John Nash: game theory

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pages: 998 words: 211,235

A Beautiful Mind by Sylvia Nasar

Al Roth, Albert Einstein, Andrew Wiles, Bletchley Park, book value, Brownian motion, business cycle, cognitive dissonance, Columbine, Dr. Strangelove, experimental economics, fear of failure, Gunnar Myrdal, Henri Poincaré, Herman Kahn, invisible hand, Isaac Newton, John Conway, John Nash: game theory, John von Neumann, Kenneth Arrow, Kenneth Rogoff, linear programming, lone genius, longitudinal study, market design, medical residency, Nash equilibrium, Norbert Wiener, Paul Erdős, Paul Samuelson, prisoner's dilemma, RAND corporation, Robert Solow, Ronald Coase, second-price auction, seminal paper, Silicon Valley, Simon Singh, spectrum auction, Suez canal 1869, The Wealth of Nations by Adam Smith, Thorstein Veblen, upwardly mobile, zero-sum game

Just in case you think Nash was kidding himself, at a Q&A with Ron Howard at New York University’s film school, some mathematicians from the Courant Institute came up to Ron Howard to tell him that John Nash actually had looked like Russell Crowe in the white T-shirt scene. The movie turned Nash into a celebrity. I was on a flight to Mumbai where I was meeting Amartya Sen, also a Nobel laureate in economics, at a game theory conference. The woman to my left had just asked me why I was going to India when the flight attendant came by with an Indian newspaper, and there was a photograph of John Nash, the keynote speaker, on the front page, right next to one of Sen. All I had to do was to point. In Mumbai, as in Beijing and other places he was invited to speak, he was mobbed by hundreds of reporters and well-wishers.

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

E. Krieger, 1971), quoted in Sass, op. cit., pp. 13–14. 49. Sass, op. cit., p. 4. 50. Letter from John Nash to Emil Artin, written in Geneva, undated (1959). 51. Letter from John Nash to Alex Mood, 11.94. 52. R. Nash, interview, 1.7.96. 53. Confidential source. 54. See, for example, Mikhail Gromov, Partial Differential Relations (New York: Springer-Verlag, 1986); Heisuke Hironaka, “On Nash Blowing Up,” Arithmetic and Geometry II (Boston: Birkauser, 1983), pp. 103–11; P. Ordehook, Game Theory and Political Theory: An Introduction (Cambridge, U.K.: Cambridge University Press, 1986); Richard Dawkins, The Selfish Gene (Oxford: Oxford University Press, 1976); John Maynard Smith, Did Darwin Get It Right?


pages: 323 words: 100,772

Prisoner's Dilemma: John Von Neumann, Game Theory, and the Puzzle of the Bomb by William Poundstone

90 percent rule, Albert Einstein, anti-communist, cuban missile crisis, Douglas Hofstadter, Dr. Strangelove, Frank Gehry, From Mathematics to the Technologies of Life and Death, Herman Kahn, Jacquard loom, John Nash: game theory, John von Neumann, Kenneth Arrow, means of production, Monroe Doctrine, mutually assured destruction, Nash equilibrium, Norbert Wiener, RAND corporation, Richard Feynman, seminal paper, statistical model, the market place, zero-sum game

He has explored, and attempted to popularize, voting systems that more fairly represent minority interests. John Nash became increasingly paranoid. He would pester his colleagues with peculiar ideas for tightening security at RAND. He was eventually committed to a psychiatric hospital for treatment. He recovered and joined the Institute for Advanced Study. CRITICISM OF GAME THEORY Views on game theory were changing. A decade after the publication of Theory of Games and Economic Behavior, there was a correction to the early euphoria. Game theory was deprecated, distrusted, even reviled. To many, game theory, ever intertwined with the figure of John von Neumann, appeared to encapsulate a callous cynicism about the fate of the human race.

Now that they don’t have it, you have to wonder if you might not have been better off going to a different dealer. In game theory you generally commit to a strategy on the basis of a single potential outcome (a maximin or Nash equilibrium). If your opponent doesn’t do as game theory advocates, you may find that you could have done better with a different strategy. One of the first experimental challenges of game theory was a set of studies done at the RAND Corporation in 1952 and 1954. The research team, which included John Nash, tried to establish or refute the applicability of von Neumann’s n-person game theory. In the RAND experiments, four to seven people sat around a table.

Many of the social scientists hired or consulted were economists who had fallen under the spell of game theory. It was at RAND rather than in the groves of academia that game theory was nurtured in the years after von Neumann and Morgenstern’s book. In late 1940s and early 1950s, few of the biggest names of game theory and allied fields didn’t work for RAND, either full-time or as consultants. Besides von Neumann, RAND employed Kenneth Arrow, George Dantzig, Melvin Dresher, Merrill Flood, R. Duncan Luce, John Nash, Anatol Rapoport, Lloyd Shapley, and Martin Shubik—nearly all of whom were there at the same time.


pages: 476 words: 121,460

The Man From the Future: The Visionary Life of John Von Neumann by Ananyo Bhattacharya

Ada Lovelace, AI winter, Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, Albert Einstein, Alvin Roth, Andrew Wiles, Benoit Mandelbrot, business cycle, cellular automata, Charles Babbage, Claude Shannon: information theory, clockwork universe, cloud computing, Conway's Game of Life, cuban missile crisis, Daniel Kahneman / Amos Tversky, DeepMind, deferred acceptance, double helix, Douglas Hofstadter, Dr. Strangelove, From Mathematics to the Technologies of Life and Death, Georg Cantor, Greta Thunberg, Gödel, Escher, Bach, haute cuisine, Herman Kahn, indoor plumbing, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, Jacquard loom, Jean Tirole, John Conway, John Nash: game theory, John von Neumann, Kenneth Arrow, Kickstarter, linear programming, mandelbrot fractal, meta-analysis, mutually assured destruction, Nash equilibrium, Norbert Wiener, Norman Macrae, P = NP, Paul Samuelson, quantum entanglement, RAND corporation, Ray Kurzweil, Richard Feynman, Ronald Reagan, Schrödinger's Cat, second-price auction, side project, Silicon Valley, spectrum auction, Steven Levy, Strategic Defense Initiative, technological singularity, Turing machine, Von Neumann architecture, zero-sum game

Despite the generally frosty reception, ‘A Model of General Economic Equilibrium’ sparked a revolution. Mathematicians, inspired by von Neumann’s achievement, poured into economics and began applying fresh methods to the dismal science. By the 1950s, the subject was transformed. Fixed-point theorems were used to prove key results in economics – including in von Neumann’s own game theory by a young upstart called John Nash. A half-dozen Nobel laureates are reckoned to have been influenced by the work.26 Among them were Kenneth Arrow and Gérard Debreu, who were awarded the prize (in 1972 and 1983 respectively) for their work on the theory of general equilibrium, which models the workings of a free-market economy.

Nash spent nearly an hour trying to unwind his thoughts at Einstein’s blackboard but eventually came unstuck. ‘You had better study some more physics, young man,’ Einstein told Nash with a kind smile before sending him on his way. So the following autumn, when the unabashed Nash thought he had made a breakthrough in game theory, he quite naturally scheduled a meeting with the discipline’s founding father. A young John Nash. Just as he had with Einstein, Nash arranged to see von Neumann in his office at the IAS. In 1949, von Neumann was busy consulting for the government, the military, big business and RAND. Behind the scenes, he was campaigning for America to pursue the H-bomb while madly chasing the computing resources necessary to show it was possible.

Sylvia Nasar, 1998, A Beautiful Mind, Simon & Schuster, New York. 34. Ibid. 35. J. F. Nash, ‘The Bargaining Problem’, Econometrica, 28 (1950), pp. 155–62. 36. See Leonard, Reading Cournot, Reading Nash: ‘Above all, as Shubik (1991) reports, von Neumann “hated it!”, clearly finding it foreign to his whole conception of game theory.’ 37. Email from John Nash to Robert Leonard, 20 February 1993, quoted in Nasar, A Beautiful Mind. 38. See, for example, Herman Goldstine interview with Albert Tucker and Frederik Nebeker, 22 March 1985, https://web.math.princeton.edu/oral-history/c14.pdf. ‘I don’t think Johnny suffered brilliant people easily,’ says Goldstine.


pages: 453 words: 111,010

Licence to be Bad by Jonathan Aldred

"Friedman doctrine" OR "shareholder theory", Affordable Care Act / Obamacare, Alan Greenspan, Albert Einstein, availability heuristic, Ayatollah Khomeini, behavioural economics, Benoit Mandelbrot, Berlin Wall, Black Monday: stock market crash in 1987, Black Swan, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Cass Sunstein, Charles Babbage, clean water, cognitive dissonance, corporate governance, correlation does not imply causation, cuban missile crisis, Daniel Kahneman / Amos Tversky, Donald Trump, Douglas Engelbart, Douglas Engelbart, Dr. Strangelove, Edward Snowden, fake news, Fall of the Berlin Wall, falling living standards, feminist movement, framing effect, Frederick Winslow Taylor, From Mathematics to the Technologies of Life and Death, full employment, Gary Kildall, George Akerlof, glass ceiling, Glass-Steagall Act, Herman Kahn, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Jeff Bezos, John Nash: game theory, John von Neumann, Linda problem, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, meta-analysis, Mont Pelerin Society, mutually assured destruction, Myron Scholes, Nash equilibrium, Norbert Wiener, nudge unit, obamacare, offshore financial centre, Pareto efficiency, Paul Samuelson, plutocrats, positional goods, power law, precautionary principle, profit maximization, profit motive, race to the bottom, RAND corporation, rent-seeking, Richard Thaler, ride hailing / ride sharing, risk tolerance, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, scientific management, Skinner box, Skype, Social Responsibility of Business Is to Increase Its Profits, spectrum auction, The Nature of the Firm, The Wealth of Nations by Adam Smith, Tragedy of the Commons, transaction costs, trickle-down economics, Vilfredo Pareto, wealth creators, zero-sum game

Yet whatever von Neumann might have thought of their mathematics, these were the obvious people with sufficient mathematical skills to begin to incorporate game theory into social science. Von Neumann had alienated the academic audience likely to be most receptive to his game theory. Given von Neumann’s mathematical ambitions for social science, it was ironic that what finally propelled game theory beyond RAND and university maths departments was not maths but a story. Albert Tucker was John Nash’s PhD supervisor. In May 1950, just after persuading his wayward student not to abandon his PhD on game theory, Tucker was asked to talk about the new theory to a group of psychologists. Since his audience did not know the theory or the maths, Tucker decided to present a game he had learned about from some RAND researchers in the form of a little story.

So if a chess Grandmaster is playing another chess Grandmaster, then both of them might reasonably assume their opponent has a sophisticated knowledge of game theory. Such a defence of game theory is (a bit) less useless than it seems. On 5th December 1994, the day John Nash left America for Stockholm to collect his Nobel Prize, Vice-President Gore was announcing the ‘greatest auction ever’ – an auction of airwave frequency spectrum licences to be used by mobile phones. Auctions are a type of game, and this auction was carefully designed using the latest game theory. When the auction closed in March 1995, the US government was delighted: it had received more than $7 billion in bids.

Poor Ronald Coase – he didn’t even get to control the spelling of ‘Coasean world’, let alone what it means. 4 The Government Enemy In the early 1950s John von Neumann and John Nash were not the only geniuses associated with the RAND Corporation. RAND was the incubator for another intellectual revolution, as significant as game theory but completely independent of it. And this time the genius behind it was a lowly intern. The earliest and most enthusiastic adopters of game theory had been the military analysts at RAND, who wanted to use its powerful mathematical tools to outwit the Soviets in Cold War nuclear strategizing.


pages: 360 words: 85,321

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, behavioural economics, Benoit Mandelbrot, Bletchley Park, butterfly effect, call centre, Chance favours the prepared mind, Claude Shannon: information theory, collateralized debt obligation, Computing Machinery and Intelligence, 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, Johannes Kepler, 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, Ronald Reagan, Rubik’s Cube, statistical model, The Design of Experiments, Watson beat the top human players on Jeopardy!, zero-sum game

Or somebody forced it to stop. Congress finally banned tobacco ads from television in January 1971. One year later, the total spent on cigarette advertising had fallen by over 25 percent. Yet tobacco revenues held steady. Thanks to the government, the equilibrium had been broken. JOHN NASH PUBLISHED HIS first papers on game theory while he was a PhD student at Princeton. He’d arrived at the university in 1948, after being awarded a scholarship on the strength of his undergraduate tutor’s reference, a two-sentence letter that read, “Mr. Nash is nineteen years old and is graduating from Carnegie Tech in June.

Despite his defense of Borel’s work, Fréchet didn’t think the minimax work was particularly special because mathematicians already knew about the idea, albeit in a different form. It was only when von Neumann applied the minimax concept to games that its value become apparent. 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.

In Marihuana: A Signal of Misunderstanding (report of the National Commission on Marihuana and Drug Abuse, 1972). http://www.druglibrary.org/schaffer/library/studies/nc/nc2b.htm. 136Far from hurting tobacco companies’ profits: McAdams, David. Game-Changer: Game Theory and the Art of Transforming Strategic Situations (New York: W. W. Norton, 2014), 61. 137Yet tobacco revenues held steady: Hamilton, James. “The Demand for Cigarettes: Advertising, the Health Scare, and the Cigarette Advertising Ban.” Review of Economics and Statistics 54, no. 4 (1972). 137“Mr. Nash is nineteen years old”: The letter was posted online by Princeton University after John Nash’s death in 2015. It went viral. 138Despite his prodigious academic record: Halmos, Paul. “The Legend of John von Neumann.”


pages: 422 words: 131,666

Life Inc.: How the World Became a Corporation and How to Take It Back by Douglas Rushkoff

Abraham Maslow, Adam Curtis, addicted to oil, affirmative action, Alan Greenspan, Amazon Mechanical Turk, An Inconvenient Truth, anti-globalists, AOL-Time Warner, banks create money, Bear Stearns, benefit corporation, big-box store, Bretton Woods, car-free, Charles Lindbergh, colonial exploitation, Community Supported Agriculture, complexity theory, computer age, congestion pricing, corporate governance, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, death of newspapers, digital divide, don't be evil, Donald Trump, double entry bookkeeping, easy for humans, difficult for computers, financial innovation, Firefox, full employment, General Motors Futurama, gentrification, Glass-Steagall Act, global village, Google Earth, greed is good, Herbert Marcuse, Howard Rheingold, income per capita, invention of the printing press, invisible hand, Jane Jacobs, John Nash: game theory, joint-stock company, Kevin Kelly, Kickstarter, laissez-faire capitalism, loss aversion, market bubble, market design, Marshall McLuhan, Milgram experiment, military-industrial complex, moral hazard, multilevel marketing, mutually assured destruction, Naomi Klein, negative equity, new economy, New Urbanism, Norbert Wiener, peak oil, peer-to-peer, place-making, placebo effect, planned obsolescence, Ponzi scheme, price mechanism, price stability, principal–agent problem, private military company, profit maximization, profit motive, prosperity theology / prosperity gospel / gospel of success, public intellectual, race to the bottom, RAND corporation, rent-seeking, RFID, road to serfdom, Ronald Reagan, scientific management, short selling, Silicon Valley, Simon Kuznets, social software, Steve Jobs, Telecommunications Act of 1996, telemarketer, The Wealth of Nations by Adam Smith, Thomas L Friedman, too big to fail, trade route, trickle-down economics, union organizing, urban decay, urban planning, urban renewal, Vannevar Bush, vertical integration, Victor Gruen, white flight, working poor, Works Progress Administration, Y2K, young professional, zero-sum game

They tested their ideas on Rand’s own secretaries, creating all sorts of different scenarios in which the women could cooperate with or betray one another. In every single experiment, however, instead of making choices in the self-interested way that Rand expected, the secretaries chose to cooperate. This didn’t deter John Nash, the Rand mathematician portrayed by Russell Crowe in the movie A Beautiful Mind, from continuing to develop game scenarios for the government based on presumptions of fear and self-interest. An undiagnosed paranoid schizophrenic, Nash blamed the failed experiments on the secretaries themselves.

