income inequality, Khartoum Gordon, labour market flexibility, land reform, megacity, microcredit, offshore financial centre, one-China policy, out of africa, Pearl River Delta, profit maximization, purchasing power parity, RAND corporation, Scramble for Africa, South China Sea, special economic zone, structural adjustment programs, trade route, Washington Consensus, zero-sum game
Answers to Chinese foreign policy issues in Africa may lie inside, rather than outside, China. The narrow focus on state behavior or foreign policy is inadequate. Unless fundamental changes occur in China’s own reform process, many of the issues we encounter in China’s external behavior will not easily be modified. 03-7561-4 ch3.qxd 9/16/08 4:08 PM Page 62 62 wenran jiang Great Powers in Africa: A Zero-Sum Game? The prospects of further Chinese-African cooperation and the issues raised during Hu’s trip to Africa will almost certainly resurface again. Economic interests in the continent, as well as global aspirations, guarantee that China will not be disengaging from Africa in the near future. In fact, China’s policymakers and academics will pay even closer attention to these contentious issues, and Beijing is likely to continue to adjust its policies toward Africa, both to advance its relations with the continent and to fend off international criticism.
Second, the two sides agreed that the various subdialogues, including that on Africa, should continue in order to deepen mutual understanding and enhance collaboration in areas of common concern.29 Greater consensus has been achieved in the last few rounds of bilateral dialogue on Africa, in part because the United States is beginning to understand that China has real interests in Africa and will be engaged on the continent for the foreseeable future. Continuing to see China’s economic, political, or diplomatic activities in Africa as a zero-sum game is therefore counterproductive. This emerging viewpoint is an encouraging sign; the challenge is for Washington to make a strong commitment, at a high diplomatic level, toward understanding the Chinese perspective and then to continue to test China’s intentions systematically. There will continue to be critical voices and distractions in Washington that may impede the near-term official formulation of an integrated, coherent U.S. strategy that might leverage areas of common U.S.
Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis by Anatole Kaletsky
bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Black Swan, bonus culture, Bretton Woods, BRICs, Carmen Reinhart, cognitive dissonance, collapse of Lehman Brothers, Corn Laws, correlation does not imply causation, creative destruction, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, Edward Glaeser, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, F. W. de Klerk, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, global rebalancing, Hyman Minsky, income inequality, information asymmetry, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, laissez-faire capitalism, Long Term Capital Management, mandelbrot fractal, market design, market fundamentalism, Martin Wolf, money market fund, moral hazard, mortgage debt, new economy, Northern Rock, offshore financial centre, oil shock, paradox of thrift, Pareto efficiency, Paul Samuelson, peak oil, pets.com, Ponzi scheme, post-industrial society, price stability, profit maximization, profit motive, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, statistical model, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, Vilfredo Pareto, Washington Consensus, zero-sum game
Platform companies have generally outsourced the parts of the production process that involve the greatest volatility: heavy capital spending, physical inventories of materials and finished goods, and unionized industrial employment. The outsourcing of capital and labor resulted in the outsourcing of a large amount of economic volatility from the United States and Europe to the Third World. This was not, however, a zero-sum game because the globalization process enabled developing countries, most obviously China, to transform themselves with amazing and unprecedented speed into industrial, rather than agricultural, economies. While they imported industrial volatility from America and Europe, developing countries reduced the overall instability of their economies by becoming less dependent on primitive farming—the most unreliable business.
And for anyone worried about the U.S. government’s profligate borrowing and spending, the levels of government debt in Japan and most eurozone countries, including Germany and France, are higher than they are in the United States. To dwell on the economic problems in Europe and Japan may seem like a pointless exercise in schadenfreude, but in one important respect the troubles of other countries benefit the United States and Britain. Currency trading is a zero-sum game, in which the fall of one currency must automatically mean the rise of another, so the fact that the only real alternatives to the dollar are structurally weaker than the dollar is a boon to both the United States and the world. If Europe and Japan had been structurally stronger or less affected by the 2007-09 crisis, worries about a precipitous fall in the dollar and the pound might have deterred U.S. and British policymakers from cutting interest rates as aggressively as they did.
All the Devils Are Here by Bethany McLean
Asian financial crisis, asset-backed security, bank run, Black-Scholes formula, break the buck, call centre, collateralized debt obligation, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Exxon Valdez, fear of failure, financial innovation, fixed income, high net worth, Home mortgage interest deduction, interest rate swap, laissez-faire capitalism, Long Term Capital Management, margin call, market bubble, market fundamentalism, Maui Hawaii, money market fund, moral hazard, mortgage debt, Northern Rock, Own Your Own Home, Ponzi scheme, quantitative trading / quantitative ﬁnance, race to the bottom, risk/return, Ronald Reagan, Rosa Parks, shareholder value, short selling, South Sea Bubble, statistical model, telemarketer, too big to fail, value at risk, zero-sum game
Even if there wasn’t a single new mortgage bond created, the supply of securities was now infinite and immediate, thanks to credit default swaps and synthetic CDOs. But that also meant that as subprime mortgages continued to default—and those losses eventually began to erode the value of the CDOs—those losses were going to be greatly amplified because so many side bets had been made so quickly through the purchase of synthetic CDOs. The gains were amplified, too, because synthetic CDOs are a zero-sum game: someone has to lose and someone has to win. Even after all the damage had been done, some would make the argument that there was nothing wrong with this. In a free market, shouldn’t all participants be able to “express their views”—a euphemism for placing a bet—on the direction of mortgage-backed securities? Maybe so. But if the ability to short a mortgage-backed security, and maybe even the construction of the index, brought a kind of transparency to the market, then the synthetic CDO took it away.
What Goldman Sachs really did in 2007 was protect its own bottom line, at the expense of clients it deemed disposable, in a conflict-ridden business that maybe—just maybe—the old Goldman Sachs would have been wise enough to stay away from. In all the subsequent frenzy over who did what to whom in the synthetic CDO market, a series of deeper, more troubling questions tended to get overlooked. One was this: What, exactly, was the point of a synthetic CDO? It didn’t fund a home. It didn’t make the mortgage market any better. It was a zero-sum game in which the dice were mortgages. “Wall Street is friction,” said Mark Adelson, the former Moody’s analyst. “Every cent an investment bank earns is capital that doesn’t go to a business. With an initial public offering, you get it. But with derivatives, you can’t tie it back. You could argue that at least it’s not hurting things, and that was a compelling rationale for a long time.” He concluded, “We may have encouraged financial institutions to grow in ways that do not directly facilitate or enhance the reason for having a financial system in the first place.”
A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation by Richard Bookstaber
affirmative action, Albert Einstein, asset allocation, backtesting, beat the dealer, Black Swan, Black-Scholes formula, Bonfire of the Vanities, butterfly effect, commoditize, commodity trading advisor, computer age, computerized trading, disintermediation, diversification, double entry bookkeeping, Edward Lorenz: Chaos theory, Edward Thorp, family office, financial innovation, fixed income, frictionless, frictionless market, George Akerlof, implied volatility, index arbitrage, intangible asset, Jeff Bezos, John Meriwether, London Interbank Offered Rate, Long Term Capital Management, loose coupling, margin call, market bubble, market design, merger arbitrage, Mexican peso crisis / tequila crisis, moral hazard, Myron Scholes, new economy, Nick Leeson, oil shock, Paul Samuelson, Pierre-Simon Laplace, quantitative trading / quantitative ﬁnance, random walk, Renaissance Technologies, risk tolerance, risk/return, Robert Shiller, Robert Shiller, rolodex, Saturday Night Live, selection bias, shareholder value, short selling, Silicon Valley, statistical arbitrage, The Market for Lemons, time value of money, too big to fail, transaction costs, tulip mania, uranium enrichment, William Langewiesche, yield curve, zero-coupon bond, zero-sum game
Risk should be diminishing, but it isn’t. Meanwhile, there is a proliferation of hedge funds that continue to capture differentially higher returns. Over the past five years, the assets under management by hedge funds have grown over sixfold from $300 billion to more than $2 trillion. And this does not include the operation of the quasi-hedge fund proprietary trading desks at firms like Goldman Sachs or Deutsche Bank. It’s a zero-sum game, though, so if hedge funds are able to extract differentially higher returns, someone else is paying for them with comparably subpar returns. Maybe it’s you. This is not the way it is supposed to work. Consider the progress of other products and services over the past century. From the structural design of buildings and bridges, to the operation of oil refineries or power plants, to the safety of automobiles and airplanes, we learned our lessons.
If the timing is right (right, that is, as far as the insiders are concerned), the influx of shares hits the market while the stock price is still riding high. The result is a net loss for the investor public. If the shares in the market were constant during the ride up and back down, at least on net there would be no loss among the investors. But with more shares hitting the market near the peak, it is no longer a zero-sum game, with one public investor’s profit equaling another’s loss. When supply catches up with demand, pricing power declines. The stocks of many Internet companies behaved like a roller-coaster ride over the year or two of the bubble, with a price at the end not far from where it was at the start, but the investors discovered that sometime during the course of the triple loops their wallets had dropped out of their pockets.
Future Shock by Alvin Toffler
Albert Einstein, Brownian motion, Buckminster Fuller, cognitive dissonance, Colonization of Mars, corporate governance, East Village, global village, Haight Ashbury, information retrieval, invention of agriculture, invention of movable type, invention of writing, Marshall McLuhan, mass immigration, Menlo Park, New Urbanism, Norman Mailer, post-industrial society, RAND corporation, the market place, Thomas Kuhn: the structure of scientific revolutions, urban renewal, Whole Earth Catalog, zero-sum game
The rushing stream of wild, unorthodox, eccentric or merely colorful ideas generated in these sanctuaries of social imagination must, after they have been expressed, be subjected to merciless screening. Only a tiny fraction of them will survive this filtering process. These few, however, could be of the utmost importance in calling attention to new possibilities that might otherwise escape notice. As we move from poverty toward affluence, politics changes from what mathematicians call a zero sum game into a non-zero sum game. In the first, if one player wins another must lose. In the second, all players can win. Finding non-zero sum solutions to our social problems requires all the imagination we can muster. A system for generating imaginative policy ideas could help us take maximum advantage of the non-zero opportunities ahead. While imaginetic centers concentrate on partial images of tomorrow, defining possible futures for a single industry, an organization, a city or its subsystems, however, we also need sweeping, visionary ideas about the society as a whole.