Freakonomics, the runaway best seller and its follow-up New York Times Magazine column, applied this model of “rational utility-maximization” to human behaviors ranging from drug dealing to cheating among sumo wrestlers. Economics explained everything with real numbers, and the findings were bankable. Even better, the intellectual class had a new way of justifying its belief that people really do act the way they’re supposed to in one of John Nash’s game scenarios. Ironically, while the intelligentsia were using social evolution to confirm laissez-faire capitalism to one another, the politicians promoting these policies to the masses were making the same sale through creationism. Right-wing conservatives turned to fundamentalist Christians to promote the free-market ethos, in return promising lip service to hot-button Christian issues such as abortion and gay marriage.

If anything, it’s the other way around: a landscape defined by the competitive market will promote self-interested behavior. It’s the surest path to a corporatist society. Maybe that was the objective all along. Central Currency The economy in which we all participate is no more natural than the game scenarios John Nash set up to test the Rand Corporation’s secretaries. It is a model for human interaction, based on a set of false assumptions about human behavior. Even if we buy the proposition that people act as self-interestedly as they possibly can, we must accept the reality that people’s actual choices don’t correspond with their own financial well-being.


pages: 1,535 words: 337,071

Networks, Crowds, and Markets: Reasoning About a Highly Connected World by David Easley, Jon Kleinberg

Albert Einstein, AltaVista, AOL-Time Warner, Apollo 13, classic study, clean water, conceptual framework, Daniel Kahneman / Amos Tversky, Douglas Hofstadter, Dutch auction, Erdős number, experimental subject, first-price auction, fudge factor, Garrett Hardin, George Akerlof, Gerard Salton, Gerard Salton, Gödel, Escher, Bach, incomplete markets, information asymmetry, information retrieval, John Nash: game theory, Kenneth Arrow, longitudinal study, market clearing, market microstructure, moral hazard, Nash equilibrium, Network effects, Pareto efficiency, Paul Erdős, planetary scale, power law, prediction markets, price anchoring, price mechanism, prisoner's dilemma, random walk, recommendation engine, Richard Thaler, Ronald Coase, sealed-bid auction, search engine result page, second-price auction, second-price sealed-bid, seminal paper, Simon Singh, slashdot, social contagion, social web, Steve Jobs, Steve Jurvetson, stochastic process, Ted Nelson, the long tail, The Market for Lemons, the strength of weak ties, The Wisdom of Crowds, trade route, Tragedy of the Commons, transaction costs, two and twenty, ultimatum game, Vannevar Bush, Vickrey auction, Vilfredo Pareto, Yogi Berra, zero-sum game

INFORMATION NETWORKS, HYPERTEXT, AND ASSOCIATIVE MEMORY389 Nash Game Equilibrium Theory John Forbes Nash RAND A Beautiful Mind (film) Apollo 13 Conspiracy Ron Howard (film) Theories NASA Figure 13.4: The cross-references among a set of articles in an encyclopedia forms another kind of information network that can be represented as a directed graph. The figure shows the cross-references among a set of Wikipedia articles on topic in game theory, and their connections to related topics including popular culture and government agencies. how it’s possible to get from the article on Nash Equilibrium to the article on NASA (the U.S. National Aeronautics and Space Administration) by passing through articles on John Nash (the creator of Nash equilibrium), A Beautiful Mind (a film about John Nash’s life), Ron Howard (the director of A Beautiful Mind), Apollo 13 (another film directed by Ron Howard), and finally on to the article about NASA (the U.S. government agency that managed the real Apollo 13 space mission).

On the submodularity of influence in social networks. In Proc. 39th ACM Symposium on Theory of Computing, 2007. [305] Roger Myerson. Incentive compatibility and the bargaining problem. Econometrica, 47:61–73, 1979. [306] John Nash. The bargaining problem. Econometrica, 18:155–162, 1950. [307] John Nash. Equilibrium points in n-person games. Proc. Natl. Acad. Sci. USA, 36:48–49, 1950. [308] John Nash. Non-cooperative games. Annals of Mathematics, 54:286–295, 1951. [309] National Research Council Committee on Technical and Privacy Dimensions of Information for Terrorism Prevention and Other National Goals.

GAMES Chapter 7 Evolutionary Game Theory In Chapter 6, we developed the basic ideas of game theory, in which individual players make decisions, and the payoff to each player depends on the decisions made by all. As we saw there, a key question in game theory is to reason about the behavior we should expect to see when players take part in a given game. The discussion in Chapter 6 was based on considering how players simultaneously reason about what the other players may do. In this chapter, on the other hand, we explore the notion of evolutionary game theory, which shows that the basic ideas of game theory can be applied even to situations in which no individual is overtly reasoning, or even making explicit decisions.


Gaming the Vote: Why Elections Aren't Fair (And What We Can Do About It) by William Poundstone

affirmative action, Albert Einstein, book value, business cycle, Debian, democratizing finance, desegregation, Donald Trump, en.wikipedia.org, Everything should be made as simple as possible, global village, guest worker program, guns versus butter model, hiring and firing, illegal immigration, invisible hand, jimmy wales, John Nash: game theory, John von Neumann, Kenneth Arrow, manufacturing employment, Nash equilibrium, Paul Samuelson, Pierre-Simon Laplace, prisoner's dilemma, Ralph Nader, RAND corporation, Ronald Reagan, Silicon Valley, slashdot, the map is not the territory, Thomas Bayes, Tragedy of the Commons, transcontinental railway, Unsafe at Any Speed, Y2K

RAND took pride in hiring a diverse group of specialists and encouraging everyone to talk to one another. Over the years, RAND's scholars and consultants have ranged from John Nash to Condoleezza Rice. In its first decade, however, the guiding spirit of the place was unquestionably John von Neumann. "Everyone sat up in great awe" when von Neumann spoke, Arrow said. Politically, von Neumann was conservative and a hawk. He believed that game theory provided useful models for nuclear deterrence and arms races. RAND's people pondered questions such as would the Soviet Union launch a first strike against the United States if it meant losing twenty million people in the counterattack?

Bad Santa 201 Donald Saari • Kris Kringle • the nobody problem • rigged elections • Peter Fishburn· Samuel Merrill III • Jill Van Newenhizen • indeterminacy· rebuttals and counter-rebuttals • Unsophisticated Voter System· unmitigated evil • symmetry • polyhedra • behavioral assumptions I find to be >'ery dangerous • Mr. Mediocre· Thomas Edison· electrocuted dogs· "'President Perot" • Alexander Tabarrok • '"Buddy" Roemer· how to buy kitchen cabinets· "'wherever you go, there you are"· polls· chameleon on a mirror· bandwagon effect· Jesse Ventura· Roger B. Myerson· John Nash· self-interest· bullet voting· Terry Sanford· air bags· Burr's dilemma , Contents 13. Last Man Standing 219 Orange County· John Wayne· American machismo· the Condorcet winner· Linux • Markus Schulze· CSSD • Wikipedia • trolls· Queen Elizabeth· Kim Jongil • sarcasm· simplicity· Ka-Ping Yee· Microsoft Windows· manipulative behavior • how ro prevent carjacking· Mathematics Awareness Week • lain Mclean· permanent pointlessness 231 14.

Myerson and Weber ended up collaborating on a 1993 article, "A Theory of Voting Equilibria." In Weber's words, 'This is the paper that, I believe, makes the strongest theoretical case for approval voting." The publication invokes another idea with roots in the cold war, the "Nash equilibrium." As a RAND consultant, mathematician John Nash (of A Beautiful Mind fame) proposed a particular kind of solution to the "games" of nuclear deterrence or voting or anything else, A Nash equilibrium is an outcome where everyone is satisfied with his or her decision, given what everyone else did. No one has any regrets about doing what he did. In the case of voting, this means that all the voters are happy with the way they voted (though not necessarily happy with the election's outcome).


pages: 482 words: 125,973

Competition Demystified by Bruce C. Greenwald

additive manufacturing, airline deregulation, AltaVista, AOL-Time Warner, asset allocation, barriers to entry, book value, business cycle, creative destruction, cross-subsidies, deindustrialization, discounted cash flows, diversified portfolio, Do you want to sell sugared water for the rest of your life?, Everything should be made as simple as possible, fault tolerance, intangible asset, John Nash: game theory, Nash equilibrium, Network effects, new economy, oil shock, packet switching, PalmPilot, Pepsi Challenge, pets.com, price discrimination, price stability, revenue passenger mile, search costs, selective serotonin reuptake inhibitor (SSRI), shareholder value, Silicon Valley, six sigma, Steve Jobs, transaction costs, vertical integration, warehouse automation, yield management, zero-sum game

The two conditions work together; if no competitor has a motive to change its current course of action (stability of behavior), then no change will occur, confirming the stability of expectations. This concept of the likely outcome to a competitive situation is referred to in game theory as a “Nash equilibrium,” after its developer John Nash of A Beautiful Mind and Nobel Prize fame. In the Lowe’s–Home Depot example, imagine that the current outcome has Lowe’s at $115 per basket, Home Depot at $105 per basket (box C). If Lowe’s expects Home Depot to keep its price at $105, Lowe’s can improve its position by lowering its price to match Home Depot.

Clearly, a company that can do better by not cooperating is not going to continue to cooperate. In the language of formal game theory, this condition is referred to as “individual rationality.” Unless it makes sense for each firm to cooperate, meaning that each firm does at least as well by cooperating as by refusing to cooperate, then cooperation will not be sustainable. In this sense, the original division of the spoils will not be fair. Because of the fairness condition, it is important to consider the outcome that firms can achieve when they do not cooperate. In John Nash’s term, these are “threat point” outcomes, the “threat” being noncooperation and a myopic pursuit of one’s individual goals.

The roles that the company would play within a cooperative configuration, and the market positions it would occupy, highlight the specific competences that the company brings to the industry and thus the areas in which it should focus its efforts. Only after it has made these decisions is it time to turn to the question of what rewards it might reasonably expect to earn from these focused activities. UTILIZING “FAIRNESS” PRINCIPLES TO DIVIDE THE SPOILS WHILE SUSTAINING COOPERATION The mathematician John Nash won the Nobel Prize in Economics for, among a few other things, initiating work on the principles of “fairness” for determining the division of rewards in an industry that has achieved a stable cooperative organization (a cooperative equilibrium). Other economists have built on Nash’s efforts, so that now the principles are well established.


pages: 503 words: 131,064

Liars and Outliers: How Security Holds Society Together by Bruce Schneier

Abraham Maslow, airport security, Alvin Toffler, barriers to entry, behavioural economics, benefit corporation, Berlin Wall, Bernie Madoff, Bernie Sanders, Brian Krebs, Broken windows theory, carried interest, Cass Sunstein, Chelsea Manning, commoditize, corporate governance, crack epidemic, credit crunch, CRISPR, crowdsourcing, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Graeber, desegregation, don't be evil, Double Irish / Dutch Sandwich, Douglas Hofstadter, Dunbar number, experimental economics, Fall of the Berlin Wall, financial deregulation, Future Shock, Garrett Hardin, George Akerlof, hydraulic fracturing, impulse control, income inequality, information security, invention of agriculture, invention of gunpowder, iterative process, Jean Tirole, John Bogle, John Nash: game theory, joint-stock company, Julian Assange, language acquisition, longitudinal study, mass incarceration, meta-analysis, microcredit, mirror neurons, moral hazard, Multics, mutually assured destruction, Nate Silver, Network effects, Nick Leeson, off-the-grid, offshore financial centre, Oklahoma City bombing, patent troll, phenotype, pre–internet, principal–agent problem, prisoner's dilemma, profit maximization, profit motive, race to the bottom, Ralph Waldo Emerson, RAND corporation, Recombinant DNA, 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, Timothy McVeigh, too big to fail, traffic fines, Tragedy of the Commons, transaction costs, ultimatum game, UNCLOS, union organizing, Vernor Vinge, WikiLeaks, World Values Survey, Y2K, Yochai Benkler, zero-sum game

Tucker (1980), “A Two-Person Dilemma,” UMAP Journal, 1:101–3. Albert W. Tucker (1983), “The Mathematics of Tucker: A Sampler,” The Two-Year College Mathematics Journal, 14:228–32. Many researchers Sylvia Nasar (2001), A Beautiful Mind: The Life of Mathematical Genius and Nobel Laureate John Nash, Simon & Schuster. John Nash (2008), “The Agencies Method for Modeling Coalitions & Cooperations in Games,” International Game Theory Review, 10:539–64. Robert Axelrod and William D. Hamilton (1981), “The Evolution of Cooperation,” Science, 211:1390–6. Robert Axelrod (1984), The Evolution of Cooperation, Basic Books. open grazing pasture Garrett Hardin (1968), “The Tragedy of the Commons,” Science, 162:1243–8.

How else can you explain that so many of our Facebook pages include people we would never have even considered talking to in high school, and yet we help water their imaginary plants? Chapter 5 (1) The Prisoner's Dilemma was originally framed in the 1950s by Merrill Flood and Melvin Dresher at the RAND Corporation, and was named several years later by Albert Tucker.Many researchers have informed and analyzed this game, most famously John Nash and then Robert Axelrod, who used it to help explain the evolution of cooperation. (2) I should probably explain about Alice and Bob. Cryptographers—and I started as a cryptographer—name the two actors in any security discussion Alice and Bob. To us, anyone we don't know is either Alice or Bob.

Spammers do better if they don't clog e-mail to the point where no one uses it anymore, and rogue banks are more profitable if they don't crash the entire economy. All parasites do better if they don't destroy whatever system they've latched themselves onto. Parasites thrive only if they don't thrive too well. There's a clever model from game theory that illustrates this: the Hawk-Dove game. It was invented by geneticists John Maynard Smith and George R. Price in 1971 to explain conflicts between animals of the same species. Like most game theory models, it's pretty simplistic. But what it illuminates about the real world is profound. The game works like this. Assume a population of individuals with differing survival strategies. Some cooperate and some defect.


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

4chan, Ada Lovelace, Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, Albert Einstein, algorithmic bias, algorithmic trading, anthropic principle, asset allocation, autonomous vehicles, Bayesian statistics, behavioural economics, Berlin Wall, Big Tech, Bill Duvall, bitcoin, Boeing 747, Charles Babbage, cognitive load, Community Supported Agriculture, complexity theory, constrained optimization, cosmological principle, cryptocurrency, Danny Hillis, data science, David Heinemeier Hansson, David Sedaris, delayed gratification, dematerialisation, diversification, Donald Knuth, Donald Shoup, double helix, Dutch auction, Elon Musk, exponential backoff, fault tolerance, Fellow of the Royal Society, Firefox, first-price auction, Flash crash, Frederick Winslow Taylor, fulfillment center, Garrett Hardin, Geoffrey Hinton, George Akerlof, global supply chain, Google Chrome, heat death of the universe, Henri Poincaré, information retrieval, Internet Archive, Jeff Bezos, Johannes Kepler, John Nash: game theory, John von Neumann, Kickstarter, knapsack problem, Lao Tzu, Leonard Kleinrock, level 1 cache, linear programming, martingale, multi-armed bandit, Nash equilibrium, natural language processing, NP-complete, P = NP, packet switching, Pierre-Simon Laplace, power law, prediction markets, race to the bottom, RAND corporation, RFC: Request For Comment, Robert X Cringely, Sam Altman, scientific management, sealed-bid auction, second-price auction, self-driving car, Silicon Valley, Skype, sorting algorithm, spectrum auction, Stanford marshmallow experiment, Steve Jobs, stochastic process, Thomas Bayes, Thomas Malthus, Tragedy of the Commons, traveling salesman, Turing machine, urban planning, Vickrey auction, Vilfredo Pareto, Walter Mischel, Y Combinator, zero-sum game

What makes this equilibrium stable is that, once both players adopt this 1⁄3 - 1⁄3 - 1⁄3 strategy, there is nothing better for either to do than stick with it. (If we tried playing, say, more rock, our opponent would quickly notice and start playing more paper, which would make us play more scissors, and so forth until we both settled into the 1⁄3 - 1⁄3 - 1⁄3 equilibrium again.) In one of the seminal results in game theory, the mathematician John Nash proved in 1951 that every two-player game has at least one equilibrium. This major discovery would earn Nash the Nobel Prize in Economics in 1994 (and lead to the book and film A Beautiful Mind, about Nash’s life). Such an equilibrium is now often spoken of as the “Nash equilibrium”—the “Nash” that Dan Smith always tries to keep track of.

.”* Well, if the rules of the game force a bad strategy, maybe we shouldn’t try to change strategies. Maybe we should try to change the game. This brings us to a branch of game theory known as “mechanism design.” While game theory asks what behavior will emerge given a set of rules, mechanism design (sometimes called “reverse game theory”) works in the other direction, asking: what rules will give us the behavior we want to see? And if game theory’s revelations—like the fact that an equilibrium strategy might be rational for each player yet bad for everyone—have proven counterintuitive, the revelations of mechanism design are even more so.

offering one or two concrete proposals: Ideally, one would want to know the values that each person in the group assigns to all the options, and adopt a reasonable policy for making a decision based on those. One potential approach is to simply select the option that maximizes the product of the values assigned by everyone—which also lets anyone veto an option by assigning it a value of zero. There are arguments from economics that this is a good strategy, going all the way back to John Nash. See Nash, “The Bargaining Problem.” minimize the number of coins: Shallit, “What This Country Needs Is an 18¢ Piece.” ungainly denominations turn change-making: Lueker, “Two NP-Complete Problems in Nonnegative Integer Programming,” showed that under certain assumptions, making change with the fewest number of coins is NP-hard.


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The Mathematics of Love: Patterns, Proofs, and the Search for the Ultimate Equation by Hannah Fry

Brownian motion, John Nash: game theory, linear programming, Nash equilibrium, Pareto efficiency, power law, recommendation engine, Skype, stable marriage problem, statistical model, TED Talk

Should you sit back and wait for them to come to you, or walk right up to the prettiest partygoer, risking a humiliating rejection? And who should you approach to give you the best chance of success? If we all go for the blonde Anybody who has seen the 2001 film A Beautiful Mind might think that maths already has the answer. The film follows the life of mathematics superstar John Nash and includes some dramatized explanations of his major mathematical breakthroughs. In one famous scene, Nash and his three charming gentlemen friends spot a group of five women in a bar: four brunettes and one particularly beautiful blonde. All of the men are immediately drawn to the blonde. But, rather than all rushing to shower her with attention, Nash argues for a different tactic.

And both are based on a single idea: how to exploit stereotypes to try and maximize your own reward. As we’ve already seen, the mathematics of game theory can be used to beat other suitors. And if you’re looking to turn the dating game into a dating war, it is also ideally placed to provide the best strategy in a romantic contest between two opponents. A warning: game theory encourages you to exploit the weaknesses of your opponents. When applied to dating, this view comes with a slightly cynical picture of the world. As a result, the first half of this chapter will show you some of the best tenets of game theory, not the best tenets of human morality. And because they rely on exploiting the supposed differences between men and women, they don’t really work for any non-traditional or non-heterosexual couples.

But before we consign ourselves to dying alone and rush out to buy a houseful of cats, it’s worth pausing and looking at these examples objectively. As neat an application of game theory as they are mathematically, they have one flawed assumption at their core: that men are trying to trick women into having sex with them and women are desperate for commitment. In reality, don’t both sexes want both? Crazily enough, I suspect there may even be some women who want sex and some men who want commitment. And thus this particular game-theory house of cards comes tumbling down. Thankfully, there are ways to use game theory that don’t require men and women to conform to stereotypes, and in particular, a formulation that can apply to many of the most common dating conundrums for every type of relationship.


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I, Warbot: The Dawn of Artificially Intelligent Conflict by Kenneth Payne

Abraham Maslow, AI winter, Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, AlphaGo, anti-communist, Any sufficiently advanced technology is indistinguishable from magic, artificial general intelligence, Asperger Syndrome, augmented reality, Automated Insights, autonomous vehicles, backpropagation, Black Lives Matter, Bletchley Park, Boston Dynamics, classic study, combinatorial explosion, computer age, computer vision, Computing Machinery and Intelligence, coronavirus, COVID-19, CRISPR, cuban missile crisis, data science, deep learning, deepfake, DeepMind, delayed gratification, Demis Hassabis, disinformation, driverless car, drone strike, dual-use technology, Elon Musk, functional programming, Geoffrey Hinton, Google X / Alphabet X, Internet of things, job automation, John Nash: game theory, John von Neumann, Kickstarter, language acquisition, loss aversion, machine translation, military-industrial complex, move 37, mutually assured destruction, Nash equilibrium, natural language processing, Nick Bostrom, Norbert Wiener, nuclear taboo, nuclear winter, OpenAI, paperclip maximiser, pattern recognition, RAND corporation, ransomware, risk tolerance, Ronald Reagan, self-driving car, semantic web, side project, Silicon Valley, South China Sea, speech recognition, Stanislav Petrov, stem cell, Stephen Hawking, Steve Jobs, strong AI, Stuxnet, technological determinism, TED Talk, theory of mind, TikTok, Turing machine, Turing test, uranium enrichment, urban sprawl, V2 rocket, Von Neumann architecture, Wall-E, zero-sum game

In the real world, decisions are altogether more complex than card games, whatever Clausewitz wrote. Something else is needed—but what? THE ART OF i-WAR Libratus, the poker playing AI, isn’t a genius. The geniuses are the mathematicians who built it—John von Neumann, originator of both the computer and game theory; John Nash, discoverer of the optimum strategy for two-player games; and the Libratus team at Carnegie Mellon University, who harnessed some abstract maths to a powerful deep learning architecture. To see the difference and appreciate why it will be difficult to find a genius warbot general, we need to think about creativity in humans and machines.

Evidence that creative people suffer more from disorders like these is often anecdotal, or based on very small samples, and concentrates on the extreme end of the creative spectrum, especially on famous people—the brilliant artist, like Vincent van Gogh, often retrospectively diagnosed as bipolar; or the genius mathematician, like John Nash, Nobel prize winner, pioneer of game theory and paranoid schizophrenic. But some larger studies also suggest that sufferers are over-represented in creative employment. Some people with ‘non-typical’ mental processes refer to ‘neurodiversity’—the idea that not everyone is wired the same way. It’s that diversity which might be sacrificed in pursuit of a souped-up intelligence.

The long-lived Schelling wrote his classic works on strategy in the 1950s and 60s, an era when nuclear weapons were a new and terrifying weapon.21 And also an era when computers and quantitative thinking seemed to offer a new, more rigorous approach to thinking about all manner of social questions, including nuclear war. One exciting branch of maths was ‘game theory’, which considered the way in which rational agents interacted. Pioneered by the brilliant John von Neumann, co-inventor of the modern computer, game theory looked like a good way of modelling the sorts of adversarial behaviours that took place in international relations. It was enthusiastically embraced by a group of quantitative theorists then growing in prominence, some of whom worked for the US Air Force’s inhouse thinktank, the RAND Corporation.22 Schelling himself was a mathematically trained economist, and so was well placed to take advantage of the new technique.


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The Undercover Economist: Exposing Why the Rich Are Rich, the Poor Are Poor, and Why You Can Never Buy a Decent Used Car by Tim Harford

Alan Greenspan, Albert Einstein, barriers to entry, Berlin Wall, business cycle, collective bargaining, congestion charging, Corn Laws, David Ricardo: comparative advantage, decarbonisation, Deng Xiaoping, Fall of the Berlin Wall, George Akerlof, Great Leap Forward, household responsibility system, information asymmetry, invention of movable type, John Nash: game theory, John von Neumann, Kenneth Arrow, Kickstarter, market design, Martin Wolf, moral hazard, new economy, Pearl River Delta, price discrimination, Productivity paradox, race to the bottom, random walk, rent-seeking, Robert Gordon, Robert Shiller, Ronald Reagan, sealed-bid auction, second-price auction, second-price sealed-bid, Shenzhen special economic zone , Shenzhen was a fishing village, special economic zone, spectrum auction, The Market for Lemons, Thomas Malthus, trade liberalization, Vickrey auction

(You also receive a bad payoff if we have a head-on collision, but in game theory I don’t usually care about your payoff for its own sake. I care about your payoffs only because they help me predict your behavior.) Games are often described in just that way, using little stories or anecdotes, but these stories conceal the fact that for a game theorist, games are mathematical objects. The great game theorists are brilliant mathematicians, such as Von Neumann himself, or Nobel Prize winner John Nash, the subject of A Beautiful Mind. As in the case of all game theory, Nash’s revolutionary new way to predict a game’s outcome was an inspired application of well-understood mathematics.

Losses due to internet music piracy from “Rock profits and boogie woogie blues,” May 2, 2004, BBC Online News, http://news.bbc.co.uk/1/hi/business/ 3622285.stm. Data from Robert Shiller are available at his home page, http:// aida.econ.yale.edu/~shiller/. Chapter 7 See Prisoner’s Dilemma by William Poundstone (New York: Doubleday, 1992) to find out more about Von Neumann and the use of game theory in the cold war. For an analysis of poker models by Emile Borel, Von Neumann, John Nash, and Lloyd Shapley, see chapter 12 of Ken Binmore’s textbook Fun and Games (Lexington: D. C. Heath, 1992). This is the same Ken Binmore who later went on to lead the auction design team for the UK 3G auction. The United States spectrum auctions are expertly discussed in John McMillan’s “Selling Spectrum Rights,” Journal of Economic Perspectives 8, no. 3 (Summer 1994): 145–62; also McAfee and McMillan’s “Analysing the Airwaves Auction,” Journal of Economic Perspectives 10, no. 1 (Winter 1996): 159–75.

Many human interactions can be interpreted as battles of wits, like poker. All these interactions came to be described by theorists as “games” and explored using game theory. Economic life is no exception. Von Neumann teamed up with the economist Oskar Morgenstern to write the bible of game theory, Theory of Games and Economic Behavior, which was published just before the end of World War II. Ever since, game theory and economics have had a close relationship: game theory is taught to most students studying economics, and several game theorists have been awarded the Nobel Prize for Economic Sciences. If you want examples of real-life “economic games,” think of bargaining between landlord and tenant, between government and trade union, between used-car salesman and used-car buyer.


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Darwin Among the Machines by George Dyson

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

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. When John Nash was awarded a Nobel Prize for the Nash equilibrium in 1994, he became the seventh Nobel laureate in economics whose work was influenced directly by von Neumann’s ideas.

., New York: John Wiley, 1947), 2 (page citation is to the 2d edition). 3.Loren Eiseley, Darwin’s Century (New York: Doubleday, 1958), 39. 4.André-Marie Ampère, Considérations sur la théorie mathématique du jeu (Lyons, France: Frères Perisse, 1802), 3. (Author’s translation.) 5.Jacob Marschak, “Neumann’s and Morgenstern’s New Approach to Static Economics,” Journal of Political Economy 54, no. 2 (April 1946): 114. 6.J. D. Williams, The Compleat Strategyst (Santa Monica, Calif.: RAND Corporation, 1954), 216. 7.John Nash, Parallel Control, RAND Corporation Research Memorandum RM-1361, 27 August 1954, 14. 8.John von Neumann, “A Model of General Economic Equilibrium,” Review of Economic Studies 13 (1945): 1. 9.John von Neumann, The Computer and the Brain (New Haven, Conn.: Yale University Press, 1958), 79–82. 10.John von Neumann, 1948, “General and Logical Theory of Automata,” in Lloyd A.

In the second, posthumous volume of Ampère’s Essay, published by his son in 1843, Ampère explains how he came to recognize a field of knowledge “which I name Cybernétique, from the word κυβερνετική, which was applied first, in a restricted sense, to the steering of a vessel, and later acquired, even among the Greeks, a meaning extending to the art of steering in general.”21 Ampère, an early advocate of the electromagnetic telegraph and mathematical pioneer of both game theory and electrodynamics, thereby anticipated the Cybernetics of Norbert Wiener, who, another century later, reinvented both Ampère’s terminology and Hobbes’s philosophy in their current, electronic form. “Although the term cybernetics does not date further back than the summer of 1947,” wrote Wiener in 1948, “we shall find it convenient to use in referring to earlier epochs of the development of the field.”22 Wiener, who was involved in the development of radar-guided anti-aircraft fire control, which marked the beginning of rudimentary perception by electronic machines, was unaware until after the publication of Cybernetics of the coincidence in choosing a name coined by the same Ampère we now honor in measuring the flow of electrons through a circuit.


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Information: A Very Short Introduction by Luciano Floridi

agricultural Revolution, Albert Einstein, bioinformatics, Bletchley Park, carbon footprint, Claude Shannon: information theory, Computing Machinery and Intelligence, conceptual framework, digital divide, disinformation, double helix, Douglas Engelbart, Douglas Engelbart, George Akerlof, Gordon Gekko, Gregor Mendel, industrial robot, information asymmetry, intangible asset, Internet of things, invention of writing, John Nash: game theory, John von Neumann, Laplace demon, machine translation, moral hazard, Nash equilibrium, Nelson Mandela, Norbert Wiener, Pareto efficiency, phenotype, Pierre-Simon Laplace, prisoner's dilemma, RAND corporation, RFID, Thomas Bayes, Turing machine, Vilfredo Pareto

Unlike the other three outcomes, the case in which both prisoners defect can also be described as a Nash equilibrium: it is the only outcome in which each player is doing the best he can, given the available information about the other player's actions. Nash equilibria are crucial features in game theory, as they represent situations in which no player's position can be improved by selecting any other available strategy while all the other players are also playing their best option and not changing their strategies. They are named after John Nash (born 1928), who, in 1994, shared the Nobel Prize in Economics with Reinhard Selten (born 1930) and John Harsanyi (1920-2000) for their foundational work on game theory. Complete information makes simultaneous games interesting. Without such a condition, the players would be unable to predict the effects of their actions on the other players' behaviour.

In the rest of this chapter, we will look at some essential ways in which economic information is used. For the sake of simplicity, and following current trends, the presentation will be framed in game-theoretic terms. But instead of presenting a standard analysis of types of games first, we will focus on the concepts of information and then see how they are used. Complete information Game theory is the formal study of strategic situations and interactions (games) among agents (players, not necessarily human), who are fully rational (they always maximize their payoffs, without any concern for the other players), aware of each other, and aware that their decisions are mutually dependent and affect the resulting payoffs.

Generally speaking, a game is described by four elements: (a) its players, how many and who they are; (b) each player's strategies, what they may rationally decide to do given the known circumstances (a strategy is a complete plan of action specifying a feasible action for every move the player might have to make); (c) the resulting payoffs from each outcome, what they will gain by their moves; and (d) the sequence (timing or order) of the actual moves or states, if the game is sequential (see below), basically in what position the player is at a certain stage of the game. One of game theory's main goals is to identify the sort of stable situations (equilibria) in which the game players have adopted strategies that they are unlikely to change, even if, from a sort of God's eye perspective, they may not be rationally optimal. There are many kinds of game and hence forms of equilibrium.