Reinventing Organizations: A Guide to Creating Organizations Inspired by the Next Stage of Human Consciousness by Frederic Laloux, Ken Wilber
Albert Einstein, augmented reality, blue-collar work, Buckminster Fuller, call centre, carbon footprint, conceptual framework, corporate social responsibility, crowdsourcing, failed state, future of work, hiring and firing, index card, interchangeable parts, invisible hand, job satisfaction, Johann Wolfgang von Goethe, Kenneth Rogoff, meta analysis, meta-analysis, pattern recognition, post-industrial society, quantitative trading / quantitative ﬁnance, randomized controlled trial, selection bias, shareholder value, Silicon Valley, the market place, the scientific method, Tony Hsieh, zero-sum game
Gary Hamel, a scholar and writer on organizations, aptly calls survey results such as these the shame of management. Pluralistic-Green Organizations seek to deal with the problem of power inequality through empowerment, pushing decisions down the pyramid, and they often achieve much higher employee engagement. But empowerment means that someone at the top must be wise or noble enough to give away some of his power. What if power weren’t a zero-sum game? What if we could create organizational structures and practices that didn’t need empowerment because, by design, everybody was powerful and no one powerless? This is the first major breakthrough of Teal Organizations: transcending the age-old problem of power inequality through structures and practices where no one holds power over anyone else, and yet, paradoxically, the organization as a whole ends up being considerably more powerful.
Cooperatives, for instance, have sought in equal ownership a method to divide power equally. Interestingly, none of the organizations I have researched are employee-owned; the question of employee ownership doesn’t seem to matter very much when power is truly distributed. From an Evolutionary-Teal perspective, the right question is not: how can everyone have equal power? It is rather: how can everyone be powerful? Power is not viewed as a zero-sum game, where the power I have is necessarily power taken away from you. Instead, if we acknowledge that we are all interconnected, the more powerful you are, the more powerful I can become. The more powerfully you advance the organization’s purpose, the more opportunities will open up for me to make contributions of my own. Here we stumble upon a beautiful paradox: people can hold different levels of power, and yet everyone can be powerful.
Who Owns the Future? by Jaron Lanier
3D printing, 4chan, Affordable Care Act / Obamacare, Airbnb, augmented reality, automated trading system, barriers to entry, bitcoin, book scanning, Burning Man, call centre, carbon footprint, cloud computing, commoditize, computer age, crowdsourcing, David Brooks, David Graeber, delayed gratification, digital Maoism, Douglas Engelbart, en.wikipedia.org, Everything should be made as simple as possible, facts on the ground, Filter Bubble, financial deregulation, Fractional reserve banking, Francis Fukuyama: the end of history, George Akerlof, global supply chain, global village, Haight Ashbury, hive mind, if you build it, they will come, income inequality, informal economy, information asymmetry, invisible hand, Jacquard loom, Jaron Lanier, Jeff Bezos, job automation, John Markoff, Kevin Kelly, Khan Academy, Kickstarter, Kodak vs Instagram, life extension, Long Term Capital Management, Marc Andreessen, Mark Zuckerberg, meta analysis, meta-analysis, Metcalfe’s law, moral hazard, mutually assured destruction, Network effects, new economy, Norbert Wiener, obamacare, packet switching, Peter Thiel, place-making, Plutocrats, plutocrats, Ponzi scheme, post-oil, pre–internet, race to the bottom, Ray Kurzweil, rent-seeking, reversible computing, Richard Feynman, Richard Feynman, Ronald Reagan, self-driving car, side project, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, Skype, smart meter, stem cell, Steve Jobs, Steve Wozniak, Stewart Brand, Ted Nelson, The Market for Lemons, Thomas Malthus, too big to fail, trickle-down economics, Turing test, Vannevar Bush, WikiLeaks, zero-sum game
Instead of suppressing big business data, and favoring big science data, I suspect that the best results would come from making big business data more successful. The happier markets get, the less they will interfere with science. Markets are happier when they are expanding. This point becomes critical in considering how markets can be better aligned with reality. If a market is stagnant or contracting, it is in the interests of players to protect their positions and contest the positions of others. Antagonism becomes more prevalent in a zero-sum game. The whole of the game becomes the besting of others. If a market is expanding, the game is non-zero-sum. Then win-win thinking becomes rational more frequently. The opportunity of the new can often outweigh the opportunity of fighting over the old. This is not to say that an expanding market is automatically aligned to reality. The real estate market was expanding in Las Vegas during the stupid boom.
., 126–27, 137, 261, 331 Wells’s humor, 126–27 What the Dormouse Said (Markoff), 213 Wheeler, John Archibald, 195 Wiener, Norbert, 230 WikiLeaks, 14, 199, 205 Wikipedia, 59n, 93, 94, 176n, 188–89, 206, 226, 235, 254, 259, 291, 338, 359 Windows, 349 winner-take-all system, 38–43, 50, 54–55, 204, 243, 256–57, 263, 329–30 Wired, 82 wireless connections, 171–72, 184–85, 273, 296n, 309, 316, 331 Wozniak, Steve, 93 writers, 352–60 Xanadu, 222, 223, 225, 228–29 Xerox PARC, 229–30 You Are Not a Gadget (Lanier), 353 YouTube, 39, 60, 101, 185, 186–87, 242, 259, 278 zero-sum games, 240, 297–98 Zuckerberg, Mark, 93, 190 SIMON & SCHUSTER 1230 Avenue of the Americas New York, NY 10020 www.SimonSchuster.com Copyright © 2013 by Jaron Lanier All rights reserved, including the right to reproduce this book or portions thereof in any form whatsoever. For information address Simon & Schuster Subsidiary Rights Department, 1230 Avenue of the Americas, New York, NY 10020.
A Splendid Exchange: How Trade Shaped the World by William J. Bernstein
Admiral Zheng, asset allocation, bank run, Benoit Mandelbrot, British Empire, call centre, clean water, Columbian Exchange, Corn Laws, David Ricardo: comparative advantage, deindustrialization, Doha Development Round, domestication of the camel, double entry bookkeeping, Eratosthenes, financial innovation, Gini coefficient, God and Mammon, ice-free Arctic, imperial preference, income inequality, intermodal, James Hargreaves, John Harrison: Longitude, Khyber Pass, low skilled workers, non-tariff barriers, Paul Samuelson, placebo effect, Port of Oakland, refrigerator car, Silicon Valley, South China Sea, South Sea Bubble, spice trade, spinning jenny, Steven Pinker, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, trade liberalization, trade route, transatlantic slave trade, transatlantic slave trade, transcontinental railway, upwardly mobile, working poor, zero-sum game
The debate between them and the free-traders supporting the EIC engaged the nation's most talented economic minds and found expression in that era's equivalent of the political blog, the pamphlet, which generally sold for a few pence per piece. Mercantilist theory was simplicity itself: a nation's wealth was measured by the amount of gold and silver it possessed. In other words, international commerce constituted a zero-sum game in which one nation's gain came only at the expense of another, and the only way for a country to grow rich was to gamer gold and silver from abroad by exporting more than it imported. In modern parlance, the route to wealth lay in a positive trade balance. This, too, was a grim tug-of-war, since every gold sovereign or piece of eight accrued by one nation had to come from a competitor. In the words of an early EIC merchant, Thomas Mun, "We must ever observe this rule: to sell more to strangers yearly than we consume of theirs in value .1141 Not all imports and exports were equal in the mercantilist scheme of things.
Three hundred years ago, as England debated the India trade, few detected the flaws in mercantilism.42 One observer, Roger Coke, noted that Holland, the world's wealthiest nation on a per capita basis, "imported everything," whereas impoverished Ireland exported far more than it imported .4 Another, Charles Davenant, cogently explained that the benefits of keeping a nation "more Cheaply supply'd" with foreign imports far outweighed the damage done to domestic employment. He perceptively argued that trade was not in fact a zero-sum game, "For all Trades have a Mutual Dependance upon one another, and one begets another, and the loss of one frequently loses half the rest." In his view, protectionist measures were "needless, unnatural, and can have no Effect conducive to the Publick Good"; further, they encouraged inefficient domestic industries with artificially high prices and threw good money after bad.' By far the most remarkable early free-trader was Henry Martyn, whose Considerations upon the East India Trade preceded by seventyfive years Adam Smith's Wealth of Nations.
Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, Basel III, Ben Bernanke: helicopter money, Berlin Wall, Big bang: deregulation of the City of London, British Empire, capital controls, carbon footprint, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, credit crunch, Credit Default Swap, crony capitalism, dark matter, deindustrialization, Deng Xiaoping, disintermediation, energy security, Eugene Fama: efficient market hypothesis, eurozone crisis, financial deregulation, financial innovation, financial repression, floating exchange rates, forensic accounting, forward guidance, full employment, G4S, ghettoisation, global rebalancing, global reserve currency, hiring and firing, inflation targeting, Irish property bubble, Just-in-time delivery, labour market flexibility, light touch regulation, London Whale, Long Term Capital Management, margin call, market clearing, megacity, Mikhail Gorbachev, mini-job, mittelstand, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, negative equity, North Sea oil, Northern Rock, offshore financial centre, open economy, paradox of thrift, Pearl River Delta, pension reform, price mechanism, price stability, profit motive, quantitative easing, quantitative trading / quantitative ﬁnance, race to the bottom, regulatory arbitrage, reserve currency, reshoring, Right to Buy, rising living standards, Ronald Reagan, savings glut, shareholder value, sovereign wealth fund, The Chicago School, the payments system, too big to fail, trade route, transaction costs, two tier labour market, unorthodox policies, uranium enrichment, urban planning, value at risk, working-age population, zero-sum game
There can be no surprise that housing transactions are still around half normal levels. Even before the bottom rungs of the ladder broke, it appeared that the housing ladder had turned into a one-step house trap. Rise of the domocracy At the heart of all of this is the unwillingness of anybody in finance or politics to say that ever-rising house prices have been a disaster. In reality, ever-rising house prices constitute what is more or less a zero-sum game, a mechanism that redistributes from the poor and the young to the rich and the old. The test case for this is, of course, Germany. Since 1980 real house prices in the UK nearly trebled, and are still well over double their level in 1995. In Germany, real house prices have fallen 17 per cent since 1995. Which nation is better off? Will there ever be a day when a British chancellor of the exchequer welcomes stable, or even mildly falling, house prices?
Effectively Germany and other creditor nations were the source of the euros that ultimately added a third to Spanish household debt. Germany had, through intermediaries, lent people like Kelly and Nelson the boom-time cash. But they had left the credit risk with the Spanish banks. This method of lending turned out to be a very important factor during the bust. Cédulas were not a form of credit alchemy that had disappeared default risk, despite the German engineering. This was a zero-sum game. All the covered bonds did was to shift risks around. The additional security offered to the cédula-holders was at the expense of other unsecured lenders to the cajas. As Spanish credit quality declined, more high quality assets were sucked in to secure the interests of the holders of covered bonds. Ultimately the sheer size of the market, over a third of Spanish GDP, must have hastened the demise of the cajas.