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The Physics of Wall Street: A Brief History of Predicting the Unpredictable by James Owen Weatherall

Alan Greenspan, Albert Einstein, algorithmic trading, Antoine Gombaud: Chevalier de Méré, Apollo 11, Asian financial crisis, bank run, Bear Stearns, beat the dealer, behavioural economics, Benoit Mandelbrot, Black Monday: stock market crash in 1987, Black Swan, Black-Scholes formula, Bonfire of the Vanities, book value, Bretton Woods, Brownian motion, business cycle, butterfly effect, buy and hold, capital asset pricing model, Carmen Reinhart, Claude Shannon: information theory, coastline paradox / Richardson effect, collateralized debt obligation, collective bargaining, currency risk, dark matter, Edward Lorenz: Chaos theory, Edward Thorp, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, Financial Modelers Manifesto, fixed income, George Akerlof, Gerolamo Cardano, Henri Poincaré, invisible hand, Isaac Newton, iterative process, Jim Simons, John Nash: game theory, junk bonds, Kenneth Rogoff, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, Market Wizards by Jack D. Schwager, martingale, Michael Milken, military-industrial complex, Myron Scholes, Neil Armstrong, new economy, Nixon triggered the end of the Bretton Woods system, Paul Lévy, Paul Samuelson, power law, prediction markets, probability theory / Blaise Pascal / Pierre de Fermat, quantitative trading / quantitative finance, random walk, Renaissance Technologies, risk free rate, risk-adjusted returns, Robert Gordon, Robert Shiller, Ronald Coase, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, statistical arbitrage, statistical model, stochastic process, Stuart Kauffman, The Chicago School, The Myth of the Rational Market, tulip mania, Vilfredo Pareto, volatility smile

All the while, his ideas about the physics of roulette spun around in his mind. He was sure that with the right resources — a professional roulette wheel and some computer know-how — he could strike it rich. Soon after finishing his PhD, Thorp was awarded the prestigious C.L.E. Moore instructorship in mathematics at MIT — a position held a decade earlier by John Nash, the pioneering mathematician profiled by Sylvia Nasar in her book A Beautiful Mind. Thorp and his wife, Vivian, left Southern California and moved to Cambridge, Massachusetts. They spent only two years on the East Coast before moving back west, to New Mexico. But it was enough to set their lives on a different track: it was at MIT that Thorp met Claude Shannon.

Morley, Henry. 1854. The Life of Girolamo Cardano, of Milan, Physician. London: Chapman and Hall. Moynihan, Daniel P. 1996. Miles to Go: A Personal History of Social Policy. Cambridge, MA: Harvard University Press. Nasar, Sylvia. 1998. A Beautiful Mind: The Life of Mathematical Genius and Nobel Laureate John Nash. New York: Touchstone. Ndiaye, Pap A. 2007. Nylon and Bombs. Baltimore, MD: Johns Hopkins University Press. Niederhoffer, Victor. 1998. The Education of a Speculator. Hoboken, NJ: John Wiley and Sons. Niederhoffer, Victor, and M.F.M. Osborne. 1966. “Market Making and Reversals on the Stock Exchange.”

This is just what you need to calculate your advantage, as Kelly proposed. Information flows and your money grows. As Thorp and Kimmel made their preparations for Reno, Shannon and Thorp were collaborating on Thorp’s roulette plan. When he heard Thorp’s ideas, Shannon was mesmerized, in large part because Thorp’s roulette idea combined game theory with Shannon’s real passion: machines. At the heart of the idea was a wearable computer that would perform the necessary calculations for the player. They began testing ideas for how the actual gambling would work, assuming they could make sufficient progress on the prediction algorithm. They agreed that it would take more than one person for it to go smoothly, because one person couldn’t focus sufficiently on the wheel to input the necessary data and still be prepared to bet before the ball slowed down and the croupier (roulette’s equivalent of a dealer) announced that betting was closed.


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How Markets Fail: The Logic of Economic Calamities by John Cassidy

Abraham Wald, Alan Greenspan, Albert Einstein, An Inconvenient Truth, Andrei Shleifer, anti-communist, AOL-Time Warner, asset allocation, asset-backed security, availability heuristic, bank run, banking crisis, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Black Monday: stock market crash in 1987, Black-Scholes formula, Blythe Masters, book value, Bretton Woods, British Empire, business cycle, capital asset pricing model, carbon tax, Carl Icahn, 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, different worldview, diversification, Elliott wave, Eugene Fama: efficient market hypothesis, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, Garrett Hardin, George Akerlof, Glass-Steagall Act, 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, junk bonds, Kenneth Arrow, Kickstarter, laissez-faire capitalism, Landlord’s Game, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, low interest rates, mandelbrot fractal, margin call, market bubble, market clearing, mental accounting, Mikhail Gorbachev, military-industrial complex, Minsky moment, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, Naomi Klein, negative equity, Network effects, Nick Leeson, Nixon triggered the end of the Bretton Woods system, Northern Rock, paradox of thrift, Pareto efficiency, Paul Samuelson, Phillips curve, Ponzi scheme, precautionary principle, price discrimination, price stability, principal–agent problem, profit maximization, proprietary trading, 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 Solow, Ronald Coase, Ronald Reagan, Savings and loan crisis, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, subprime mortgage crisis, tail risk, Tax Reform Act of 1986, technology bubble, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, too big to fail, Tragedy of the Commons, transaction costs, Two Sigma, unorthodox policies, value at risk, Vanguard fund, Vilfredo Pareto, wealth creators, zero-sum game

Unlike Wald’s work from 1934, it didn’t use any simplifying assumptions about the factors that influence demand, and unlike von Neumann’s 1937 paper, it treated both consumers and firms extensively. Mathematically sophisticated, it eschewed calculus, which was rapidly becoming old hat, and instead made extensive use of convex sets, game theory, and fixed-point theorems—borrowing an application of the last from John Nash, the Princeton mathematician and game theorist. The Arrow-Debreu paper was nobody’s idea of bedtime reading, but when their colleagues had made their way through it, they were agreed: Walras’s problem had finally been solved, and the case for competitive markets had been placed on a sound analytical foundation, or so it seemed.

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.”

THE PRISONER’S DILEMMA AND RATIONAL IRRATIONALITY 143 Flood’s babysitting experiment: See William Poundstone, The Prisoner’s Dilemma: John Von Neumann, Game Theory, and the Puzzle of the Bomb (New York: Doubleday, 1992), 103. 143 Non-cooperative pair experiment: Ibid., 106–107. 145 “Both Flood and Dresher . . .”: Ibid., 122. 147 90 percent of the players choose: Ken Binmore, Game Theory: A Very Short Introduction (New York: Oxford University Press, 2007), 21. 149 “Adding together the component . . .”: Garrett Hardin, “The Tragedy of the Commons,” Science 162 (1968): 1244. 150 “Game theorists get . . .”: Binmore, Game Theory, 67. 12. HIDDEN INFORMATION AND THE MARKET FOR LEMONS 151 “I belonged to . . .”: From George Akerlof’s Nobel autobiography, available at http://nobelprize.org/nobel_prizes/economics/laureates/2001/akerlof-autobio.html. 152 “a major reason as to why . . .”: George Akerlof, “Writing ‘The Market for Lemons’: A Personal and Interpretive Essay,” available at http://nobelprize.org/nobel_prizes/economics/articles/akerlof/index.html. 153 “[M]ost cars traded . . .”: George Akerlof, “The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism,” Quarterly Journal of Economics 84 (1970): 489. 154 “was potentially an issue . . .”: Akerlof, “Writing ‘The Market for Lemons.’ ” 155 “marginally attached”: Bureau of Labor Statistics, Issues in Labor Statistics, Summary 90–04 (April 2009): 1. 156 “it is quite possible . . .”: Akerlof, “The Market for ‘Lemons,’ ” 494. 157 2006 health care spending: “National Health Spending in 2006: A Year of Change for Prescription Drugs,” Health Affairs 27, no. 1 (2008): 14. 158 “The most obvious . . .”: Kenneth J.


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The Words You Should Know to Sound Smart: 1200 Essential Words Every Sophisticated Person Should Be Able to Use by Bobbi Bly

Albert Einstein, Alistair Cooke, Anton Chekhov, British Empire, Columbine, Donald Trump, George Santayana, haute couture, Honoré de Balzac, Joan Didion, John Nash: game theory, Network effects, placebo effect, Ralph Waldo Emerson, school vouchers, Stephen Hawking, Steve Jobs, three-masted sailing ship

They had that weird FRISSON, an aura of magic that combined awkwardly with an earthy sense of duty.” – Ruth Morgan, American novelist fruition (froo-ISH-un), noun The completion of a task; the achievement of a goal as the result of significant and persistent effort. John Nash, a mathematician whose life was featured in “A Beautiful Mind,” received the Nobel Prize for the FRUITION of his work in game theory decades after he completed it. fulsome (FULL-sum), adjective Describes words or actions that praise or flatter someone to an excessive degree. Katie’s introduction of the keynote speaker was so FULSOME that he led his speech with a few self-effacing remarks.


pages: 205 words: 55,435

The End of Indexing: Six Structural Mega-Trends That Threaten Passive Investing by Niels Jensen

Alan Greenspan, Basel III, Bear Stearns, declining real wages, deglobalization, disruptive innovation, diversification, Donald Trump, driverless car, eurozone crisis, falling living standards, fixed income, full employment, Greenspan put, income per capita, index fund, industrial robot, inflation targeting, job automation, John Nash: game theory, liquidity trap, low interest rates, moral hazard, offshore financial centre, oil shale / tar sands, old age dependency ratio, passive investing, Phillips curve, purchasing power parity, pushing on a string, quantitative easing, regulatory arbitrage, rising living standards, risk free rate, risk tolerance, Robert Solow, secular stagnation, South China Sea, total factor productivity, working-age population, zero-sum game

To answer that question, and to understand the ramifications, I need to go back to the developers of game theory, John Nash and John Harsanyi, for a minute. In game theory, and in the context of bargaining, there are four sources of overall power: Economic power. All other things being equal, the greater your economic power is, the greater your overall power is. Nash and Harsanyi labelled it resource endowment. Risk tolerance. The greater your risk tolerance is, relative to the risk tolerance of whoever you are bargaining with, the greater your overall power is. Threat power. In game theory, the greater your threat power is, i.e. your ability to inflict damage on the opposition, the greater your overall power is.

In game theory, the greater your threat power is, i.e. your ability to inflict damage on the opposition, the greater your overall power is. Coalition power. In a bargaining situation, if you can gain support from other powers (players in game theory), you boost your own overall power. These four sources of power define your overall power in bilateral bargaining. Economic power is shifting from West to East With respect to the first of the four sources of power, economic power is a combination of the sheer might of the economy in question and how fast it is growing. The US economy is still much larger than the Chinese economy, but the latter is growing faster; hence the point I made earlier that it is only a question of time before China’s economic power is bigger than that of the US.


pages: 254 words: 61,387

This Could Be Our Future: A Manifesto for a More Generous World by Yancey Strickler

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, Abraham Maslow, accelerated depreciation, Adam Curtis, basic income, benefit corporation, Big Tech, big-box store, business logic, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, cognitive dissonance, corporate governance, Daniel Kahneman / Amos Tversky, data science, David Graeber, Donald Trump, Doomsday Clock, Dutch auction, effective altruism, Elon Musk, financial independence, gender pay gap, gentrification, global supply chain, Hacker News, housing crisis, Ignaz Semmelweis: hand washing, invention of the printing press, invisible hand, Jeff Bezos, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Nash: game theory, Joi Ito, Joseph Schumpeter, Kickstarter, Kōnosuke Matsushita, Larry Ellison, Louis Pasteur, Mark Zuckerberg, medical bankruptcy, Mr. Money Mustache, new economy, Oculus Rift, off grid, offshore financial centre, Parker Conrad, Ralph Nader, RAND corporation, Richard Thaler, Ronald Reagan, Rutger Bregman, self-driving car, shareholder value, Silicon Valley, Simon Kuznets, Snapchat, Social Responsibility of Business Is to Increase Its Profits, Solyndra, stem cell, Steve Jobs, stock buybacks, TechCrunch disrupt, TED Talk, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Travis Kalanick, Tyler Cowen, universal basic income, white flight, Zenefits

The secretaries achieved the ideal outcome of the game. According to the model of rationality set by game theory, the secretaries weren’t playing correctly. Pursuing your immediate self-interest was the rational thing to do. * * * ■ ■ ■ ■ The RAND Corporation published The Compleat Strategyst with the goal of expanding the application of game theory in day-to-day life. “We believe it possible that Game Theory, as it develops—or something like it—may become an important concept and force in many phases of life,” author J. D. Williams wrote. They were right. Game theory became a tool for a new kind of “hyperrational” way of thinking.

Had anyone made this case before? And then one day I found something. While reading a fascinating book called Age of Fracture by Daniel Rodgers, I came across mention of a movement called communitarianism, where a more expansive set of values was embraced. In fact, one of the core game theorists at the RAND Corporation (John Nash, subject of the biography and film A Beautiful Mind) moved to a communitarian community in the 1970s. Intrigued, I continued to dig into communitarianism until I came across a book by Michael Walzer. Walzer is a professor emeritus of social science at Princeton University’s Institute for Advanced Study.

The Defense Department asked a group of scientists and mathematicians at an elite think tank called the RAND Corporation to come up with a strategy for what the United States should do in this new nuclear age. To study the situation, the researchers turned to a then-new field called game theory. Game theory uses mathematical models to determine the optimal, rational strategies in games and other strategic conflicts. When applied to the nuclear standoff with the Soviet Union, game theory allowed the scientists to consider different approaches the United States might take, how the USSR might respond, and where things might go from there. This greatly expanded the decision makers’ awareness of the potential outcomes of whatever strategy they considered.


pages: 256 words: 67,563

Explaining Humans: What Science Can Teach Us About Life, Love and Relationships by Camilla Pang

autism spectrum disorder, backpropagation, bioinformatics, Brownian motion, correlation does not imply causation, data science, deep learning, driverless car, frictionless, job automation, John Nash: game theory, John von Neumann, Kickstarter, Nash equilibrium, neurotypical, phenotype, random walk, self-driving car, stem cell, Stephen Hawking

Game theory was pioneered by two mathematicians whose work helped lay the foundations for the modern study of artificial intelligence: John von Neumann and John Nash. Like agent-based models, it looks at how different players within a certain, rules-based system interact. But it goes further by looking at the consequences of their various choices: how will a decision by one or several players in the game affect everyone else? Game theory looks at the whole picture, assuming a player doesn’t just consider their own decisions and their consequences, but those of the other players as well – predicting both what they may know, and how they are likely to act. Among game theory’s many ideas and applications is the Nash equilibrium.

It’s between these individual needs, local connections and global norms that the actual etiquette of a system is to be found. Game theory ABM can help you to discover what the etiquette is in a particular context. But it doesn’t tell you anything about why people behave this way, or their intentions. Nor does it answer the most pressing question surrounding etiquette: how is someone going to react to what we say or do next? For that we need to delve into the science of game theory, which maps not just how different agents in a system interact, but what their motivations are, and why they make certain decisions. Game theory was pioneered by two mathematicians whose work helped lay the foundations for the modern study of artificial intelligence: John von Neumann and John Nash.

I had failed to take into account that he was bald, shiningly so. For me, game theory is less about winning and more about surviving the life experiences that nothing has prepared me for. I don’t want to beat the other players, just to cross the board without sending too many of them flying, like my mum’s poor friend at the Christmas party. This is the counter-intuitive benefit of game theory. While ostensibly being a playbook for rational decision making, it also reminds us of its limits. If we put everything in our lives through the lens of game theory, then we would end up in something like the dystopia that Thomas Hobbes outlined in Leviathan, as the fate of humanity without a body politic to bind it together.


pages: 295 words: 66,824

A Mathematician Plays the Stock Market by John Allen Paulos

Alan Greenspan, AOL-Time Warner, Benoit Mandelbrot, Black-Scholes formula, book value, Brownian motion, business climate, business cycle, butter production in bangladesh, butterfly effect, capital asset pricing model, confounding variable, correlation coefficient, correlation does not imply causation, Daniel Kahneman / Amos Tversky, diversified portfolio, dogs of the Dow, Donald Trump, double entry bookkeeping, Elliott wave, endowment effect, equity risk premium, Erdős number, Eugene Fama: efficient market hypothesis, four colour theorem, George Gilder, global village, greed is good, index fund, intangible asset, invisible hand, Isaac Newton, it's over 9,000, John Bogle, John Nash: game theory, Larry Ellison, Long Term Capital Management, loss aversion, Louis Bachelier, mandelbrot fractal, margin call, mental accounting, Myron Scholes, Nash equilibrium, Network effects, passive investing, Paul Erdős, Paul Samuelson, Plato's cave, Ponzi scheme, power law, price anchoring, Ralph Nelson Elliott, random walk, Reminiscences of a Stock Operator, Richard Thaler, risk free rate, Robert Shiller, short selling, six sigma, Stephen Hawking, stocks for the long run, survivorship bias, transaction costs, two and twenty, ultimatum game, UUNET, Vanguard fund, Yogi Berra

The Numbers Man—A Screen Treatment An astonishing amount of attention has been paid recently to fictional and narrative treatments of mathematical topics. The movies Good Will Hunting, Pi, and The Croupier come to mind; so do plays such as Copenhagen, Arcadia, and The Proof, the two biographies of Paul Erdos, A Beautiful Mind, the biography of John Nash (with its accompanying Academy Award-winning movie), TV specials on Fermat’s Last Theorem, and other mathematical topics, as well as countless books on popular mathematics and mathematicians. The plays and movies, in particular, prompted me to expand the idea in the stock-newsletter scam discussed above (I changed the focus, however, from stocks to sports) into a sort of abbreviated screen treatment that highlights the relevant mathematics a bit more than has been the case in the productions just cited.