Poisoned Wells: The Dirty Politics of African Oil by Nicholas Shaxson
Asian financial crisis, Berlin Wall, blood diamonds, business climate, central bank independence, clean water, colonial rule, energy security, Exxon Valdez, failed state, Fall of the Berlin Wall, Hernando de Soto, income per capita, inflation targeting, Martin Wolf, mobile money, offshore financial centre, old-boy network, Ronald Reagan, Scramble for Africa, Yom Kippur War, zero-sum game
The national budget allocates 13 percent of oil revenues to the state where it is produced, while the “thieves” in federal government get the rest. “This is like saying, ‘Give me your shirt and I will give you back a button,’” one of the youths ventured. They were unsure exactly how the 13 percent was calculated, or how best to share it out. “The only thing Shell can do is negotiate with the Ijaws. . . . Let them have an Ijaw Development Commission, headed by an Ijaw.” It was the old zero-sum game: how to divide out the more than $20 billion that Nigeria earned that year.18 The discussion ranged on. At every point, oil was dividing these people from each other. How is Nigeria’s oil money shared out? First, it is split contractually between Nigeria and the oil companies and their contractors. Left-wingers who focus on the exploitation of poor Africans by rich multinationals fixate on this aspect of the division of spoils.
It was as if I had electrified their chairs. They were on their feet, gesticulating and arguing, furious that the other islanders might get “their” oil. It was a tiny episode, easily forgotten. But it illustrates the larger issue: mineral resources divide citizens against one another. Regions where locals want to split away from their countries—the Niger Delta, or Angola’s Cabinda enclave—are those parts with the oil. It is the old zero-sum game: more oil money for São Tomé means less for Principe, more for northern Principe means less for southern Principe, more for Public Works means less for Commerce, and so on. Finding oil is like dumping itching powder from helicopters, aggravating existing divisions. The divisions are often, but not always, ethnic or religious. Oil’s divisive effects are probably most visible in the Niger Delta, where rich, offshore-roaming elites are being separated from the broad populations, and where locals retreat into ethnic enclaves to stake claims to the oil-financed goodies.
Empire: How Britain Made the Modern World by Niall Ferguson
British Empire, Cape to Cairo, colonial rule, Corn Laws, European colonialism, imperial preference, income per capita, John Harrison: Longitude, joint-stock company, Khartoum Gordon, Khyber Pass, land reform, land tenure, liberal capitalism, Livingstone, I presume, Mahatma Gandhi, mass immigration, night-watchman state, profit motive, Scramble for Africa, spice trade, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the new new thing, The Wealth of Nations by Adam Smith, Thomas Malthus, trade route, transatlantic slave trade, transatlantic slave trade, union organizing, zero-sum game
This was indeed the assumption: in the words of the contemporary political economist William Petty, there was ‘but a certain proportion of trade in the world’. The hope of the East India Company director Josiah Child was ‘that other Nations who are in competition with us for the same [business], may not wrest it from us, but that ours may continue and increase, to the diminution of theirs.’ It was economics as a zero sum game – the essence of what came to be called mercantilism. If, on the other hand, the volume of spice exports proved to be elastic, then the increased supply going to England would depress the European spice price. The English company’s initial voyages from Surat were exceedingly profitable, with profits as high as 200 per cent. But thereafter the predictable effect of Anglo-Dutch competition was to drive down prices.
The immense amounts of capital sunk into Latin America, for example, gave Britain so much leverage – especially in Argentina and Brazil – that it seems quite legitimate to speak of ‘informal imperialism’ in these countries. It might of course be objected that British investors had no business investing in Buenos Aires and Rio when they should have been modernizing the industries of the British Isles themselves. But the anticipated returns on overseas investment were generally higher than those from domestic manufacturing. In any case, this was not a zero-sum game. New foreign investment soon became self-financing, since earnings from existing overseas assets consistently exceeded the value of new capital out-flows: between 1870 and 1913 total overseas earnings amounted to 5.3 per cent of GDP a year. Nor is there any compelling evidence that British industry was hampered by a shortage of capital before 1914. Total foreign investment in 1914: whence it came, where it went ($ million) It was not only through investment that the British extended their informal Empire.
Fool Me Twice: Fighting the Assault on Science in America by Shawn Lawrence Otto
affirmative action, Albert Einstein, anthropic principle, Berlin Wall, Brownian motion, carbon footprint, Cepheid variable, clean water, Climategate, Climatic Research Unit, cognitive dissonance, Columbine, commoditize, cosmological constant, crowdsourcing, cuban missile crisis, Dean Kamen, desegregation, double helix, energy security, Exxon Valdez, fudge factor, ghettoisation, Harlow Shapley and Heber Curtis, Harvard Computers: women astronomers, informal economy, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Louis Pasteur, mutually assured destruction, Richard Feynman, Richard Feynman, Ronald Reagan, Saturday Night Live, shareholder value, sharing economy, smart grid, Solar eclipse in 1919, stem cell, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, transaction costs, University of East Anglia, War on Poverty, white flight, Winter of Discontent, working poor, yellow journalism, zero-sum game
.† With careful observation and recording we have been able to give children to those who were “barren” and the fertile the freedom to decide when—and whether—to reproduce. Our science now influences every aspect of life, and it has freed us from a life that was, according to Thomas Hobbes, “a war … of every man against every man … solitary, poor, nasty, brutish and short.”4 In such remnants of thinking from the Middle Ages, economics was a zero-sum game: “Without a common power to keep them all in awe,” men in Hobbes’s time fell into war. There was finite wealth and opportunity, and to get ahead one had to take some away from another. In its capacity to create knowledge, science had the tools to break that zero-sum economic model and generate wealth, health, freedom, nobility, and power beyond Hobbes’s wildest dreams. It has given us tremendous insights into our place in the cosmos, into the inner workings of our own bodies, and into our capacity as human beings to exercise our highest aspirations of love, hope, creativity, discovery, compassion, courage, wonder, and charity.
IT’S THE ECONOMY AND THE ENVIRONMENT, STUPID National Oceanic and Atmospheric Administration (NOAA) administrator Jane Lubchenco thinks we can. Lubchenco is one of America’s leading voices on tackling climate change, but she challenges the idea of a limited world, pointing out that science has consistently expanded the economy beyond the zero-sum days of Thomas Hobbes. “By creating new knowledge, science changed economics away from a zero-sum game,” she says.8 Evolutionary biologist Simon Levin thinks that the way to tackle the problem is to develop an economic model that values the commons as capital. “I see a real split even among my students,” he says, “many of whom think economic growth and environmental protection are antagonistic elements and therefore a primary goal must be to reduce consumption and economic growth. I don’t believe that’s the case, but the interplay is an example of the sorts of problems we have to wrestle with.”9 Levin got together with 1972 Nobel Prize-winning economist Ken Arrow and ecologist Paul Ehrlich to look at the question of whether we’re consuming too much, and he says they found that the answer was “not uniformly—[in] some areas [we] are and [in] some [we] are not.”
An Extraordinary Time: The End of the Postwar Boom and the Return of the Ordinary Economy by Marc Levinson
affirmative action, airline deregulation, banking crisis, Big bang: deregulation of the City of London, Boycotts of Israel, Bretton Woods, Capital in the Twenty-First Century by Thomas Piketty, car-free, Carmen Reinhart, central bank independence, centre right, clean water, deindustrialization, endogenous growth, falling living standards, financial deregulation, floating exchange rates, full employment, George Gilder, Gini coefficient, global supply chain, income inequality, income per capita, indoor plumbing, informal economy, intermodal, invisible hand, Kenneth Rogoff, knowledge economy, late capitalism, linear programming, lump of labour, manufacturing employment, new economy, Nixon shock, North Sea oil, oil shock, Paul Samuelson, pension reform, price stability, purchasing power parity, refrigerator car, Right to Buy, rising living standards, Robert Gordon, rolodex, Ronald Coase, Ronald Reagan, Simon Kuznets, statistical model, strikebreaker, structural adjustment programs, Thomas Malthus, total factor productivity, unorthodox policies, upwardly mobile, War on Poverty, Washington Consensus, Winter of Discontent, Wolfgang Streeck, women in the workforce, working-age population, yield curve, Yom Kippur War, zero-sum game
While economies were growing rapidly during the Golden Age, governments had been able to improve conditions for almost everyone; there was enough money to raise child allowances and build new universities offering free or low-cost education without reducing the after-tax incomes of working families without children. But now that economies were growing slowly or even shrinking, governing was a zero-sum game. Any measure that channeled more resources to one group, whether preschool toddlers or old-age pensioners, was likely to take resources away from others. Even policies that would eventually benefit almost everyone, such as reducing inflation, foundered on the public’s unwillingness to accept short-term pain for long-term gain. The welfare state promised not just steadily rising living standards but also greater equality.
This was the essence of progressive taxation, the ladder of tax rates that existed in every high-income country on the premise that those with meager incomes should pay little or nothing in income taxes, and the more prosperous should pay rates that rose as their incomes rose. Since the earliest days of income taxation, this had been accepted as the fairest way to levy taxes. The supply-siders begged to differ. Progressive taxation, they claimed, was designed to redistribute income from some people to others rather than to make the economy grow. “All this shifting of wealth is a zero sum game,” Gilder asserted. Levying the highest taxes on the most dynamic people in a society, those whose creativity and entrepreneurial drive generated wealth, would kill the golden goose. The supply-siders claimed that this was precisely what had occurred in the 1970s, as wealthy people put their money into tax shelters and gold rather than risking it in productive investments that, if successful, would allegedly have been taxed at painfully high rates.
Bonfire of the Vanities, Bretton Woods, clean water, collective bargaining, computerized trading, corporate raider, declining real wages, floating exchange rates, full employment, George Akerlof, George Gilder, Home mortgage interest deduction, income inequality, indoor plumbing, informal economy, invisible hand, Kenneth Arrow, knowledge economy, life extension, lump of labour, new economy, Nick Leeson, paradox of thrift, Paul Samuelson, Plutocrats, plutocrats, price stability, rent control, Ronald Reagan, Silicon Valley, trade route, very high income, working poor, zero-sum game
(In a land where anyone can become president, anyone who doesn’t become president is a failure.) My European friends always marvel at how hard Americans work, even those who already have plenty of money. Why don’t we take more time to enjoy what we have? The answer, of course, is that we work so hard because we are determined to get ahead—an effort that (for Americans as a society) is doomed to failure, because competition for status is a zero-sum game. We can’t all “get ahead.” No matter how fast we all run, someone must be behind. If one follows this line of thought one might well be led to some extremely radical ideas about economic policy, ideas that are completely at odds with all current orthodoxies. But I won’t try to come to grips with such ideas in this column. Frankly, I don’t have the time. I have to get back to my research—otherwise, somebody else might get that Nobel.