It requires faster machines, better data, improved models, and the smarter use of mathematical tools, from conventional statistics to neural nets (computerized learning networks, the connections between the various nodes of which are strengthened or weakened over a period of training). If this is possible for anyone or any group to achieve, it’s not likely to remain so for long. Game Theory and Supernatural Investor/Psychologists But what if, contrary to fact, there were an entity possessing sufficient complexity and speed that it was able with reasonably high probability to predict the market and the behavior of individuals within it? The mere existence of such an entity leads to Newcombe’s paradox, a puzzle that calls into question basic principles of game theory. My particular variation of Newcombe’s paradox involves the World Class Options Market Maker (WCOMM), which (who?)

Chapter 8 - Connectedness and Chaotic Price Movements Insider Trading and Subterranean Information Processing Trading Strategies, Whim, and Ant Behavior Chaos and Unpredictability Extreme Price Movements, Power Laws, and the Web Economic Disparities and Media Disproportions Chapter 9 - From Paradox to Complexity The Paradoxical Efficient Market Hypothesis The Prisoner’s Dilemma and the Market Pushing the Complexity Horizon Game Theory and Supernatural Investor/Psychologists Absurd Emails and the WorldCom Denouement Bibliography Index Copyright Page Also by John Allen Paulos Mathematics and Humor (1980) I Think Therefore I Laugh (1985) Innumeracy: Mathematical Illiteracy and its Consequences (1988) Beyond Numeracy: Ruminations of a Numbers Man (1991) A Mathematician Reads the Newspaper (1995) Once Upon a Number: The Hidden Mathematical Logic of Stories (1998) To my father, who never played the market and knew little about probability, yet understood one of the prime lessons of both.


pages: 262 words: 65,959

The Simpsons and Their Mathematical Secrets by Simon Singh

Albert Einstein, Andrew Wiles, Apollo 13, Benoit Mandelbrot, Bletchley Park, cognitive dissonance, Donald Knuth, Erdős number, Georg Cantor, Grace Hopper, Higgs boson, Isaac Newton, John Nash: game theory, Kickstarter, mandelbrot fractal, Menlo Park, Norbert Wiener, Norman Mailer, P = NP, Paul Erdős, probability theory / Blaise Pascal / Pierre de Fermat, quantum cryptography, Richard Feynman, Rubik’s Cube, Schrödinger's Cat, Simon Singh, Stephen Hawking, Wolfskehl Prize, women in the workforce

In other words, out of the entire gang of Tinseltown nerds, Westbrook is overall the tinseliest and the nerdiest.8 I first became aware of Erdős-Bacon numbers thanks to Dave Bayer, a mathematician at Colombia University. He was a consultant on the film A Beautiful Mind, based on Sylvia Nasar’s acclaimed biography of the mathematician John Nash, who had won the Nobel Prize in Economic Sciences in 1994. Bayer’s responsibilities included checking the equations that appeared on screen and acting as Russell Crowe’s hand double in the blackboard scenes. Bayer was also given a minor role toward the end of the film, when the Princeton mathematics professors offer their pens to Nash to acknowledge his great discoveries.

Joel Sokol at the Georgia Institute of Technology gives a lecture titled “Making Decisions Against an Opponent: An Application of Mathematical Optimization,” which includes slides describing games of rock-paper-scissors played by characters in The Simpsons. The lecture focuses on game theory, an area of mathematics concerned with modeling how participants behave in situations of conflict and cooperation. Game theory can offer insights into everything from dominoes to warfare, from animal altruism to trade union negotiations. Similarly, Dirk Mateer, an economist at Pennsylvania State University with a strong interest in mathematics, also makes use of The Simpsons and scenes involving rock-paper-scissors when he teaches game theory to his students. Rock-paper-scissors (RPS) seems like a trivial game, so you might be surprised that it is of any mathematical interest.

The truth is that many of the writers of The Simpsons are deeply in love with numbers, and their ultimate desire is to drip-feed morsels of mathematics into the subconscious minds of viewers. In other words, for more than two decades we have been tricked into watching an animated introduction to everything from calculus to geometry, from π to game theory, and from infinitesimals to infinity. “Homer3,” the third segment in the three-part episode “Treehouse of Horror VI” (1995) demonstrates the level of mathematics that appears in The Simpsons. In one sequence alone, there is a tribute to history’s most elegant equation, a joke that only works if you know about Fermat’s last theorem, and a reference to a $1 million mathematics problem.


pages: 205 words: 61,903

Survival of the Richest: Escape Fantasies of the Tech Billionaires by Douglas Rushkoff

"World Economic Forum" Davos, 4chan, A Declaration of the Independence of Cyberspace, agricultural Revolution, Airbnb, Alan Greenspan, Amazon Mechanical Turk, Amazon Web Services, Andrew Keen, AOL-Time Warner, artificial general intelligence, augmented reality, autonomous vehicles, basic income, behavioural economics, Big Tech, biodiversity loss, Biosphere 2, bitcoin, blockchain, Boston Dynamics, Burning Man, buy low sell high, Californian Ideology, carbon credits, carbon footprint, circular economy, clean water, cognitive dissonance, Colonization of Mars, coronavirus, COVID-19, creative destruction, Credit Default Swap, CRISPR, data science, David Graeber, DeepMind, degrowth, Demis Hassabis, deplatforming, digital capitalism, digital map, disinformation, Donald Trump, Elon Musk, en.wikipedia.org, energy transition, Ethereum, ethereum blockchain, European colonialism, Evgeny Morozov, Extinction Rebellion, Fairphone, fake news, Filter Bubble, game design, gamification, gig economy, Gini coefficient, global pandemic, Google bus, green new deal, Greta Thunberg, Haight Ashbury, hockey-stick growth, Howard Rheingold, if you build it, they will come, impact investing, income inequality, independent contractor, Jane Jacobs, Jeff Bezos, Jeffrey Epstein, job automation, John Nash: game theory, John Perry Barlow, Joseph Schumpeter, Just-in-time delivery, liberal capitalism, Mark Zuckerberg, Marshall McLuhan, mass immigration, megaproject, meme stock, mental accounting, Michael Milken, microplastics / micro fibres, military-industrial complex, Minecraft, mirror neurons, move fast and break things, Naomi Klein, New Urbanism, Norbert Wiener, Oculus Rift, One Laptop per Child (OLPC), operational security, Patri Friedman, pattern recognition, Peter Thiel, planetary scale, Plato's cave, Ponzi scheme, profit motive, QAnon, RAND corporation, Ray Kurzweil, rent-seeking, Richard Thaler, ride hailing / ride sharing, Robinhood: mobile stock trading app, Sam Altman, Shoshana Zuboff, Silicon Valley, Silicon Valley billionaire, SimCity, Singularitarianism, Skinner box, Snapchat, sovereign wealth fund, Stephen Hawking, Steve Bannon, Steve Jobs, Steven Levy, Steven Pinker, Stewart Brand, surveillance capitalism, tech billionaire, tech bro, technological solutionism, technoutopianism, Ted Nelson, TED Talk, the medium is the message, theory of mind, TikTok, Torches of Freedom, Tragedy of the Commons, universal basic income, urban renewal, warehouse robotics, We are as Gods, WeWork, Whole Earth Catalog, work culture , working poor

This drive toward wealth and power is like a poker game where everyone stays at the table until a single player has won all the money. It’s a drive toward inequality as the ultimate goal—what economists would call a Gini coefficient of 1—where just one person has accumulated everything. All the financial, technological, and cultural feedback loops in which they are participating support this singular drive. As game theorist John Nash (the subject of the movie A Beautiful Mind ) demonstrated in his early work, the wealthier party in a transaction always has an advantage if no rules or limits are put in place to counter this effect. A game of “no limits” poker always favors the wealthier player, because they can repeatedly force their opponent to stake the entirety of their holdings.

Game B is meant to be a “civilization level social operating system,” where we go from what we currently think of as Western civilization (the failing, self-destructive Game A we are now play ing) to a more self-organized, networked, decentralized, and resilient way of life. Rutt has applied his widely acknowledged expertise in complex systems and game theory to work through a myriad of issues and arrive at a new model of human organization. Instead of being dominated by corporations and nation-states, we are to live and work in small, self-sovereign, kibbutz-like collectives, each with its own governance structure but linked to the others through trade, culture, and technology.


pages: 252 words: 73,131

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

Abraham Wald, Airbnb, airport security, Al Roth, Alvin Roth, Andrei Shleifer, attribution theory, autonomous vehicles, barriers to entry, behavioural economics, Brownian motion, business cycle, buy and hold, centralized clearinghouse, Chuck Templeton: OpenTable:, classic study, clean water, conceptual framework, congestion pricing, constrained optimization, continuous double auction, creative destruction, data science, deferred acceptance, Donald Trump, Dutch auction, Edward Glaeser, experimental subject, first-price auction, framing effect, frictionless, fundamental attribution error, George Akerlof, Goldman Sachs: Vampire Squid, Gunnar Myrdal, helicopter parent, information asymmetry, Internet of things, invisible hand, Isaac Newton, iterative process, Jean Tirole, Jeff Bezos, Johann Wolfgang von Goethe, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, late fees, linear programming, Lyft, market clearing, market design, market friction, medical residency, multi-sided market, mutually assured destruction, Nash equilibrium, Occupy movement, opioid epidemic / opioid crisis, Pareto efficiency, Paul Samuelson, Peter Thiel, pets.com, pez dispenser, power law, pre–internet, price mechanism, price stability, prisoner's dilemma, profit motive, proxy bid, RAND corporation, ride hailing / ride sharing, Robert Shiller, Robert Solow, Ronald Coase, school choice, school vouchers, scientific management, sealed-bid auction, second-price auction, second-price sealed-bid, sharing economy, Silicon Valley, spectrum auction, Steve Jobs, Tacoma Narrows Bridge, techno-determinism, technoutopianism, telemarketer, The Market for Lemons, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade route, transaction costs, two-sided market, uber lyft, uranium enrichment, Vickrey auction, Vilfredo Pareto, WarGames: Global Thermonuclear War, winner-take-all economy

That challenge helped spur Arrow, who went ahead and proved it anyway. The year 1951 had seen a major technical advance that made proof of existence far easier than Wald might have realized. John Nash, the game theorist made famous by the book and movie A Beautiful Mind, had borrowed the fixed-point theorem of Japanese mathematician Shizuo Kakutani to prove the existence of Nash equilibrium in game theory. In Arrow’s retelling, at that point it was obvious how to go about proving the existence of competitive equilibrium, and it was a race among himself, French economist Debreu, and several others to see who could do it first and do it best.

Cowles was inspired by the Great Depression and driven by the desire to bring scientific rigor to the study of the economy. The foundation’s founding motto was “Science is Measurement.”11 The second, the RAND Corporation, first established as a joint project by the Douglas Aircraft Company and the US Department of War in 1945, used game theory to analyze the United States’s geopolitical position relative to the Soviet Union. Game theory—a mathematical approach to analyzing strategic choices—emerged from the work of Princeton mathematician John von Neumann in the 1930s, who collaborated with his economist colleague Oskar Morgenstern to write Theory of Games and Economic Behavior (published in 1944), which launched the field.

That depends on how Pepsi’s CEO thinks Coke will respond, which in turn depends on what Coke’s CEO expects that Pepsi’s response to their price reduction will be. And so on. Game theory was a way of cutting through the infinite regression of “what he thinks I think he thinks . . .” Although technical, some of von Neumann and Morgenstern’s ideas eventually filtered into the mainstream, and so resonated with the public imagination that the two researchers found themselves on the front page of the New York Times in 1946 under the headline, “Mathematical Theory of Poker Is Applied to Business Problems.”12 Game theory, though, was about much more than just business. Most famously, perhaps, RAND economists and mathematicians developed the doctrine of nuclear deterrence by mutually assured destruction (MAD) under the guidance of then defense secretary Robert McNamara (himself an economist by training).


pages: 288 words: 81,253

Thinking in Bets by Annie Duke

banking crisis, behavioural economics, Bernie Madoff, Cass Sunstein, cognitive bias, cognitive dissonance, cognitive load, Daniel Kahneman / Amos Tversky, delayed gratification, Demis Hassabis, disinformation, Donald Trump, Dr. Strangelove, en.wikipedia.org, endowment effect, Estimating the Reproducibility of Psychological Science, fake news, Filter Bubble, Herman Kahn, hindsight bias, Jean Tirole, John Nash: game theory, John von Neumann, loss aversion, market design, mutually assured destruction, Nate Silver, p-value, phenotype, prediction markets, Richard Feynman, ride hailing / ride sharing, Stanford marshmallow experiment, Stephen Hawking, Steven Pinker, systematic bias, TED Talk, the scientific method, The Signal and the Noise by Nate Silver, urban planning, Walter Mischel, Yogi Berra, zero-sum game

Initial reviews in the most prestigious academic journals heaped it with praise, like “one of the major scientific achievements of the first half of the twentieth century” and “ten more such books and the progress of economics is assured.” Game theory revolutionized economics, evidenced by at least eleven economics Nobel laureates connected with game theory and its decision-making implications, including John Nash (a student of von Neumann’s), whose life story was chronicled in the Oscar-winning film A Beautiful Mind. Game theory has broad applications outside economics, informing the behavioral sciences (including psychology and sociology) as well as political science, biomedical research, business, and numerous other fields. Game theory was succinctly defined by economist Roger Myerson (one of the game-theory Nobel laureates) as “the study of mathematical models of conflict and cooperation between intelligent rational decision-makers.”

Game theory was succinctly defined by economist Roger Myerson (one of the game-theory Nobel laureates) as “the study of mathematical models of conflict and cooperation between intelligent rational decision-makers.” Game theory is the modern basis for the study of the bulk of our decision-making, addressing the challenges of changing conditions, hidden information, chance, and multiple people involved in the decisions. Sound familiar? Fortunately, you don’t need to know any more than this about game theory to understand its relevance. And the important thing for this book is that John von Neumann modeled game theory on a stripped-down version of poker. Poker vs. chess In The Ascent of Man, scientist Jacob Bronowski recounted how von Neumann described game theory during a London taxi ride.

Except for Kissinger, who was a relatively obscure Harvard professor when the film was made, these are all conceivable models. The influence of John von Neumann on game theory, and of game theory on modern economics, is unquestioned. At least eleven Nobel laureates in economics have been cited for their work connected with or influenced by game theory. NobelPrize.org has cited the following eleven winners of the Prize in Economic Sciences (formally called “The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel”), by year, field, and contribution: (1) John C. Harsanyi, (2) John F. Nash Jr., and (3) Reinhard Selten (1994, game theory, “for their pioneering analysis of equilibria in the theory of non-cooperative games”); (4) Robert J.