The Little Book of Hedge Funds by Anthony Scaramucci
Andrei Shleifer, asset allocation, Bernie Madoff, business process, carried interest, corporate raider, Credit Default Swap, diversification, diversified portfolio, Donald Trump, Eugene Fama: efficient market hypothesis, fear of failure, fixed income, follow your passion, Gordon Gekko, high net worth, index fund, John Meriwether, Long Term Capital Management, mail merge, margin call, mass immigration, merger arbitrage, money market fund, Myron Scholes, NetJets, Ponzi scheme, profit motive, quantitative trading / quantitative ﬁnance, random walk, Renaissance Technologies, risk-adjusted returns, risk/return, Ronald Reagan, Saturday Night Live, Sharpe ratio, short selling, Silicon Valley, the new new thing, too big to fail, transaction costs, Vanguard fund, Y2K, Yogi Berra, zero-sum game
Often referred to as the Holy Grail for investors, alpha is attained when a manager achieves positive, nonvolatile returns no matter the movement of the market. These returns are entirely reliant on the investment skill of the hedge fund manager and are uncorrelated to the market index. Just as many skeptics would have you believe that El Dorado is a fictitious place that can never be found, so do many academics prophesize that the investment world is a zero-sum game where alpha—excessive returns regardless of market conditions—does not exist. Naysayers argue that there are few money management geniuses who possess the intrinsic skills to achieve uncorrelated returns. Like our gallant knight, many hedge fund managers have similarly met colossal disappointment, glorious failure, and financial ruin—both for themselves and their clients—in their quest to achieve alpha.
The Crowded Universe: The Search for Living Planets by Alan Boss
Griffin did promise not to divert any NASA science funding to solve the budget problems involving human space flight at NASA. December 9, 2005—NASA headquarters further delayed the launch of the Webb Telescope from 2014 to 2016. The extra costs involved in adding two more years of work on Webb used up all the cost savings gained as a result of the Webb descope exercise a few months earlier. The total cost of Webb was thus still $4.5 billion. Given the zero-sum game in NASA’s Science Mission Directorate, it was clear that the funds needed for Webb would have to come from other NASA science missions. Although Webb could not see exoEarths, it would be able to see newly formed Jupiters orbiting nearby young stars, if any existed. February 6, 2006—Fritz Benedict submitted a paper to the Astrophysical Journal that combined Doppler data and astrometric measurements, taken by the Hubble Space Telescope and by George Gatewood’s Allegheny Observatory telescope, of the nearby star Epsilon Eridani.
The Automatic Customer: Creating a Subscription Business in Any Industry by John Warrillow
Airbnb, airport security, Amazon Web Services, asset allocation, barriers to entry, call centre, cloud computing, commoditize, David Heinemeier Hansson, discounted cash flows, high net worth, Jeff Bezos, Network effects, passive income, rolodex, sharing economy, side project, Silicon Valley, Silicon Valley startup, software as a service, statistical model, Steve Jobs, Stewart Brand, subscription business, telemarketer, time value of money, zero-sum game, Zipcar
According to a 2013 study by the Economist Intelligence Unit, over half of surveyed companies are changing the way they deliver products and service. Four in five companies surveyed believe their customers are switching to new consumption models like sharing or subscribing. Of the companies changing the way they price and deliver goods, 40% are adopting the subscription business model. But the market for any given commodity is a zero-sum game. For every customer who decides to subscribe to a vitamin regimen from Køge, one less person buys vitamins from the local health food store. For every customer who subscribes to receive their Puppy Chow from Amazon’s Subscribe & Save, one less dog lover visits her local pet supplies store. So what’s it going to be? Are you willing to watch your business be cannibalized by someone else’s subscription business?
Albert Einstein, Chance favours the prepared mind, conceptual framework, Copley Medal, Danny Hillis, discovery of DNA, Edmond Halley, Edward Lloyd's coffeehouse, Isaac Newton, James Watt: steam engine, Kevin Kelly, planetary scale, side project, South Sea Bubble, stem cell, Stewart Brand, the scientific method, Thomas Kuhn: the structure of scientific revolutions, zero-sum game
The necessity of open information networks—like ones he cultivated with the Honest Whigs and the Lunar Society, and with the popular tone of his scientific publications—has become a defining creed of the Internet age. That is in part because the flow of information differs from the flow of energy in one crucial respect: there is a finite supply of energy, which means that tapping it is invariably a zero-sum game. (Burning Carboniferous fuel in steam engines during the eighteenth century leaves less in the ground for the twenty-first.) But the spread of information does not come with the same cost, particularly in the age of global networks. An idea that flows through a society does not grow less useful as it circulates; most of the time, the opposite occurs: the idea improves, as its circulation attracts the “attention of the Ingenious,” as Franklin put it.
Let Them In: The Case for Open Borders by Jason L. Riley
affirmative action, creative destruction, David Ricardo: comparative advantage, declining real wages, deindustrialization, desegregation, guest worker program, hiring and firing, illegal immigration, immigration reform, income inequality, labor-force participation, labour market flexibility, low skilled workers, lump of labour, mass immigration, open borders, RAND corporation, Ronald Reagan, school choice, Silicon Valley, trade liberalization, War on Poverty, working poor, working-age population, zero-sum game
Seen through this statistical lens, it’s little wonder that immigrant scapegoating failed to resonate with the electorate. Even the most adept populists need some empirical evidence to back up their claims, and the Bush economy of the mid-2000s presented remarkably little data on which to hang anti-immigrant half-truths. The reality is that America’s foreign labor force helps to propel economic growth, not impede it, because the U.S. job market, properly understood, is not a zero-sum game. The number of jobs in the United States is not static. It’s fluid, which is how we want it to be. In 2006, 55 million U.S. workers (or just less than 4.6 million per month) either quit their jobs or were fired. Yet 57 million people were hired over the same period. In a typical year, a third of our workforce is turning over. In about half of those cases the separation is voluntary; in the other half, the worker has been shown the door.
Getting to Yes: Negotiating Agreement Without Giving In by Roger Fisher, Bruce Patton
The dispute between India and Pakistan over the waters of the Indus River became more amenable to settlement when the World Bank entered the discussions; the parties were challenged to invent new irrigation projects, new storage dams, and other engineering works for the benefit of both nations, all to be funded with the assistance of the Bank. Look for mutual gain The third major block to creative problem-solving lies in the assumption of a fixed pie: the less for you, the more for me. Rarely if ever is this assumption true. First of all, both sides can always be worse off than they are now. Chess looks like a zero-sum game; if one loses, the other wins — until a dog trots by and knocks over the table, spills the beer, and leaves you both worse off than before. Even apart from a shared interest in averting joint loss, there almost always exists the possibility of joint gain. This may take the form of developing a mutually advantageous re-lationship, or of satisfying the interests of each side with a creative solution.
Drive: The Surprising Truth About What Motivates Us by Daniel H. Pink
affirmative action, call centre, Daniel Kahneman / Amos Tversky, Dean Kamen, deliberate practice, Firefox, Frederick Winslow Taylor, functional fixedness, game design, George Akerlof, Isaac Newton, Jean Tirole, job satisfaction, knowledge worker, performance metric, profit maximization, profit motive, Results Only Work Environment, side project, the built environment, Tony Hsieh, transaction costs, zero-sum game
It's also a detriment in most professions. But as Martin Seligman has written, There is one glaring exception: pessimists do better at law. In other words, an attitude that makes someone less happy as a human being actually makes her more effective as a lawyer. A second reason: Most other enterprises are positive-sum. If I sell you something you want and enjoy, we're both better off. Law, by contrast, is often (though not always) a zero-sum game: Because somebody wins, somebody else must lose. But the third reason might offer the best explanation of all and help us understand why so few attorneys exemplify Type I behavior. Lawyers often face intense demands but have relatively little decision latitude. Behavioral scientists use this term to describe the choices, and perceived choices, a person has. In a sense, it's another way of describing autonomy and lawyers are glum and cranky because they don't have much of it.
3D printing, Ada Lovelace, AI winter, Airbnb, artificial general intelligence, augmented reality, barriers to entry, basic income, bitcoin, blockchain, brain emulation, Buckminster Fuller, cloud computing, computer age, computer vision, correlation does not imply causation, credit crunch, cryptocurrency, cuban missile crisis, dematerialisation, discovery of the americas, disintermediation, don't be evil, Elon Musk, en.wikipedia.org, epigenetics, Erik Brynjolfsson, everywhere but in the productivity statistics, Flash crash, friendly AI, Google Glasses, industrial robot, Internet of things, invention of agriculture, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, John von Neumann, Kevin Kelly, life extension, low skilled workers, Mahatma Gandhi, means of production, mutually assured destruction, Nicholas Carr, pattern recognition, peer-to-peer, peer-to-peer model, Peter Thiel, Ray Kurzweil, Rodney Brooks, Second Machine Age, self-driving car, Silicon Valley, Silicon Valley ideology, Skype, South Sea Bubble, speech recognition, Stanislav Petrov, Stephen Hawking, Steve Jobs, strong AI, technological singularity, The Future of Employment, theory of mind, Turing machine, Turing test, universal basic income, Vernor Vinge, wage slave, Wall-E, zero-sum game
The principal use of these models, according to HBP pronouncements, will be to understand how brain diseases work and to greatly improve the way therapies are developed and tested. The Human Brain Project is controversial in neuroscientific circles, with critics subjecting it to the kind of vitriol which academics excel at. Some worry that its massive funding will drain resources away from alternative projects, which suggests they believe that scientific funding is a zero-sum game. Others argue that our limited understanding of how the brain works means that the attempt to model it is premature. In July 2014, 200 neuroscientists signed a letter calling for a review of the way the project distributes its funding. One of the Human Brain Project’s harshest critics is Facebook’s Yann LeCun, who said in February 2015 that “a big chunk of the Human Brain Project in Europe is based on the idea that we should build chips that reproduce the functioning of neurons as closely as possible, and then use them to build a gigantic computer, and somehow when we turn it on with some learning rule, AI will emerge.
To Sell Is Human: The Surprising Truth About Moving Others by Daniel H. Pink
always be closing, Atul Gawande, barriers to entry, call centre, Cass Sunstein, Checklist Manifesto, choice architecture, complexity theory, Credit Default Swap, Daniel Kahneman / Amos Tversky, disintermediation, future of work, George Akerlof, information asymmetry, Jeff Bezos, Kickstarter, Marc Andreessen, Menlo Park, out of africa, Richard Thaler, rolodex, Ronald Reagan, Steve Jobs, The Market for Lemons, Upton Sinclair, Wall-E, zero-sum game
In 1981 he coauthored Getting to Yes, the most influential book ever written about negotiation. Fisher’s signal contribution was the concept of “principled negotiation,” which proposed that the aim of negotiating shouldn’t be to make the other side lose but, where possible, to help it win. This idea, which quickly became shorthanded as “win-win,” transformed business and legal education. Until then, many viewed negotiation as a zero-sum game, where parties vied for the largest share of a fixed pie. But Fisher’s work urged young business students and law students, and less-young people inside organizations, to reframe these encounters as positive-sum games, where one person’s victory didn’t depend on another’s defeat. If each party looks past the other party’s position to its actual interests and invents options for mutual gain, negotiations could end with both sides better off than when they began.