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A Little History of Economics by Niall Kishtainy

Alvin Roth, behavioural economics, British Empire, Capital in the Twenty-First Century by Thomas Piketty, car-free, carbon tax, central bank independence, clean water, Corn Laws, Cornelius Vanderbilt, creative destruction, credit crunch, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Dr. Strangelove, Eugene Fama: efficient market hypothesis, first-price auction, floating exchange rates, follow your passion, full employment, George Akerlof, Great Leap Forward, greed is good, Hyman Minsky, inflation targeting, invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, loss aversion, low interest rates, market clearing, market design, means of production, Minsky moment, moral hazard, Nash equilibrium, new economy, Occupy movement, Pareto efficiency, Paul Samuelson, Phillips curve, prisoner's dilemma, RAND corporation, rent-seeking, Richard Thaler, rising living standards, road to serfdom, Robert Shiller, Robert Solow, Ronald Reagan, sealed-bid auction, second-price auction, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade route, Vickrey auction, Vilfredo Pareto, washing machines reduced drudgery, wealth creators, Winter of Discontent

In 1950 a mathematician named John Nash (1928–2015) came up with a solution. Nash thought of his idea when he was still a student at Princeton University. He decided to pay a visit to von Neumann, who was then a Princeton professor, to tell him about it. Even though von Neumann was by then very famous, it didn’t deter Nash. (Before that, he’d popped in to see Einstein to discuss some new ideas he’d had about the expansion of the universe.) The great von Neumann sent Nash away, telling him that his idea was trivial. In fact Nash’s idea became the most important in game theory, still used all the time today.

There’s only one way for a market to be perfectly competitive or to be a monopoly. But there are many ways for it to be in between – to be imperfectly competitive – and so it’s hard to find a theory that covers all the possibilities. Today, economists use the field of game theory, a method which allows them to examine the behaviour of firms in lots of different cases. As we’ll see in Chapter 20, game theory is the study of situations in which what one person does affects the outcomes for someone else. It’s especially useful for studying the behaviour of oligopolies: economists now use it all the time to examine the complex interactions that take place between firms as they battle it out for market domination.

One arms itself with missiles to aim at its enemy, and because one does, so does the other. Each country tries to gain an advantage by buying weapons. The result is an ‘arms race’. Both end up with huge stocks of missiles aimed at their enemy. The arms race is an example of ‘game theory’, a field of mathematics and economics that emerged in the 1940s and 1950s. Game theory looks at how countries, firms and people behave in situations in which what one side does affects outcomes for the other. When your enemy buys missiles it puts you at a disadvantage and makes your country less safe; when you buy missiles you do the same to your enemy.


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The Wisdom of Psychopaths: What Saints, Spies, and Serial Killers Can Teach Us About Success by Kevin Dutton

Asperger Syndrome, Bernie Madoff, business climate, corporate governance, corporate social responsibility, dark triade / dark tetrad, delayed gratification, epigenetics, Fellow of the Royal Society, G4S, impulse control, iterative process, John Nash: game theory, meta-analysis, mirror neurons, Neil Armstrong, Nicholas Carr, no-fly zone, Norman Mailer, Philippa Foot, place-making, RAND corporation, Ronald Reagan, seminal paper, Steve Jobs, Steven Pinker, theory of mind, trolley problem, ultimatum game

When a box of matches spilled onto the floor, both of them simultaneously called out “111.” As Sacks gathered up the matches, he started counting … On a similar note, the well-worn stereotype of the brilliant “tortured artist” is also not without foundation. The painter Vincent van Gogh, the dancer Vaslav Nijinsky, and the father of “game theory” (of which more later) John Nash were all psychotic. Coincidence? Not according to Szabolcs Kéri, a researcher at Semmelweis University in Budapest, who appears to have uncovered a genetic polymorphism associated with both schizophrenia and creativity. Kéri has found that people with two copies of a particular single-letter DNA variation in a gene called neuregulin 1, a variation that has been previously linked to psychosis—as well as poor memory and sensitivity to criticism—tend to score significantly higher on measures of creativity compared with individuals who have one or no copy of the variation.

The chances are it’s going to be the latter—for which, it turns out, there are sound biological reasons. To Plea or Not to Plea We’ve already seen game theory in action earlier in this chapter. A branch of applied mathematics devoted to the study of strategic situations, to the selection of optimal behavioral strategies in circumstances in which the costs and benefits of a particular choice or decision are not set in stone but are, in contrast, variable, game theory presents scenarios that are intrinsically dynamic. Unsurprisingly perhaps, given game theory’s inherent emphasis on the relationship between individual agency and the wider social group, it’s not uncommon to find rich incrustations of this semiprecious mathematical outcrop embedded within branches of natural selection—within models and theories of how various behaviors or life strategies might have evolved.

There are a number of theories about how psychopathy might first have developed, and we’ll be looking at those a little later on. But an overarching question in the grand etiological scheme of things is from which ontological perspective the condition should actually be viewed: from a clinical standpoint, as a disorder of personality? Or from a game theory standpoint, as a legitimate biological gambit—a life history strategy conferring significant reproductive advantages in the primeval ancestral environment? Kent Bailey, emeritus professor in clinical psychology at Virginia Commonwealth University, argues in favor of the latter, and advances the theory that violent competition within and between proximal ancestral groups was the primary evolutionary precursor of psychopathy (or, as he puts it, the mind-set of the “warrior hawk”).


pages: 302 words: 83,116

SuperFreakonomics by Steven D. Levitt, Stephen J. Dubner

agricultural Revolution, airport security, An Inconvenient Truth, Andrei Shleifer, Atul Gawande, barriers to entry, behavioural economics, Bernie Madoff, Boris Johnson, call centre, clean water, cognitive bias, collateralized debt obligation, creative destruction, credit crunch, Daniel Kahneman / Amos Tversky, deliberate practice, Did the Death of Australian Inheritance Taxes Affect Deaths, disintermediation, endowment effect, experimental economics, food miles, indoor plumbing, Intergovernmental Panel on Climate Change (IPCC), John Nash: game theory, Joseph Schumpeter, Joshua Gans and Andrew Leigh, longitudinal study, loss aversion, Louis Pasteur, market design, microcredit, Milgram experiment, Neal Stephenson, ocean acidification, oil shale / tar sands, patent troll, power law, presumed consent, price discrimination, principal–agent problem, profit motive, randomized controlled trial, Richard Feynman, Richard Thaler, selection bias, South China Sea, Stanford prison experiment, Stephen Hawking, The Wealth of Nations by Adam Smith, too big to fail, trickle-down economics, ultimatum game, urban planning, William Langewiesche, women in the workforce, young professional

But if the lab could unravel the scientific mysteries of the universe, surely it could help figure out something as benign as altruism. These new experiments typically took the form of a game, run by college professors and played by their students. This path had been paved by the beautiful mind of John Nash and other economists who, in the 1950s, experimented broadly with the Prisoner’s Dilemma, a game-theory problem that came to be seen as a classic test of strategic cooperation. (It was invented to glean insights about the nuclear standoff between the United States and the Soviet Union.) By the early 1980s, the Prisoner’s Dilemma had inspired a lab game called Ultimatum, which works as follows.

Knetsch, and Richard Thaler, “Fairness as a Constraint on Profit Seeking: Entitlements in the Market,” American Economic Review 76, no. 4 (September 1986); Robert Forsythe, Joel L. Horowitz, N. E. Savin, and Martin Sef-ton, “Fairness in Simple Bargaining Experiments,” Games and Economic Behavior 6, no. 3 (May 1994); Colin F. Camerer, Behavioral Game Theory (Princeton University Press, 2003); and John A. List, “Dictator Game Giving Is an Experimental Artifact,” working paper, 2005. ORGAN TRANSPLANTS: The first successful long-term kidney transplant was performed at the Peter Bent Brigham Hospital in Boston by Joseph Murray in December 1954, as related in Nicholas Tilney, Transplant: From Myth to Reality (Yale University Press, 2003). / 111 “Donorcyclists”: see Stacy Dickert-Conlin, Todd Elder, and Brian Moore, “Donorcycles: Do Motorcycle Helmet Laws Reduce Organ Donations?”


pages: 323 words: 95,939

Present Shock: When Everything Happens Now by Douglas Rushkoff

"Hurricane Katrina" Superdome, algorithmic trading, Alvin Toffler, Andrew Keen, bank run, behavioural economics, Benoit Mandelbrot, big-box store, Black Swan, British Empire, Buckminster Fuller, business cycle, 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, Future Shock, game design, global pandemic, global supply chain, global village, Howard Rheingold, hypertext link, Inbox Zero, invention of agriculture, invention of hypertext, invisible hand, iterative process, James Bridle, John Nash: game theory, Kevin Kelly, laissez-faire capitalism, lateral thinking, Law of Accelerating Returns, Lewis Mumford, loss aversion, mandelbrot fractal, Marshall McLuhan, Merlin Mann, messenger bag, Milgram experiment, mirror neurons, mutually assured destruction, negative equity, Network effects, New Urbanism, Nicholas Carr, Norbert Wiener, Occupy movement, off-the-grid, passive investing, pattern recognition, peak oil, Peter Pan Syndrome, price mechanism, prisoner's dilemma, Ralph Nelson Elliott, RAND corporation, Ray Kurzweil, recommendation engine, scientific management, selective serotonin reuptake inhibitor (SSRI), Silicon Valley, SimCity, Skype, social graph, South Sea Bubble, Steve Jobs, Steve Wozniak, Steven Pinker, Stewart Brand, supply-chain management, technological determinism, the medium is the message, The Wisdom of Crowds, theory of mind, Tragedy of the Commons, Turing test, upwardly mobile, Whole Earth Catalog, WikiLeaks, Y2K, zero-sum game

Even if there were millions of possible actors, actions, and connections, there were only two real superpowers—the Soviet Union and the United States. Military leaders figured that game theory, based on the mathematics of poker, should be able to model this activity and give us simple enough rules for engagement. And so the RAND Corporation was hired to conduct experiments (like the Prisoner’s Dilemma, which we looked at earlier), determine probable outcomes, and then program computers to respond appropriately in any number of individual circumstances. Led by the as yet undiagnosed paranoid schizophrenic John Nash (the mathematician portrayed in the movie A Beautiful Mind), they adopted a principle called MAD, or mutually assured destruction, which held that if the use of any nuclear device could effectively guarantee the complete and utter annihilation of both sides in the conflict, then neither side would opt to use them.

Altruism was simply too blurry. Good planning required predictable behaviors, and the assumption of short-term self-interest certainly makes things easy to see coming. A few decades of game theory and analysis since then have revealed the obvious flaws in Nash’s and RAND’s thinking. As Hungarian mathematician and logician László Méro explains it in his rethink of game theory, Moral Calculations,9 the competitive assumptions in game theory have not been proved by consistent results in real-world examples. In study after study, people, animals, and even bacteria are just as likely to cooperate as they are to compete.

By cooperatively negotiating in this fashion—and using battle gestures, previous experiences, and instinct (species’ memory) to calculate the odds of winning or losing the battle—both individuals live on to see another day. In contrast, game-theory tests like the Prisoner’s Dilemma set up competitions where decisions are forced with a lack of information. They are characterized by noncommunication. There is no space for negotiation or transparency of decision making, nor any participation in extending the range of possible outcomes. The prisoners are operating in the least likely circumstances to engender cooperative actions. But the zero-sum logic of game theory can still work, as long as it is actualized in a culture characterized by closedness.


pages: 350 words: 90,898

A World Without Email: Reimagining Work in an Age of Communication Overload by Cal Newport

Cal Newport, call centre, Claude Shannon: information theory, cognitive dissonance, collaborative editing, Compatible Time-Sharing System, computer age, COVID-19, creative destruction, data science, David Heinemeier Hansson, fault tolerance, Ford Model T, Frederick Winslow Taylor, future of work, Garrett Hardin, hive mind, Inbox Zero, interchangeable parts, it's over 9,000, James Watt: steam engine, Jaron Lanier, John Markoff, John Nash: game theory, Joseph Schumpeter, Kanban, Kickstarter, knowledge worker, Marshall McLuhan, Nash equilibrium, passive income, Paul Graham, place-making, pneumatic tube, remote work: asynchronous communication, remote working, Richard Feynman, rolodex, Salesforce, Saturday Night Live, scientific management, Silicon Valley, Silicon Valley startup, Skype, social graph, stealth mode startup, Steve Jobs, supply-chain management, technological determinism, the medium is the message, the scientific method, Tragedy of the Commons, web application, work culture , Y Combinator

Lloyd pointed out an interesting tension: it’s in the individual interest of each herder to graze his animals as much as possible on the commons, and yet when all herders act in their best interest, they’ll inevitably overgraze the commons, rendering it useless to everyone. Similar scenarios of individual interest leading to collective hardship turn out to be common in many different settings—from unstable ecologies, to resource mining, to the behaviors surrounding shared refrigerators. Using the mathematical tools introduced in the mid-twentieth century by John Nash (of A Beautiful Mind fame), you can even precisely analyze this situation, which turns out to be a nice example of what game theorists would call an “inefficient Nash equilibrium.” This economic trivia informs our discussions here because when the hyperactive hive mind emerged due to the drivers summarized earlier in this chapter, communication in the modern office became yet another example of Lloyd’s thought experiment in action.

It’s in this context that the hyperactive hive mind, once in place, became devilishly difficult to eradicate, as it’s hard to fix a broken workflow when it’s no one’s job to make sure the workflow functions. In 1833, the British economist William Forster Lloyd proposed a hypothetical scenario, now a classical example in game theory, that can help us better understand this dynamic. The scenario, which eventually became known as the tragedy of the commons,36 considers a town that maintains common grazing land for cattle and sheep, as was typical in Great Britain in the nineteenth century. Lloyd pointed out an interesting tension: it’s in the individual interest of each herder to graze his animals as much as possible on the commons, and yet when all herders act in their best interest, they’ll inevitably overgraze the commons, rendering it useless to everyone.