The Penguin and the Leviathan: How Cooperation Triumphs Over Self-Interest by Yochai Benkler
business process, California gold rush, citizen journalism, Daniel Kahneman / Amos Tversky, East Village, Everything should be made as simple as possible, experimental economics, experimental subject, framing effect, informal economy, invisible hand, jimmy wales, job satisfaction, Joseph Schumpeter, Kenneth Arrow, knowledge economy, laissez-faire capitalism, loss aversion, Murray Gell-Mann, Nicholas Carr, peer-to-peer, prediction markets, Richard Stallman, Scientific racism, Silicon Valley, Steven Pinker, telemarketer, Toyota Production System, ultimatum game, Washington Consensus, zero-sum game, Zipcar
For centuries it offered shelter for early modern science, a safe way to conduct their work without attracting the scorn or suspicion of the religious zealots. Human evolutionary biology over the past 150 years continued this tradition: debating core moral questions about ourselves in terms of natural sciences (in particular, evolutionary biology). Questions like: Are humans inherently selfish or altruistic? Is life fundamentally a competitive, zero-sum game, or an arena of cooperation? Are humans basically equal, or do we live in a naturally ordered hierarchy of superiors and inferiors? The modern version of the debate goes back to the time of the Social Darwinists. Its political implications were never subtle. Herbert Spencer coined the term “survival of the fittest” to describe the idea that only the best-adapted species would survive and reproduce, and then used it to justify the harsh nineteenth-century version of laissez-faire industrial capitalism.
business climate, car-free, Jane Jacobs, New Urbanism, Parkinson's law, place-making, Ray Oldenburg, ride hailing / ride sharing, Ronald Reagan, skinny streets, The Death and Life of Great American Cities, The Great Good Place, transit-oriented development, urban decay, urban renewal, urban sprawl, walkable city, zero-sum game
—Unknown Can we retain a sense of community? A sense of place? A satisfactory quality of life? Can we return to putting the needs of our community before the demands of our cars? Forty years from now, will we be proud of where we live? Our love affair with cars is unsustainable for the environment, the economy, and quality of life in the twenty-first century. Car transportation is truly a zero-sum game. Nearly always, when we make it easier to drive a car, we make it harder to travel another way, and worsen our quality of life. Fortunately, the emerging paradigm as we enter the twenty-first century includes the freedom of transportation choice for all of us—including people who can drive a car, seniors, children, individuals with disabilities, and the poor. Transportation choices will help our communities once again become sustainable, unique, attractive, livable, and affordable—places in which we can take pride.
accounting loophole / creative accounting, affirmative action, Asian financial crisis, barriers to entry, borderless world, Branko Milanovic, Bretton Woods, capital controls, corporate governance, corporate raider, correlation coefficient, credit crunch, deindustrialization, dematerialisation, deskilling, ending welfare as we know it, feminist movement, full employment, gender pay gap, George Gilder, glass ceiling, Gordon Gekko, greed is good, half of the world's population has never made a phone call, income inequality, indoor plumbing, intangible asset, Internet Archive, job satisfaction, joint-stock company, Kevin Kelly, labor-force participation, liquidationism / Banker’s doctrine / the Treasury view, manufacturing employment, means of production, minimum wage unemployment, Naomi Klein, new economy, occupational segregation, pets.com, profit maximization, purchasing power parity, race to the bottom, Ralph Nader, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, Silicon Valley, Simon Kuznets, statistical model, structural adjustment programs, Telecommunications Act of 1996, telemarketer, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, total factor productivity, union organizing, War on Poverty, women in the workforce, working poor, Y2K, zero-sum game
Gordon (2001) points out that Oliner and Sichel's estimates of an increase of almost 1% in annual productivity growth attributable to info tech in the late 1990s depend almost entirely on the acceleration in computer buying during the period, much of it spurred by building the web —jazzed up withY2K mania. Were computer spending to return to early-1990s averages, much of the miracle, then, would eventually disappear. Gordon (2000) speculates that the concentrated productivity gains came at the expense of firms that didn't make the investments: [CJomputers are used extensively to provide information aimed at taking customers, profits, or capital gains away from other companies.This is a zero-sum game involving redistribution of wealth rather than the increase of wealth, yet each individual firm has a strong incentive to make computer investments that, if they do not snatch wealth away from someone else,at least act as a defensive blockade against a hostile attack.... There is a "keeping up with the Joneses" aspect of hardware and software purchase motivated by competition, employee satisfaction, and employee recruitment.
The Other Israel: voices of refusal and dissent by Tom Śegev, Roane Carey, Jonathan Shainin
His real agenda is to put the dock back, to subvert what remains of the Oslo accords, to smash the Palestinians into the ground, and to extinguish once and for all their hope for independence and statehood. To add insult to injury, he wants to remove Yasser Arafat, the democratically elected leader and the symbol of the Palestinian revolution, and to replace him with a collaborationist regime that would meekly serve as a subcontractor charged with upholding Israeli security. What Sharon is unable or unwilling to comprehend is that security is not a zero-sum game and that it cannot be achieved by purely military means. The only hope of security for both communities lies in a return to the political track, something that this champion of violent solutions has always avoided like the plague. Consequently, Sharon's second war against the Palestinians, like his first, is doomed to failure from the start. If the history of this century-old conflict teaches us anything, it is that violence only breeds more violence.
Alvin Roth, barriers to entry, conceptual framework, correlation coefficient, discrete time, disintermediation, distributed generation, experimental economics, financial intermediation, index arbitrage, information asymmetry, interest rate swap, inventory management, market clearing, market design, market friction, market microstructure, martingale, price discovery process, price discrimination, quantitative trading / quantitative ﬁnance, random walk, Richard Thaler, second-price auction, selection bias, short selling, statistical model, stochastic process, stochastic volatility, transaction costs, two-sided market, ultimatum game, zero-sum game
This trade-off drives some of the more formal trading models considered in the next chapter. It is also noteworthy that the implementation shortfall is defined at the level of the portfolio rather than the individual security. The total volatility will then reflect correlation across securities in the outcomes of limit order strategies. Over both sides of the trade, and of course in the aggregate, execution costs are a zero-sum game as long as everyone uses the same benchmark π0 . TRADING COSTS: RETROSPECTIVE AND COMPARATIVE Opportunity costs, on the other hand, are measured relative to desired positions. There is no mechanism to ensure that unconsummated demand equals unconsummated supply. Infeasibility of aggregate desired positions can easily lead to misleading estimates of aggregate implementation shortfalls. For example, suppose that a dealer bids $99 for one unit of the security, and offers one unit at $101, and that the rules of the market require that these quotes be firm (available for immediate execution).
Tough Sh*t: Life Advice From a Fat, Lazy Slob Who Did Good by Kevin Smith
Please pay attention very carefully, because this is the truest thing a stranger will ever say to you: In the face of such hopelessness as our eventual, unavoidable death, there is little sense in not at least trying to accomplish all of your wildest dreams in life. Lemme include a strong exception: If your wildest dreams are to hunt humans or kill children, I’m not talking to you. Please draw no hidden, sociopathic meaning from my words. Life is fragile and painful enough, so don’t hurt people, asshole. Life is also, as George Carlin taught us, a zero-sum game. We all lose in the end. We all die screaming. If that’s the case, we might as well make for ourselves a paradise in this world. Make yourself happy and comfortable as often as you can, because sooner or later, the infinite hands you a bill for all these goods and services. What follows is some tough shit. Tough shit to read, tough shit to accept. Granted, I didn’t live through a mass genocide, nor am I a survivor of childhood abuse, so the title of this book may feel like an overstatement.
air freight, Asian financial crisis, Bob Geldof, British Empire, Doha Development Round, failed state, falling living standards, income inequality, mass immigration, out of africa, rent-seeking, Ronald Reagan, structural adjustment programs, trade liberalization, zero-sum game
Of course, the East Asian crisis of 1998, during which foreign money panicked and fled the region, showed that short-term financial inflows can be a mixed blessing, exposing countries to financial shocks. But longer-term investment is likely to be beneficial all around. Workers in developing countries get jobs and increased wages, and the firms that move capital to developing countries get higher returns on it. Such capital movements, like trade, normally generate mutual gains. Since political contests are usually presented as zero-sum games—your gain is my loss—the people who are most politically engaged have the hardest time believing in mutual gains. Hence, perhaps, the exaggerated suspicions of globalization. But what about the bottom billion? Again, I think that the effect of globalization—this time through capital flows—is different. The biggest capital flows are not going to the countries that are most short of capital; they are bypassing the bottom billion.
Bureaucracy by David Graeber
3D printing, a long time ago in a galaxy far, far away, Affordable Care Act / Obamacare, airport security, Albert Einstein, banking crisis, barriers to entry, borderless world, Bretton Woods, British Empire, collateralized debt obligation, Columbine, conceptual framework, Corn Laws, David Graeber, George Gilder, High speed trading, hiring and firing, Kitchen Debate, late capitalism, means of production, music of the spheres, new economy, obamacare, Occupy movement, Parkinson's law, Peter Thiel, planetary scale, price mechanism, Ronald Reagan, self-driving car, Silicon Valley, South Sea Bubble, transcontinental railway, union organizing, urban planning, zero-sum game
Some have called this the notion of “top-down” play, a concept that seems to be most explicitly developed in Indian theology, where the cosmos itself is essentially the play of the divine forces.161 But as Brian Sutton-Smith notes in his book The Ambiguities of Play, this was the dominant view throughout the ancient world, where human beings were the playthings of destiny and fate; the exemplary human game, in such a universe, is gambling, where we willingly submit ourselves to the random whims of the gods.162 In such a universe, freedom really is a zero-sum game. The freedom of gods or kings is the measure of human slavery. It shouldn’t be hard to see where all this is going. Modern states are based on a principle of popular sovereignty. Ultimately, the divine power of kings is in the hands of an entity called “the people.” In practice, though, it’s increasingly unclear what popular sovereignty in that sense is even supposed to mean. Max Weber famously pointed out that a sovereign state’s institutional representatives maintain a monopoly on the right of violence within the state’s territory.163 Normally, this violence can only be exercised by certain duly authorized officials (soldiers, police, jailers), or those authorized by such officials (airport security, private guards …), and only in a manner explicitly designated by law.
Albert Einstein, banking crisis, Berlin Wall, Bretton Woods, business climate, creative destruction, David Ricardo: comparative advantage, delayed gratification, experimental economics, financial independence, Financial Instability Hypothesis, full employment, Hernando de Soto, housing crisis, Hyman Minsky, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Arrow, laissez-faire capitalism, liberation theology, liquidity trap, means of production, microcredit, minimum wage unemployment, money market fund, open economy, paradox of thrift, Pareto efficiency, Paul Samuelson, price stability, pushing on a string, rent control, Richard Thaler, rising living standards, road to serfdom, Robert Shiller, Robert Shiller, rolodex, Ronald Coase, Ronald Reagan, school choice, secular stagnation, Simon Kuznets, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, Tobin tax, unorthodox policies, Vilfredo Pareto, zero-sum game
To quote Smith: "To prohibit a great people . . . from making all that they can of every part of their own produce, or from employing their stock and industry in the way that they judge most advantageous to themselves, is a manifest violation of the most sacred rights of mankind" (549). Under Adam Smith's model of natural liberty, wealth creation was 2. This passage in the first chapter of The Wealth of Nations is remarkably similar to the theme developed by Leonard Read in his classic essay, "I, Pencil," which describes how a simple product like the pencil involved production processes from around the world (Read 1999 ). no longer a zero-sum game. No longer was there a conflict of interests, but a harmony of interests. According to Jouvenel, this came as an "enormous innovation" that greatly surprised European reformers. "The great new idea is that it is possible to enrich all the members of society, collectively and individually, by gradual progress in the organization of labor" (Jouvenel 1999,102). This development could be rapid and unlimited.
The Great Fragmentation: And Why the Future of All Business Is Small by Steve Sammartino
3D printing, additive manufacturing, Airbnb, augmented reality, barriers to entry, Bill Gates: Altair 8800, bitcoin, BRICs, Buckminster Fuller, citizen journalism, collaborative consumption, cryptocurrency, David Heinemeier Hansson, Elon Musk, fiat currency, Frederick Winslow Taylor, game design, Google X / Alphabet X, haute couture, helicopter parent, illegal immigration, index fund, Jeff Bezos, jimmy wales, Kickstarter, knowledge economy, Law of Accelerating Returns, lifelogging, market design, Metcalfe's law, Metcalfe’s law, Minecraft, minimum viable product, Network effects, new economy, peer-to-peer, post scarcity, prediction markets, pre–internet, profit motive, race to the bottom, random walk, Ray Kurzweil, recommendation engine, remote working, RFID, Rubik’s Cube, self-driving car, sharing economy, side project, Silicon Valley, Silicon Valley startup, skunkworks, Skype, social graph, social web, software is eating the world, Steve Jobs, survivorship bias, too big to fail, US Airways Flight 1549, web application, zero-sum game
It turns out that information that's freed up and accessible by all has an equal and opposite impact on the physical world. Information becomes objects. Information changes the shape of the physical world. Information changes the social and physical world and inevitably the economic structure. In many ways, it's the opposite of what business had been about up until this point. Business was a zero sum game of producers and consumers: an ‘us' and ‘them'; a server-and-receiver structure. But most of all, it was a definitive power structure where the people who already had wealth and access had much of the economic power. And I know what you're about to say: ‘But what about the 1 per cent, the ever-increasing wealth of the wealthiest few?' The truth is that we're just at the start of a bigger revolution where everything important in life and business is becoming cheaper and more available to everyone.
“How could you dismiss this opportunity to be a small part of a film that will be taught in colleges for years to come in exchange for the utter ephemera of a ‘TV Pilot.’ ” In quotes! He put it IN QUOTES! And I read the email again and again, shocked, jaw set with rage so that I couldn’t make a sound. And I imagined my own pain, my anger, magnified by fifty in the man who would send that email, the person who believes that life is a zero-sum game and girls are there to be your props, that anyone else’s artistry is a mere distraction from the Lord’s grand plan to promote your agenda. How painful that must be, how suffocating. And I decided then that I will never be jealous. I will never be vengeful. I won’t be threatened by the old, or by the new. I’ll open wide like a daisy every morning. I will make my work. I’ve imagined the Sunshine Stealers, around a long conference table like the members of the Cabinet, in dialogue about me.
The Year Without Pants: Wordpress.com and the Future of Work by Scott Berkun
barriers to entry, blue-collar work, Broken windows theory, en.wikipedia.org, Firefox, future of work, Google Hangouts, Jane Jacobs, job satisfaction, Lean Startup, lone genius, Mark Zuckerberg, minimum viable product, remote working, Results Only Work Environment, Richard Stallman, Seaside, Florida, side project, Silicon Valley, six sigma, Skype, stealth mode startup, Steve Jobs, The Death and Life of Great American Cities, the map is not the territory, Tony Hsieh, trade route, zero-sum game
An easily overlooked factor is that most Automatticians have tangible jobs: writing code, designing screens, answering tickets. They're not in the stressful limbo of abstraction that middle managers and consultants live in. Instead there's little posturing or showing off. People who know how to build things don't worry about turf. They know they can always make more. It's often people whose jobs are abstractions that see a company as a zero-sum game where they have to fight and defend what's theirs to stay alive or get promoted. Most discussions at Automattic were about how to build, design, or fix some specific tangible thing. That pragmatism changes the nature of how people communicate. There were few turf battles, approval seekings, or the grandstanding that dominate many miserable e-mail threads. E-mail has rarely discussed disadvantages: E-mail empowers the sender.
The New Elite: Inside the Minds of the Truly Wealthy by Dr. Jim Taylor
British Empire, call centre, dark matter, Donald Trump, estate planning, full employment, glass ceiling, income inequality, Jeff Bezos, Louis Pasteur, Maui Hawaii, McMansion, means of production, passive income, performance metric, Plutocrats, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, Ronald Reagan, stealth mode startup, Steve Jobs, Thorstein Veblen, trickle-down economics, women in the workforce, zero-sum game
But as Kevin Phillips points out in Wealth and Democracy, massive inequality has been a harbinger of signiﬁcant but more gradual declines among each of the world’s most dominant powers since the Renaissance: Spain in the early 1500s, Holland in the early 1600s, and the British Empire of the 1800s. The future of any plutonomy, along with its social and political implications, depends on a number of factors. First, while the rich have gotten richer, has everybody else gotten richer as well? At the extremes, two scenarios suggest themselves. First, if the economy approximates a zero-sum game, in which the gains of the elite come at the expense of the vast majority, then resentment and class warfare would be more likely. On the other hand, perhaps a rising tide lifts all boats (a phrase John F. Kennedy popularized in responding to criticism that his tax cuts would mainly beneﬁt the wealthy), and the gains of the wealthy elite are symptoms of overall economic growth that results in broad-based gains among all elements of the population.
Our Robots, Ourselves: Robotics and the Myths of Autonomy by David A. Mindell
Air France Flight 447, autonomous vehicles, Captain Sullenberger Hudson, Chris Urmson, digital map, drone strike, en.wikipedia.org, Erik Brynjolfsson, fudge factor, index card, John Markoff, Mars Rover, ride hailing / ride sharing, Ronald Reagan, self-driving car, Silicon Valley, telepresence, telerobotics, trade route, US Airways Flight 1549, William Langewiesche, zero-sum game
Real resources were at stake; the entire oceanography budget of the United States was roughly $100 million, and a new Alvin was estimated to cost at least $40 million, nearly half of it. What’s more, the costs of robotic vehicles ranged from a few hundred thousand to a few million dollars, so a new Alvin was going to cost the equivalent of forty to a hundred new vehicles. You could cover a lot of ocean with that many robots. But that math only makes any sense if vehicle funding is a zero-sum game. If Alvin could secure funding from Congress at levels that no other vehicle could, then of course you’d build a new one—why turn down available funds? Whereas if the new Alvin funding would take away from other funding, then there was a serious debate to be had. But of course, this was a question about Washington science policy, not about technical capability. As in space, warfare, aviation, and countless other domains faced with new robotic ways of working, the most heated arguments are less often about specific technical capabilities than about pride, culture, and professional identity.
Just Listen: Discover the Secret to Getting Through to Absolutely Anyone by Mark Goulston M. D., Keith Ferrazzi
Then work with the person to make that solution a reality. 14 THE EMPATHY JOLT Benefit: Transition a person from resisting to “willing to do” in a single step, by changing the dynamics of a relationship. Great anger is more destructive than the sword. —INDIAN PROVERB Early in my career, I grew tired of listening to coworkers, couples, and family members who refused to listen to each other. I hated the “he said/she said” wars. I hated the zero-sum games. In these infantile debates, the best I could achieve was a temporary truce. More often, I felt like I was putting a temporary bandage on a gaping, hemorrhaging wound. I had a name for the culprits in these situations: “ignorant blamers.” These were the people who treated communication as a blood sport, ranting relentlessly about another person’s failings without giving a second’s thought to how the attacked party felt.
When the Air Hits Your Brain: Tales From Neurosurgery by Frank Vertosick
When one popular liver-transplant recipient, who had been tracked for years by local journalists, died suddenly, the mayor declared a day of mourning. A tragic death, yes, but aren’t they all? When would the city declare a Sarah Clarke day? Heart and liver transplants are indeed heroic affairs, requiring consummate skill to perform and extraordinary fortitude to undergo. But when viewed from a national health-care perspective, such transplants equal zero-sum games: a life saved is a life lost. Our city coaxed people into signing donor cards, although no one really wants to think about ending up young, healthy, and brain dead. Transplant programs survive on a constant diet of good-looking cadavers—people in the prime of their lives with brains extinguished by senseless catastrophe. In adults, our donor supply flowed from auto accidents and gunshot wounds; in children, donors were victims of parental shakings and beatings.
The Fair Trade Scandal: Marketing Poverty to Benefit the Rich by Ndongo Sylla
British Empire, carbon footprint, corporate social responsibility, David Ricardo: comparative advantage, deglobalization, Doha Development Round, Food sovereignty, global value chain, illegal immigration, income inequality, income per capita, invisible hand, Joseph Schumpeter, labour mobility, land reform, market fundamentalism, mass immigration, means of production, Mont Pelerin Society, Naomi Klein, non-tariff barriers, offshore financial centre, open economy, Philip Mirowski, Plutocrats, plutocrats, price mechanism, purchasing power parity, Ronald Reagan, Scientific racism, selection bias, structural adjustment programs, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, transatlantic slave trade, trickle-down economics, Washington Consensus, zero-sum game
Initially, following the publication of the Wealth of Nations, Smith’s works were not yet approached from the perspective of his leanings towards free trade. Quite to the contrary, Smith was perceived by his contemporaries as the inventor of a new system that was superior to mercantilism and whose originality was based on the principle of the division of labour in which labour is the only source of value. Mercantilism is generally described as a doctrine that considers trade as a zero sum game, the objective being to gather the maximum gold possible thanks to trade surpluses. From a normative point of view, this vision was problematic for two reasons at least: on the one hand, it represented an argument against free trade and, on the other, it implied protectionist leanings that often led to wars and threatened the international order. Smith rejected this doctrine by arguing that it confused wealth with the accumulation of monetary reserves.
Andrei Shleifer, asset-backed security, balance sheet recession, bank run, banking crisis, Ben Bernanke: helicopter money, break the buck, Carmen Reinhart, collapse of Lehman Brothers, creative destruction, debt deflation, Edward Glaeser, en.wikipedia.org, financial innovation, full employment, high net worth, Home mortgage interest deduction, housing crisis, Joseph Schumpeter, Kenneth Rogoff, liquidity trap, Long Term Capital Management, market bubble, Martin Wolf, money market fund, moral hazard, mortgage debt, negative equity, paradox of thrift, quantitative easing, Robert Shiller, Robert Shiller, school choice, shareholder value, the payments system, the scientific method, tulip mania, young professional, zero-sum game
In fact, research we conducted before the Great Recession found that banks play a crucial role in intermediating credit. Some of the decline in the economy during the heart of the financial crisis was a result of problems in the banking sector. But the bank-lending view has become so powerful that it has killed many efforts that could have helped mitigate the crushing household-debt burdens that drove the Great Recession. Policy makers have consistently viewed assistance to indebted households as a zero-sum game: helping home owners means hurting banks, and hurting banks would be the worst thing for the economy. Housing policy during the Obama administration was severely hampered by strong adherence to the banking view. Clea Benson at Bloomberg covered President Obama’s approach to housing and came to the conclusion that “while his [housing] plan was undermined in part by the weak U.S. economic recovery, it also lacked broad and aggressive measures.