See also specific names Essentialism (McKeown), 221 evolutionary history, 40–42, 46, 48, 84–88 Facebook, 74–75, 81 FaceTime, 148–49, 161 fax machines, xvi, 67–68, 78, 200, 258 federal government, xi–xiv Federal Reserve, 39, 216 feedback, xviii, 11, 59, 83, 156, 170, 184, 236, 264 Ferriss, Tim, 128–29, 201 Feynman, Richard, 245 Fischer, Michael, 80 “Five Things We Need to Know about Technological Change” (Postman), 257–58 Flow, 147–48, 151–52, 155, 158–62 Flynn, Pat, 229–30 focus, 7 on areas of specialization, 228–34, 247–48, 254 on important issues, 23–24 and increasing support staff, 246 office culture of, 225–26 on single tasks, 105, 107, 138, 144–45, 147, 151, 162 on smaller number of tasks, 164–65, 220–22, 231 uninterrupted, 27–30, 32, 57, 227, 236–38, 244 See also attention switching; concentration Ford, Henry assembly line of, 99–101, 116–17, 119–21, 126 influence of, 105 innovations of, 97–101, 108 obsessed with speed, 99, 112–13 Ford Motor Company, 97–101, 116–17, 126 Foster, Jeffrey, 208–13 4-Hour Workweek, The (Ferriss), 128–29, 201 Four Quadrants, 56 fragmented work due to email, 7–9, 57–58, 169, 249 hyperactive hive mind and, 220 increase in, 16–17 and task-switching, 7–8, 15–18, 113 See also attention switching France, 35–36, 38–39, 86 Free (Anderson), xvi freelancers, xx, 32, 190, 197–98, 230–31, 238–39 Freeman, John, 38 Freeman, Joshua, 119 friction, in the workplace, 58–61, 127 Fried, Jason, 195–96 Future of Industrial Man, The (Drucker), 88 game theory, 91 Gazzaley, Adam, 15 GDP, 259 General Motors, 88–89 Georgetown University, 131–33, 135, 166, 192, 222, 250, 255 Georgia Tech, 217 German National Research Center for Information Technology (Bonn), 6–7 Germany, 6–7, 71–72, 100 Getting Things Done (Allen), 56–57 Gmail, 102, 105, 176, 250 González, Victor, 7–9, 57–58 Google, 81, 176, 191, 235–36, 252 Google Home, 252 Google Ventures (GV), 235–36 GPS collars, 47–49 Graham, Paul, 19–20, 28 Grant, Adam, 130, 238 Great Britain, 91, 181 Grove, Andy, 139–40 Gutenberg, 74 Hansson, David H., 195–96 Hartley, Ralph, 180–81 Harvard Business Review, 190, 194–95 Harvard Business School, 37, 82 health, harmed by email, 35–39 healthcare sector, 68, 153–55 Hicks, Michael, 208–13 hierarchies, dominance, 142 High Output Management (Grove), 139–40 Highland Park factory, 99, 108, 116–17 Hill, Doug, 76 Hobbes, Thomas, 142, 245 Homeland Security, xii–xii Honest Signals: How They Shape Our World (Pentland), 50 honey stick gift game, 40–42 horse stirrups, 72–73, 76–77 hospital ERs, 155 Huffington, Arianna, 46 human brain, 13, 61, 111 adds value to information, 103, 121, 259 “ancient,” xix, 40, 44, 46–47, 75, 112 and anxiety over emails, 40, 44, 46–47 and creating valuable output, 113, 218, 226–27 and decision-making/collaboration, 49–51 getting the most out of, xix–xx, 113, 121 and hyperactive hive mind, xviii–xix, xxi, 14, 31 and long workdays, 225 neural circuits of, 48, 50 parallel tracks of attention and, 18 prefrontal cortex of, 14–15 slowed by constant communication, 33, 112 slowed by network switching, 14–16, 18, 103 social circuits of, xviii–xix, 44, 51, 75–76, 112 and social connections, 42–43 and technology, 74–76 human soul, 39 hunter-gatherers, 39–42, 44, 85 hunters, Paleolithic, 84–88 hyperactive hive mind workflow alternatives to, 61, 92–93, 133–34, 194, 222 benefits of, xvii–xviii, 31, 115, 260 and brains’ social circuits, xviii–xix and client protocols, 199–201 and coordination protocols, 186–87 defenders of, 33 depravations of, 91–93, 113, 143 disadvantages of, xviii–xxii, 4–6, 14, 16, 20, 28–31, 33, 39, 43, 46–47, 60–61, 126, 163, 194, 260 drivers of, 77–88, 91, 190, 193 early humans and, 84–86 embraced by offices, 76–78, 87–89, 102, 184, 256 explanation of, xvii–xxii, 51, 258–59 hidden costs of, 3–6, 112 ineffectiveness of, xviii, xxi, 28 and minder roles, 27–28 minimize messaging for, 169 moving away from, xx, 30–33, 100, 104–8, 110, 115, 121, 127, 177, 179, 219 overwhelmed by, 104–5, 152 practitioners of, 3–6, 13, 20, 25–28, 29–32 rise of, xix, 10, 57, 203–4 and work overload, 58, 245 IBM, 68–71, 76 idiosyncrasy credits, 130 Inc. magazine, 201 India, 198 industrial engineering, 135 management, 101, 136–40 manufacturing, 97–103, 108, 112, 116–18, 136–39 revolution, 215, 260 sector, 103, 111, 116–18, 121 work, 88–91 information theory, 179–87 Instagram, 183, 228–29 instant messenger, xiv advantages of, xx, 14 attention switching and, 17, 113 average checking of, xvi–xvii, 11–12 disadvantages of, 3–6 reducing use of, xx, 127, 211 See also Slack Intel, 139–40 interactions (one-on-one), 48, 61, 205 distress when denied of, 43, 45–46 before email, 70 versus email use, 51, 54, 78, 81–82, 248–50 on FaceTime, 148–49 humans’ need for, 40–43, 51, 54 prioritizing them, 223–26 studies of, 49–51, 54 and task boards, 161 interfaces and administrative work, 247 invisible UI, 252 optimizing of, 255 seamless, 130–33, 152 between support and specialists, 250–54 International Archives of Occupational and Environmental Health, The, 36–37 internet, 6, 81, 105–6, 176, 216.


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The Myth of Capitalism: Monopolies and the Death of Competition by Jonathan Tepper

"Friedman doctrine" OR "shareholder theory", Affordable Care Act / Obamacare, air freight, Airbnb, airline deregulation, Alan Greenspan, bank run, barriers to entry, Berlin Wall, Bernie Sanders, Big Tech, big-box store, Bob Noyce, Boston Dynamics, business cycle, Capital in the Twenty-First Century by Thomas Piketty, citizen journalism, Clayton Christensen, collapse of Lehman Brothers, collective bargaining, compensation consultant, computer age, Cornelius Vanderbilt, corporate raider, creative destruction, Credit Default Swap, crony capitalism, diversification, don't be evil, Donald Trump, Double Irish / Dutch Sandwich, Dunbar number, Edward Snowden, Elon Musk, en.wikipedia.org, eurozone crisis, Fairchild Semiconductor, Fall of the Berlin Wall, family office, financial innovation, full employment, gentrification, German hyperinflation, gig economy, Gini coefficient, Goldman Sachs: Vampire Squid, Google bus, Google Chrome, Gordon Gekko, Herbert Marcuse, income inequality, independent contractor, index fund, Innovator's Dilemma, intangible asset, invisible hand, Jeff Bezos, Jeremy Corbyn, Jevons paradox, John Nash: game theory, John von Neumann, Joseph Schumpeter, junk bonds, Kenneth Rogoff, late capitalism, London Interbank Offered Rate, low skilled workers, Mark Zuckerberg, Martin Wolf, Maslow's hierarchy, means of production, merger arbitrage, Metcalfe's law, multi-sided market, mutually assured destruction, Nash equilibrium, Network effects, new economy, Northern Rock, offshore financial centre, opioid epidemic / opioid crisis, passive investing, patent troll, Peter Thiel, plutocrats, prediction markets, prisoner's dilemma, proprietary trading, race to the bottom, rent-seeking, road to serfdom, Robert Bork, Ronald Reagan, Sam Peltzman, secular stagnation, shareholder value, Sheryl Sandberg, Silicon Valley, Silicon Valley billionaire, Skype, Snapchat, Social Responsibility of Business Is to Increase Its Profits, SoftBank, Steve Jobs, stock buybacks, tech billionaire, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, undersea cable, Vanguard fund, vertical integration, very high income, wikimedia commons, William Shockley: the traitorous eight, you are the product, zero-sum game

Game theory has shown that firms are able to reach what look like cooperative outcomes on the basis of genuinely independent decisions.16 Many firms that have been caught continue to collude even after they no longer speak to each other.17 Tacit collusion can lead oligopolistic firms to achieve monopolistic outcomes, leading to reduced output, higher prices, and lower consumer welfare.18 This is known as the “oligopoly problem.” By allowing extreme industry concentration, the government has essentially guaranteed oligopolies can act like monopolies and encouraged outright and tacit collusion. Game theory applies to almost any interaction. Everyone has seen A Beautiful Mind. In the film John Nash, played by Russell Crowe, has an epiphany at a bar with his friends as they are trying to pick up women. There are a group of women: a stunning blonde and some average looking brunettes. All the men want the blonde woman, and one of Nash's friends remarked that Adam Smith would have encouraged competition, and the best strategy would be for them to all go and speak to her.

Each kid doesn't seek a theoretical bigger piece – he tries to minimize the chance he ends up with a really small one. Firms will often collude to avoid competition and minimize their maximum loss. That's what Nash was describing in the film with the blonde. There is much more to game theory than walking into a bar to talk to a blonde or dividing a cake. The most famous example in game theory is The Prisoner's Dilemma. If two prisoners are caught by the police and interrogated separately, they each have a difficult choice to make: to snitch or not to snitch. They can both be silent and not rat on each other. That is the best outcome for both.

They noted that there was a very close “relationship between the ability of a cartel to sustain collusion and the discount rate of its members.”15 (See Figure 2.1) Figure 2.1 Zero and Negative Central Bank Rates Promote Cartels SOURCE: Variant Perception. You don't need players to talk to each other to get collusion. Game theory has shown that firms are able to reach what look like cooperative outcomes on the basis of genuinely independent decisions.16 Many firms that have been caught continue to collude even after they no longer speak to each other.17 Tacit collusion can lead oligopolistic firms to achieve monopolistic outcomes, leading to reduced output, higher prices, and lower consumer welfare.18 This is known as the “oligopoly problem.”


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The Ghost Map: A Street, an Epidemic and the Hidden Power of Urban Networks. by Steven Johnson

call centre, clean water, correlation does not imply causation, creative destruction, Dean Kamen, digital map, double helix, edge city, Ford Model T, germ theory of disease, global pandemic, Google Earth, independent contractor, Jane Jacobs, John Nash: game theory, John Snow's cholera map, lone genius, Louis Pasteur, mass immigration, megacity, mutually assured destruction, New Urbanism, nuclear winter, pattern recognition, peak oil, side project, Steven Pinker, Stewart Brand, The Death and Life of Great American Cities, the long tail, the scientific method, trade route, unbiased observer, working poor

But somehow the nonstop traffic and bustle of Regent Street is almost imperceptible from the smaller lanes and alleys of western Soho, largely because there are very few conduits that open directly onto Regent Street. Walking around the neighborhood, it feels almost as if a barricade has been erected, keeping you from reaching the prominent avenue that you know is only a few feet away. And indeed, the street layout was explicitly designed to serve as a barricade. When John Nash designed Regent Street to connect Marylebone Park with the Prince Regent’s new home at Carlton House, he planned the thoroughfare as a kind of cordon sanitaire separating the well-to-do of Mayfair from the growing working-class community of Soho. Nash’s explicit intention was to create “a complete separation between the streets occupied by the Nobility and Gentry, and the narrower Streets and meaner houses occupied by mechanics and the trading part of the community.… My purpose was that the new street should cross the eastern entrance to all the streets occupied by the higher classes and to leave out to the east all the bad streets.”

How long before those two sets intersect? That driver with the rigged SUV isn’t going to be deterred by the conventional logic of détente-era nuclear politics. Mutually assured destruction isn’t much of a deterrent to him. Mutually assured destruction, in fact, sounds like a pretty good outcome. Game theory has always had trouble accounting for players with no rational self-interest, and the theories of nuclear deterrence are no exception. And once the bomb goes off, there’s no second line of defense—no vaccines or quarantines to block off the worst-case scenario. There will be maps, but they’ll be maps of incineration and fallout and mass graves.


pages: 416 words: 112,268

Human Compatible: Artificial Intelligence and the Problem of Control by Stuart Russell

3D printing, Ada Lovelace, AI winter, Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, Alfred Russel Wallace, algorithmic bias, AlphaGo, Andrew Wiles, artificial general intelligence, Asilomar, Asilomar Conference on Recombinant DNA, augmented reality, autonomous vehicles, basic income, behavioural economics, Bletchley Park, blockchain, Boston Dynamics, brain emulation, Cass Sunstein, Charles Babbage, Claude Shannon: information theory, complexity theory, computer vision, Computing Machinery and Intelligence, connected car, CRISPR, crowdsourcing, Daniel Kahneman / Amos Tversky, data science, deep learning, deepfake, DeepMind, delayed gratification, Demis Hassabis, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, Ernest Rutherford, fake news, Flash crash, full employment, future of work, Garrett Hardin, Geoffrey Hinton, Gerolamo Cardano, Goodhart's law, Hans Moravec, ImageNet competition, Intergovernmental Panel on Climate Change (IPCC), Internet of things, invention of the wheel, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, John Nash: game theory, John von Neumann, Kenneth Arrow, Kevin Kelly, Law of Accelerating Returns, luminiferous ether, machine readable, machine translation, Mark Zuckerberg, multi-armed bandit, Nash equilibrium, Nick Bostrom, Norbert Wiener, NP-complete, OpenAI, openstreetmap, P = NP, paperclip maximiser, Pareto efficiency, Paul Samuelson, Pierre-Simon Laplace, positional goods, probability theory / Blaise Pascal / Pierre de Fermat, profit maximization, RAND corporation, random walk, Ray Kurzweil, Recombinant DNA, recommendation engine, RFID, Richard Thaler, ride hailing / ride sharing, Robert Shiller, robotic process automation, Rodney Brooks, Second Machine Age, self-driving car, Shoshana Zuboff, Silicon Valley, smart cities, smart contracts, social intelligence, speech recognition, Stephen Hawking, Steven Pinker, superintelligent machines, surveillance capitalism, Thales of Miletus, The Future of Employment, The Theory of the Leisure Class by Thorstein Veblen, Thomas Bayes, Thorstein Veblen, Tragedy of the Commons, transport as a service, trolley problem, Turing machine, Turing test, universal basic income, uranium enrichment, vertical integration, Von Neumann architecture, Wall-E, warehouse robotics, Watson beat the top human players on Jeopardy!, web application, zero-sum game

(See the notes for the complete analysis.24) The general criterion is very simple, however: Alice’s strategy is the best she can devise, assuming that Bob’s is fixed. Bob’s strategy is the best he can devise, assuming that Alice’s is fixed. If both conditions are satisfied, we say that the strategies are in equilibrium. This kind of equilibrium is called a Nash equilibrium in honor of John Nash, who, in 1950 at the age of twenty-two, proved that such an equilibrium exists for any number of agents with any rational preferences and no matter what the rules of the game might be. After several decades’ struggle with schizophrenia, Nash eventually recovered and was awarded the Nobel Memorial Prize in Economics for this work in 1994.

As soon as someone else comes along, then, an agent will need some other way to make rational decisions. This is where game theory comes in. Despite its name, game theory isn’t necessarily about games in the usual sense; it’s a general attempt to extend the notion of rationality to situations with multiple agents. This is obviously important for our purposes, because we aren’t planning (yet) to build robots that live on uninhabited planets in other star systems; we’re going to put the robots in our world, which is inhabited by us. To make it clear why we need game theory, let’s look at a simple example: Alice and Bob playing soccer in the back garden (figure 3).

For this reason, we will need to generalize IRL from the single-agent setting to the multi-agent setting—that is, we will need to devise learning algorithms that work when the human and robot are part of the same environment and interacting with each other. With a human and a robot in the same environment, we are in the realm of game theory—just as in the penalty shoot-out between Alice and Bob on this page. We assume, in this first version of the theory, that the human has preferences and acts according to those preferences. The robot doesn’t know what preferences the human has, but it wants to satisfy them anyway. We’ll call any such situation an assistance game, because the robot is, by definition, supposed to be helpful to the human.10 Assistance games instantiate the three principles from the preceding chapter: the robot’s only objective is to satisfy human preferences, it doesn’t initially know what they are, and it can learn more by observing human behavior.


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Team of Teams: New Rules of Engagement for a Complex World by General Stanley McChrystal, Tantum Collins, David Silverman, Chris Fussell

Airbus A320, Albert Einstein, Apollo 11, Atul Gawande, autonomous vehicles, bank run, barriers to entry, Black Swan, Boeing 747, butterfly effect, call centre, Captain Sullenberger Hudson, Chelsea Manning, clockwork universe, crew resource management, crowdsourcing, driverless car, Edward Snowden, Flash crash, Frederick Winslow Taylor, global supply chain, Henri Poincaré, high batting average, Ida Tarbell, information security, interchangeable parts, invisible hand, Isaac Newton, Jane Jacobs, job automation, job satisfaction, John Nash: game theory, knowledge economy, Mark Zuckerberg, Mohammed Bouazizi, Nate Silver, Neil Armstrong, Pierre-Simon Laplace, pneumatic tube, radical decentralization, RAND corporation, scientific management, self-driving car, Silicon Valley, Silicon Valley startup, Skype, Steve Jobs, supply-chain management, systems thinking, The Wealth of Nations by Adam Smith, urban sprawl, US Airways Flight 1549, vertical integration, WikiLeaks, zero-sum game

The daily O&I briefing lay at the core of our transformation: this pumped information about the entire scope of our operations out to all members of the Task Force and partner agencies, and also offered everyone the chance to contribute. CHAPTER 9 BEATING THE PRISONER’S DILEMMA In one of the most memorable scenes from Ron Howard’s 2001 movie A Beautiful Mind, the protagonist—mathematician John Nash, played by Russell Crowe—is sitting with three colleagues in a Princeton bar when four women walk through the door. One of them, referred to only as “the blonde,” is breathtakingly beautiful. One sultry glance from her over to the mathematicians’ table and the men are convinced that she is interested—but who is to be the lucky man?