Wars, Guns, and Votes: Democracy in Dangerous Places by Paul Collier
ACKNOWLEDGMENTS T he id eas in th is bo o k are all founded on statistical research. That does not make them right, but it does make it possible to know approximately how much confidence can be placed in them. In part, that comes with the statistics, but it also comes because my work is produced within the modern academic community. The modern academic community is to an idealized community what The Simpsons is to an idealized family. Essentially, academics fight a zero-sum game over reputation in which the fast route to success is to demolish some prominent piece of work. You can rest assured that droves of academics on the make are hacking away at the propositions in this book. And, of course, being scared to death of them, I have done my best to protect myself by eliminating the errors. This, incidentally, is why you should be wary of all those seductive ideas peddled by heterodox thinkers.
Effective Programming: More Than Writing Code by Jeff Atwood
AltaVista, Amazon Web Services, barriers to entry, cloud computing, endowment effect, Firefox, future of work, game design, Google Chrome, gravity well, job satisfaction, Khan Academy, Kickstarter, loss aversion, Marc Andreessen, Mark Zuckerberg, Merlin Mann, Minecraft, Paul Buchheit, Paul Graham, price anchoring, race to the bottom, recommendation engine, science of happiness, Skype, social software, Steve Jobs, web application, Y Combinator, zero-sum game
I support all of the above scenarios, and more importantly, the existing research does too. The price of a few monitors is negligible when measured against the labor cost of a programmer or information worker salary. Even if you achieve a meager two or three percent performance increase, it will have more than paid for itself. What does get a little frustrating is when people claim that one large monitor should be “enough for anyone.” This isn’t a zero-sum game. Where there is one large monitor, there could be two large monitors, or three. Sometimes, more is more. Coding Horror commenter lomaxx The biggest advantage I find from having multiple monitors is when I’m referencing data from the second monitor for use on my main monitor. You’d be surprised how often you do this sort of interaction between two windows and having the second monitor is invaluable.
Cows, Pigs, Wars, and Witches: The Riddles of Culture by Marvin Harris
One might as well believe that objectivity was the commanding lifestyle of Germany in 1932, that the Aryan beast cult of blond manhood, anathematization of the Semites, gypsies, and Slavs, worship of the fatherland, and the Wagnerian chanting, goose-stepping and Sieg-Heiling in front of der Führer all resulted from the atrophy of the “non-intellective capacities” and feelings of the German people. Ditto Stalinism with its Uncle Joe cult, genuflections before the corpse of Lenin, Kremlin intrigues, Siberian slave camps, and party-line dogmatism. Of course we have our Strangelove zero-sum-game specialists, would-be super-objectifiers who objectify human life by counting corpses and computerizing death. But the moral flaw of such technologists and their political handlers is a shortage of scientific objectivity about the causes of lifestyle differences, not a surplus. The moral collapse of Vietnam was scarcely caused by an overdose of objective consciousness about what we were doing.
Albert Einstein, Atul Gawande, Benoit Mandelbrot, big-box store, Black Swan, Checklist Manifesto, Clayton Christensen, Daniel Kahneman / Amos Tversky, Exxon Valdez, Gordon Gekko, housing crisis, information asymmetry, Isaac Newton, Kenneth Arrow, Long Term Capital Management, Mahatma Gandhi, mandelbrot fractal, NetJets, pattern recognition, pre–internet, random walk, Ronald Reagan, South Sea Bubble, Steve Jobs, winner-take-all economy, young professional, zero-sum game
By acting in this way, I could see that Mohnish created an incredible network of people who wish him well and would love to find ways to help him and thank him for his kindness. This is the extraordinarily powerful effect of compounding goodwill by being a giver, not a taker. And as he has taught me, the paradox is that you end up receiving infinitely more in life by giving than by taking. There’s a real irony here: in focusing on helping others, you end up helping yourself too. For some people, this is not easy to understand. They act instead as if life were a zero sum game, in which the person who gives something away is the poorer for it. Buffett, of course, understands this perfectly, thanks in no small part to the influence and example of his late wife, Susan, who was the kindest and most giving of people. After visiting her in hospital, he told a class at Georgia Tech, “When you get to my age, you’ll really measure your success in life by how many of the people you want to have love you actually love you.
The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse by Mohamed A. El-Erian
activist fund / activist shareholder / activist investor, Airbnb, balance sheet recession, bank run, barriers to entry, break the buck, Bretton Woods, British Empire, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, collapse of Lehman Brothers, corporate governance, currency peg, Erik Brynjolfsson, eurozone crisis, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, fixed income, Flash crash, forward guidance, friendly fire, full employment, future of work, Hyman Minsky, If something cannot go on forever, it will stop - Herbert Stein's Law, income inequality, inflation targeting, Jeff Bezos, Kenneth Rogoff, Khan Academy, liquidity trap, Martin Wolf, megacity, Mexican peso crisis / tequila crisis, moral hazard, mortgage debt, Norman Mailer, oil shale / tar sands, price stability, principal–agent problem, quantitative easing, risk tolerance, risk-adjusted returns, risk/return, Second Machine Age, secular stagnation, sharing economy, sovereign wealth fund, The Great Moderation, The Wisdom of Crowds, too big to fail, University of East Anglia, yield curve, zero-sum game
And, until now, because it is a relatively closed economy where trade accounts for a rather small (albeit growing) share of GDP, the United States has been the only major economy willing to see its currency appreciate significantly, and able to afford a transfer of growth impetus to other countries. But even here there is a limit, especially as companies find it harder to compete. Given that this currency approach is (under most conditions) a zero-sum game—indeed, some have called it a stealth currency war—and given the limited successes that the advanced world has had (individually and collectively) in engineering an economic “liftoff,” adjustment and reform fatigue has tended to set in. This is the case for parts of the Eurozone and among certain segments of Japanese society and in the emerging world. As a result, and understandably, some governments have been tempted to go back to old, exhausted growth approaches (like Brazil), notwithstanding their limited effectiveness and their potential collateral damage and unintended consequences.
Deep Work: Rules for Focused Success in a Distracted World by Cal Newport
8-hour work day, Albert Einstein, barriers to entry, business climate, Cal Newport, Capital in the Twenty-First Century by Thomas Piketty, Clayton Christensen, David Brooks, David Heinemeier Hansson, deliberate practice, Donald Knuth, Donald Trump, Downton Abbey, en.wikipedia.org, Erik Brynjolfsson, experimental subject, follow your passion, Frank Gehry, informal economy, information retrieval, Internet Archive, Jaron Lanier, knowledge worker, Mark Zuckerberg, Marshall McLuhan, Merlin Mann, Nate Silver, new economy, Nicholas Carr, popular electronics, remote working, Richard Feynman, Richard Feynman, Ruby on Rails, Silicon Valley, Silicon Valley startup, Snapchat, statistical model, the medium is the message, Watson beat the top human players on Jeopardy!, web application, winner-take-all economy, zero-sum game
As long as you don’t ignore the more important activities, it seems like it can’t hurt to also support some of the less important alternatives. This argument, however, misses the key point that all activities, regardless of their importance, consume your same limited store of time and attention. If you service low-impact activities, therefore, you’re taking away time you could be spending on higher-impact activities. It’s a zero-sum game. And because your time returns substantially more rewards when invested in high-impact activities than when invested in low-impact activities, the more of it you shift to the latter, the lower your overall benefit. The business world understands this math. This is why it’s not uncommon to see a company fire unproductive clients. If 80 percent of their profits come from 20 percent of their clients, then they make more money by redirecting the energy from low-revenue clients to better service the small number of lucrative contracts—each hour spent on the latter returns more revenue than each hour spent on the former.
Albert Einstein, anti-communist, clean water, cosmic abundance, dark matter, demographic transition, Exxon Valdez, F. W. de Klerk, germ theory of disease, Intergovernmental Panel on Climate Change (IPCC), invention of agriculture, invention of radio, invention of the telegraph, invention of the telephone, Isaac Newton, Mikhail Gorbachev, pattern recognition, planetary scale, prisoner's dilemma, profit motive, Ralph Waldo Emerson, Ronald Reagan, stem cell, the scientific method, Thomas Malthus, zero-sum game
Granting that the real world may be much more complicated than any simulation, can we explore the matter scientifically? We're used to playing games in which somebody wins and somebody loses. Every point made by our opponent puts us that much further behind. "Win-lose" games seem natural, and many people are hard-pressed to think of a game that isn't win-lose. In win-lose games, the losses just balance the wins. That's why they're called "zero-sum" games. There's no ambiguity about your opponent's intentions: Within the rules of the game, he will do anything he can to defeat you. Many children are aghast the first time they really come face to face with the "lose" side of win-lose games. On the verge of bankruptcy in Monopoly, they plead for special dispensation (forgoing rents, for example), and when this is not forthcoming may, in tears, denounce the game as heartless and unfeeling— which of course it is.
Rapt: Attention and the Focused Life by Winifred Gallagher
Albert Einstein, Atul Gawande, Build a better mousetrap, Daniel Kahneman / Amos Tversky, David Brooks, delayed gratification, epigenetics, Frank Gehry, fundamental attribution error, Isaac Newton, knowledge worker, loss aversion, Mahatma Gandhi, McMansion, music of the spheres, Ralph Waldo Emerson, Richard Feynman, Richard Feynman, Rodney Brooks, Ronald Reagan, Silicon Valley, Walter Mischel, zero-sum game
In a still-mysterious process, the activity level of many nerve cells that were depicting the blue jay changes in a way that both suppresses it and other probable losers, like robins and doves, and enhances possible winners, such as wood-peckers and birds with black-and-white mottling, red spots, or lemony wings. Thus stacked, the battle for your focus ensues, ending when you locate your target as if it were spotlighted amid its horde of rivals. In this “zero-sum game,” says Yantis, the sapsucker’s winnings equal the jay’s losses: “Your neuron populations can represent pretty much anything, but not everything at once. You have to choose—or they do.” The big lesson from this little experiment is that depending on how the competition for your attention is biased, whether by you or your neurons, you can have very different experiences of the same scene. All day long, you focus on what seems most important—the blue jay and the sapsucker—and suppress what doesn’t, such as the drab little grey birds.
9 dash line, Admiral Zheng, anti-communist, Berlin Wall, British Empire, California gold rush, colonial rule, cuban missile crisis, Deng Xiaoping, drone strike, European colonialism, facts on the ground, failed state, Fall of the Berlin Wall, Hans Island, LNG terminal, market fragmentation, megacity, Mercator projection distort size, especially Greenland and Africa, Mikhail Gorbachev, Monroe Doctrine, oil shale / tar sands, Scramble for Africa, South China Sea, trade route, transcontinental railway, Transnistria, UNCLOS, UNCLOS, zero-sum game
Such incidents are likely to occur more frequently as the Arctic opens up, but they will remain difficult to manage. Perhaps the Arctic will turn out to be just another battleground for the nation states—after all, wars are started by fear of the other as well as by greed; but the Arctic is different, and so perhaps how it is dealt with will be different. Our history has shown us the rapacious way of the zero-sum game. Arguably, a belief in partial geographic determinism, coupled with human nature, made it difficult for it to have been any other way. However, there are examples of how technology has helped us break out from the prison of geography, that technology was made by us, and, in our newly globalized world, can be used to give us an opportunity in the Arctic. We can overcome the rapacious side of our nature, and get the Great Game right for the benefit of all.
I See You Made an Effort: Compliments, Indignities, and Survival Stories From the Edge of 50 by Annabelle Gurwitch
On one occasion he said, “I have some extra filler. Let me put it in your chin—you need a bigger chin, like mine,” and before I could say, I don’t want more chin. I don’t like your chin! he had done it. I hated that extra chinnage, which did fade with time, but still. I used to wonder who would let someone experiment on their face and now I know—me. “Maintenance” is truly a misnomer because what no one tells you is that it’s a zero-sum game. You look the very best immediately after one of these treatments, while your face is slightly swollen. The swelling restores your face’s lost volume in a way that looks more natural than anything you can get on the market today. Once that goes away, the results, if noticeable at all, begin to fade, day by day, until very shortly afterward, sometimes weeks, you look exactly the same as you did the day you forked over an amount that an entire family in Turkmenistan could live on for a year.
The Wisdom of Finance: Discovering Humanity in the World of Risk and Return by Mihir Desai
activist fund / activist shareholder / activist investor, Albert Einstein, Andrei Shleifer, assortative mating, Benoit Mandelbrot, Brownian motion, capital asset pricing model, carried interest, collective bargaining, corporate governance, corporate raider, discounted cash flows, diversified portfolio, Eugene Fama: efficient market hypothesis, financial innovation, follow your passion, George Akerlof, Gordon Gekko, greed is good, housing crisis, income inequality, information asymmetry, Isaac Newton, Jony Ive, Kenneth Rogoff, Louis Bachelier, moral hazard, Myron Scholes, new economy, out of africa, Paul Samuelson, Pierre-Simon Laplace, principal–agent problem, Ralph Waldo Emerson, random walk, risk/return, Robert Shiller, Robert Shiller, Ronald Coase, Silicon Valley, Steve Jobs, The Market for Lemons, The Nature of the Firm, The Wealth of Nations by Adam Smith, Tim Cook: Apple, transaction costs, zero-sum game
By embedding yourself in demanding relationships and making commitments, you may well just become a better person. In offering advice to young people, Thomas Watson, the founder of IBM, said, “Don’t make friends who are comfortable to be with. Make friends who will force you to lever yourself up.” Commitments to smart and demanding people keep us from doing stupid things—we gain from those commitments. Leverage is not a zero-sum game. In addition to allowing you to be more productive and raising your own standards, embedding yourself in meaningful relationships is simply good for you. George Vaillant, a research psychiatrist, helped conduct the longest longitudinal study of emotional and physical development by continuing the so-called Grant Study of Harvard undergraduates in the late 1930s. By tracking physiological and emotional data over more than seventy years, Vaillant and his colleagues provide some of the best evidence on what matters for longevity and happiness.
Behave: The Biology of Humans at Our Best and Worst by Robert M. Sapolsky
autonomous vehicles, Bernie Madoff, biofilm, blood diamonds, British Empire, Broken windows theory, Brownian motion, car-free, clean water, cognitive dissonance, corporate personhood, corporate social responsibility, Daniel Kahneman / Amos Tversky, delayed gratification, desegregation, double helix, Drosophila, Edward Snowden, en.wikipedia.org, epigenetics, Flynn Effect, framing effect, fudge factor, George Santayana, hiring and firing, illegal immigration, impulse control, income inequality, John von Neumann, Loma Prieta earthquake, long peace, loss aversion, Mahatma Gandhi, meta analysis, meta-analysis, Mohammed Bouazizi, mouse model, mutually assured destruction, Network effects, out of africa, Peter Singer: altruism, phenotype, placebo effect, publication bias, RAND corporation, risk tolerance, Rosa Parks, selective serotonin reuptake inhibitor (SSRI), self-driving car, Silicon Valley, stem cell, Steven Pinker, strikebreaker, theory of mind, transatlantic slave trade, traveling salesman, trickle-down economics, ultimatum game, Walter Mischel, wikimedia commons, zero-sum game
If the former, maximizing absolute levels of in-group well-being is the goal, and the levels of rewards to Them is irrelevant; if the latter, the goal is maximizing the gap between Us and Them. Both occur. Doing better rather than doing well makes sense in zero-sum games where, say, only one team can win, and where winning with scores of 1–0, 10–0, and 10–9 are equivalent. Moreover, for sectarian sports fans, there is similar mesolimbic dopamine activation when the home team wins or when a hated rival loses to a third party.*17 This is schadenfreude, gloating, where their pain is your gain. It’s problematic when non–zero sum games are viewed as zero-sum (winner-take-all).18 It’s not a great mind-set to think you’ve won World War III if afterward Us have two mud huts and three fire sticks and They have only one of each.* A horrific version of this thinking occurred late during World War I, when the Allies knew they had more resources (i.e., soldiers) than Germany.
., 95 Wingfield, John, 105 winning, 102, 103, 105 witchcraft, 583–84, 606–8 Woodward, James, 506–8 Worchel, Stephen, 628 word definitions, 15–16, 18, 20 World War I, 394–95, 414, 619–21, 662–68, 670 Christmas truce in, 410, 663–65, 663, 667 Live and Let Live truces in, 665–67 propaganda posters in, 667 World War II, 202, 308, 404, 410, 413, 618, 619, 645–47 Japanese in, 413, 640, 653–55, 668, 669 Wrangham, Richard, 314, 316–17 Wyatt-Brown, Bertram, 285 Wynn, Karen, 484 Wynne-Edwards, V. C., 332 Yanomamö, 311–14, 316, 319 Yanomamo: The Fierce People (Chagnon), 312 Young, Larry, 110, 526 zero-sum games, 394–95 Zhong, Chen-Bo, 564 Zimbardo, Philip, 461, 463–68, 475 Zulus, 310, 310 Robert M. Sapolsky is the author of several works of nonfiction, including A Primate’s Memoir, The Trouble with Testosterone, and Why Zebras Don’t Get Ulcers. He is a professor of biology and neurology at Stanford University and the recipient of a MacArthur Foundation genius grant. He lives in San Francisco
The Transhumanist Reader by Max More, Natasha Vita-More
23andMe, Any sufficiently advanced technology is indistinguishable from magic, artificial general intelligence, augmented reality, Bill Joy: nanobots, bioinformatics, brain emulation, Buckminster Fuller, cellular automata, clean water, cloud computing, cognitive bias, cognitive dissonance, combinatorial explosion, conceptual framework, Conway's Game of Life, cosmological principle, data acquisition, discovery of DNA, Douglas Engelbart, Drosophila, en.wikipedia.org, endogenous growth, experimental subject, Extropian, fault tolerance, Flynn Effect, Francis Fukuyama: the end of history, Frank Gehry, friendly AI, game design, germ theory of disease, hypertext link, impulse control, index fund, John von Neumann, joint-stock company, Kevin Kelly, Law of Accelerating Returns, life extension, lifelogging, Louis Pasteur, Menlo Park, meta analysis, meta-analysis, moral hazard, Network effects, Norbert Wiener, P = NP, pattern recognition, phenotype, positional goods, prediction markets, presumed consent, Ray Kurzweil, reversible computing, RFID, Richard Feynman, Ronald Reagan, silicon-based life, Singularitarianism, stem cell, stochastic process, superintelligent machines, supply-chain management, supply-chain management software, technological singularity, Ted Nelson, telepresence, telepresence robot, telerobotics, the built environment, The Coming Technological Singularity, the scientific method, The Wisdom of Crowds, transaction costs, Turing machine, Turing test, Upton Sinclair, Vernor Vinge, Von Neumann architecture, Whole Earth Review, women in the workforce, zero-sum game
Criticisms By now you probably have in mind at least one objection to idea futures, and will not be entirely comfortable with it until this objection is addressed. Longer papers on this subject (Hanson 1990) consist largely of detailed responses to such objections. Space limitations preclude such detail here so Box 25.3, “A Few Concerns about Ideas Futures,” just gives a list of some issues addressed in those papers. Box 25.3 A Few Concerns about Idea Futures Isn’t gambling illegal? Isn’t betting a useless zero-sum game? Does anyone ever bet this way? What about compulsive gambling? Is there enough interest in science questions? Will these markets be too thin? Doesn’t betting only work for clear-cut questions like horse races? How often do beliefs really converge? What if beliefs never converge? What do convergent beliefs have to do with truth? What about badly worded claims? Can’t wrong ideas still be useful?
Technological diffusion occurs in many ways. One of the most common is trade: you buy advanced technology or know-how from others in exchange for goods or technology you have. Information trading is interesting because it is win-win: we both keep the information we sell or teach each other. Unequal pricing is of course still possible, but it is even more obvious with information that it is a non-zero sum game than in ordinary trade. It can be argued that advanced information is mainly traded between people with advanced information and not between them and people with little tradable information; this would accentuate the differences by making diffusion act mainly among the haves and not between the haves and have-nots. On the other hand, the law of comparative advantage suggests that even a group with advanced capabilities would be better off trading with a less advanced group if they could specialize, enabling both to grow faster and profit from the cooperation.
The Rise of the Network Society by Manuel Castells
Apple II, Asian financial crisis, barriers to entry, Big bang: deregulation of the City of London, Bob Noyce, borderless world, British Empire, capital controls, complexity theory, computer age, computerized trading, creative destruction, Credit Default Swap, declining real wages, deindustrialization, delayed gratification, dematerialisation, deskilling, disintermediation, double helix, Douglas Engelbart, Douglas Engelbart, edge city, experimental subject, financial deregulation, financial independence, floating exchange rates, future of work, global village, Gunnar Myrdal, Hacker Ethic, hiring and firing, Howard Rheingold, illegal immigration, income inequality, Induced demand, industrial robot, informal economy, information retrieval, intermodal, invention of the steam engine, invention of the telephone, inventory management, James Watt: steam engine, job automation, job-hopping, John Markoff, knowledge economy, knowledge worker, labor-force participation, labour market flexibility, labour mobility, laissez-faire capitalism, Leonard Kleinrock, low skilled workers, manufacturing employment, Marc Andreessen,