With a faint grin, he says, “It’s the only way we win,” then runs out of the bar to spend the night alone recording his epiphany. This fictionalized episode provides a good introduction to one of the major ideas of game theory: while Adam Smith has led us to believe that, as movie-Nash summarizes it, “the best result comes from everyone in the group doing what’s best for himself,” movie-Nash adds that there are times when “the best result would come from everyone in the group doing what’s best for themselves . . . and the group.” • • • This basic tenet of game theory is also illustrated by the Prisoner’s Dilemma. In this famous thought experiment, two criminals—coconspirators—are arrested.

From the launch pad of NASA’s famed Apollo project that put the first human on the moon, to a blacked-out helicopter putting an Army Special Forces operator on a roof in Fallujah, the reader is introduced to shared consciousness: the way transparency and communication can be used in an organization to produce extraordinary outcomes across even large groups. And the Prisoner’s Dilemma and game theory will illustrate how the simple concept of trust is, in large organizations, anything but simple to create. Part IV: Letting Go probes the history, advantages, and imperatives of truly empowered execution in an organization—pushing decision making and ownership to the right level for every action.


pages: 407 words: 104,622

The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution by Gregory Zuckerman

affirmative action, Affordable Care Act / Obamacare, Alan Greenspan, Albert Einstein, Andrew Wiles, automated trading system, backtesting, Bayesian statistics, Bear Stearns, beat the dealer, behavioural economics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Black Monday: stock market crash in 1987, blockchain, book value, Brownian motion, butter production in bangladesh, buy and hold, buy low sell high, Cambridge Analytica, Carl Icahn, Claude Shannon: information theory, computer age, computerized trading, Credit Default Swap, Daniel Kahneman / Amos Tversky, data science, diversified portfolio, Donald Trump, Edward Thorp, Elon Musk, Emanuel Derman, endowment effect, financial engineering, Flash crash, George Gilder, Gordon Gekko, illegal immigration, index card, index fund, Isaac Newton, Jim Simons, John Meriwether, John Nash: game theory, John von Neumann, junk bonds, Loma Prieta earthquake, Long Term Capital Management, loss aversion, Louis Bachelier, mandelbrot fractal, margin call, Mark Zuckerberg, Michael Milken, Monty Hall problem, More Guns, Less Crime, Myron Scholes, Naomi Klein, natural language processing, Neil Armstrong, obamacare, off-the-grid, p-value, pattern recognition, Peter Thiel, Ponzi scheme, prediction markets, proprietary trading, quantitative hedge fund, quantitative trading / quantitative finance, random walk, Renaissance Technologies, Richard Thaler, Robert Mercer, Ronald Reagan, self-driving car, Sharpe ratio, Silicon Valley, sovereign wealth fund, speech recognition, statistical arbitrage, statistical model, Steve Bannon, Steve Jobs, stochastic process, the scientific method, Thomas Bayes, transaction costs, Turing machine, Two Sigma

The Massachusetts Institute of Technology became an obvious choice. “When I heard MIT didn’t have a football team, I knew it was the school for me,” he says. Moving to Cambridge, Massachusetts, Berlekamp dabbled in physics, economics, computers, and chemistry. As a freshman, he was selected to participate in an advanced calculus class taught by John Nash, the game theorist and mathematician who later would be immortalized in Sylvia Nasar’s book A Beautiful Mind. One day, in early 1959, Nash was lecturing at the chalkboard when a student raised his hand to ask a question. Nash turned to him and stared intensely. After several minutes of awkward silence, Nash pointed a finger at the student, berating him for having the temerity to interrupt his lecture.

They’d take turns adding lines, linking dots, and closing squares, playing dots and boxes, a century-old strategy game popular at the time in the Midwest. Some viewed the game as simple child’s play, but dots and boxes has surprising complexity and mathematical underpinnings, something Berlekamp came to appreciate later in life. “It was an early education in game theory,” Berlekamp says. By the time Berlekamp entered Fort Thomas Highlands High School, in 1954, he was a wiry five-foot-ten-inch young man with a good idea of what he enjoyed inside and outside the classroom. In school, it was mostly math and science. Detecting an intelligence that stood out from others, his classmates elected Berlekamp class president.

Berlekamp’s apology led to an introduction to a student from England named Jennifer Wilson, whom he married in 1966.1 Berlekamp became an expert in decoding digital information, helping NASA decipher images coming back from satellites exploring Mars, Venus, and other parts of the solar system. Employing principles he had developed studying puzzles and games, like dots and boxes, Berlekamp cofounded a branch of mathematics called combinatorial game theory and wrote a book called Algebraic Coding Theory, a classic in the field. He also constructed an algorithm, appropriately named Berlekamp’s algorithm, for the factorization of polynomials over finite fields, which became a crucial tool in cryptography and other fields. Berlekamp wasn’t nearly as capable at navigating campus politics, as he soon found himself caught in a raging turf war between departments in Berkeley’s College of Letters and Science.


Super Thinking: The Big Book of Mental Models by Gabriel Weinberg, Lauren McCann

Abraham Maslow, Abraham Wald, affirmative action, Affordable Care Act / Obamacare, Airbnb, Albert Einstein, anti-pattern, Anton Chekhov, Apollo 13, Apple Newton, autonomous vehicles, bank run, barriers to entry, Bayesian statistics, Bernie Madoff, Bernie Sanders, Black Swan, Broken windows theory, business process, butterfly effect, Cal Newport, Clayton Christensen, cognitive dissonance, commoditize, correlation does not imply causation, crowdsourcing, Daniel Kahneman / Amos Tversky, dark pattern, David Attenborough, delayed gratification, deliberate practice, discounted cash flows, disruptive innovation, Donald Trump, Douglas Hofstadter, Dunning–Kruger effect, Edward Lorenz: Chaos theory, Edward Snowden, effective altruism, Elon Musk, en.wikipedia.org, experimental subject, fake news, fear of failure, feminist movement, Filter Bubble, framing effect, friendly fire, fundamental attribution error, Goodhart's law, Gödel, Escher, Bach, heat death of the universe, hindsight bias, housing crisis, if you see hoof prints, think horses—not zebras, Ignaz Semmelweis: hand washing, illegal immigration, imposter syndrome, incognito mode, income inequality, information asymmetry, Isaac Newton, Jeff Bezos, John Nash: game theory, karōshi / gwarosa / guolaosi, lateral thinking, loss aversion, Louis Pasteur, LuLaRoe, Lyft, mail merge, Mark Zuckerberg, meta-analysis, Metcalfe’s law, Milgram experiment, minimum viable product, moral hazard, mutually assured destruction, Nash equilibrium, Network effects, nocebo, nuclear winter, offshore financial centre, p-value, Paradox of Choice, Parkinson's law, Paul Graham, peak oil, Peter Thiel, phenotype, Pierre-Simon Laplace, placebo effect, Potemkin village, power law, precautionary principle, prediction markets, premature optimization, price anchoring, principal–agent problem, publication bias, recommendation engine, remote working, replication crisis, Richard Feynman, Richard Feynman: Challenger O-ring, Richard Thaler, ride hailing / ride sharing, Robert Metcalfe, Ronald Coase, Ronald Reagan, Salesforce, school choice, Schrödinger's Cat, selection bias, Shai Danziger, side project, Silicon Valley, Silicon Valley startup, speech recognition, statistical model, Steve Jobs, Steve Wozniak, Steven Pinker, Streisand effect, sunk-cost fallacy, survivorship bias, systems thinking, The future is already here, The last Blockbuster video rental store is in Bend, Oregon, The Present Situation in Quantum Mechanics, the scientific method, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, Tragedy of the Commons, transaction costs, uber lyft, ultimatum game, uranium enrichment, urban planning, vertical integration, Vilfredo Pareto, warehouse robotics, WarGames: Global Thermonuclear War, When a measure becomes a target, wikimedia commons

The rub is that if your co-conspirator follows the same strategy, you both go away for much longer than if you both just remained silent (five years versus one year). Hence the dilemma: do you risk their betrayal, or can you trust their solidarity and emerge with a small sentence? The dual betrayal with its dual five-year sentences is known as the Nash equilibrium of this game, named after mathematician John Nash, one of the pioneers of game theory and the subject of the biopic A Beautiful Mind. The Nash equilibrium is a set of player choices for which a change of strategy by any one player would worsen their outcome. In this case, the Nash equilibrium is the strategy of dual betrayals, because if either player instead chose to remain silent, that player would get a longer sentence.

(Sometimes people also say crossing the Rubicon, referencing Julius Caesar’s crossing of the Rubicon River with his troops in 49 B.C., deliberately breaking Roman law, making armed conflict inevitable and ultimately leading to him becoming dictator of Rome.) Game theory can again help you work through your potential exit strategies, assessing likely long-term outcomes and evaluating how various tactics might affect them. While not all situations parallel game-theory models (like the prisoner’s dilemma or the ultimatum game), most can still fruitfully be examined through a game-theory lens. In any conflict, whether in the endgame stage or otherwise, we encourage you to list the choices currently available to all the “players,” along with the consequences and payoffs.

—there are usually winners and losers. However, game theorists recognize that in real-life conflicts there isn’t always a clear winner or a clear loser. In fact, sometimes everyone playing the game can win and other times everyone can lose. The most famous “game” from game theory is called the prisoner’s dilemma. It can be used to illustrate useful game-theory concepts and can also be adapted to many life situations, including the arms race. Here’s the setup: Suppose two criminals are captured and put in jail, each in their own cell with no way to communicate. The prosecutor doesn’t have enough evidence to convict either one for a major crime but does have enough to convict both for minor infractions.


pages: 394 words: 108,215

What the Dormouse Said: How the Sixties Counterculture Shaped the Personal Computer Industry by John Markoff

Any sufficiently advanced technology is indistinguishable from magic, Apple II, back-to-the-land, beat the dealer, Bill Duvall, Bill Gates: Altair 8800, Buckminster Fuller, California gold rush, card file, computer age, Computer Lib, computer vision, conceptual framework, cuban missile crisis, different worldview, digital divide, Donald Knuth, Douglas Engelbart, Douglas Engelbart, Dynabook, Edward Thorp, El Camino Real, Electric Kool-Aid Acid Test, Fairchild Semiconductor, General Magic , general-purpose programming language, Golden Gate Park, Hacker Ethic, Hans Moravec, hypertext link, informal economy, information retrieval, invention of the printing press, Ivan Sutherland, Jeff Rulifson, John Markoff, John Nash: game theory, John von Neumann, Kevin Kelly, knowledge worker, Lewis Mumford, Mahatma Gandhi, Menlo Park, military-industrial complex, Mother of all demos, Norbert Wiener, packet switching, Paul Terrell, popular electronics, punch-card reader, QWERTY keyboard, RAND corporation, RFC: Request For Comment, Richard Stallman, Robert X Cringely, Sand Hill Road, Silicon Valley, Silicon Valley startup, South of Market, San Francisco, speech recognition, Steve Crocker, Steve Jobs, Steve Wozniak, Steven Levy, Stewart Brand, technological determinism, Ted Nelson, The Hackers Conference, The Theory of the Leisure Class by Thorstein Veblen, Thorstein Veblen, Turing test, union organizing, Vannevar Bush, We are as Gods, Whole Earth Catalog, William Shockley: the traitorous eight

In the end, because he had left home, he was able to quit the party without being embarrassed or embarrassing his family. At Princeton, McCarthy was a contemporary of John Nash, who later won a Nobel Prize in economics for his work in game theory, and whose life was chronicled by Sylvia Nasar in A Beautiful Mind. As graduate students, McCarthy, Nash, and several of the other students enjoyed constantly scheming and playing practical jokes on one another, justifying their antics in terms of their game-theory explorations. McCarthy arrived at Stanford for the second time (he had taught math there briefly in the early fifties) as a thirty-five-year-old former wunderkind who had invented the term “artificial intelligence.”


pages: 415 words: 125,089

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

Alan Greenspan, Albert Einstein, Alvin Roth, Andrew Wiles, Antoine Gombaud: Chevalier de Méré, Bayesian statistics, behavioural economics, Big bang: deregulation of the City of London, Bretton Woods, business cycle, buttonwood tree, buy and hold, capital asset pricing model, cognitive dissonance, computerized trading, Daniel Kahneman / Amos Tversky, diversified portfolio, double entry bookkeeping, Edmond Halley, Edward Lloyd's coffeehouse, endowment effect, experimental economics, fear of failure, Fellow of the Royal Society, Fermat's Last Theorem, financial deregulation, financial engineering, financial innovation, full employment, Great Leap Forward, index fund, invention of movable type, Isaac Newton, John Nash: game theory, John von Neumann, Kenneth Arrow, linear programming, loss aversion, Louis Bachelier, mental accounting, moral hazard, Myron Scholes, Nash equilibrium, Norman Macrae, Paul Samuelson, Philip Mirowski, Post-Keynesian economics, probability theory / Blaise Pascal / Pierre de Fermat, prudent man rule, random walk, Richard Thaler, Robert Shiller, Robert Solow, spectrum auction, statistical model, stocks for the long run, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, Thomas Bayes, trade route, transaction costs, tulip mania, Vanguard fund, zero-sum game

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

Despite its nineteenth-century forebears, game theory represents a dramatic break from earlier efforts to incorporate mathematical inevitability into decision-making. In the utility theories of both Daniel Bernoulli and Jevons, the individual makes choices in isolation, unaware of what others might be doing. In game theory, however, two or more people try to maximize their utility simultaneously, each aware of what the others are about. Game theory brings a new meaning to uncertainty. Earlier theories accepted uncertainty as a fact of life and did little to identify its source. Game theory says that the true source of uncertainty lies in the intentions of others.

He claims that game theory would never have amounted to anything had von Neumann not sold it to the military; he even goes so far as to speculate, "Some laid the blame for the escalation of nuclear weaponry directly at the door of game theory."21 Indeed, Mirowski claims that Morgenstern was a "godsend" to von Neumann because he proposed economists as an audience for game theory when no one else was interested. Mirowski is scathing about the naivete and oversimplification of their definitions of "that sadly abused word," rationality, which he describes as "a strange potage."22 Yet, game theory's assumption of rational behavior, and von Neumann and Morgenstern's dream that such behavior can be measured and expressed in numbers, has unleashed a flood of exciting theories and practical applications.


pages: 533 words: 125,495

Rationality: What It Is, Why It Seems Scarce, Why It Matters by Steven Pinker

affirmative action, Albert Einstein, autonomous vehicles, availability heuristic, Ayatollah Khomeini, backpropagation, basic income, behavioural economics, belling the cat, Black Lives Matter, butterfly effect, carbon tax, Cass Sunstein, choice architecture, classic study, clean water, Comet Ping Pong, coronavirus, correlation coefficient, correlation does not imply causation, COVID-19, critical race theory, crowdsourcing, cuban missile crisis, Daniel Kahneman / Amos Tversky, data science, David Attenborough, deep learning, defund the police, delayed gratification, disinformation, Donald Trump, Dr. Strangelove, Easter island, effective altruism, en.wikipedia.org, Erdős number, Estimating the Reproducibility of Psychological Science, fake news, feminist movement, framing effect, George Akerlof, George Floyd, germ theory of disease, high batting average, if you see hoof prints, think horses—not zebras, index card, Jeff Bezos, job automation, John Nash: game theory, John von Neumann, libertarian paternalism, Linda problem, longitudinal study, loss aversion, Mahatma Gandhi, meta-analysis, microaggression, Monty Hall problem, Nash equilibrium, New Journalism, Paul Erdős, Paul Samuelson, Peter Singer: altruism, Pierre-Simon Laplace, placebo effect, post-truth, power law, QAnon, QWERTY keyboard, Ralph Waldo Emerson, randomized controlled trial, replication crisis, Richard Thaler, scientific worldview, selection bias, social discount rate, social distancing, Social Justice Warrior, Stanford marshmallow experiment, Steve Bannon, Steven Pinker, sunk-cost fallacy, TED Talk, the scientific method, Thomas Bayes, Tragedy of the Commons, trolley problem, twin studies, universal basic income, Upton Sinclair, urban planning, Walter Mischel, yellow journalism, zero-sum game

If Brad were to deviate from this strategy, Amanda would change hers to exploit him, and vice versa. They are locked in a Nash equilibrium, named after the mathematician John Nash (the subject of the movie A Beautiful Mind ). Each is playing the best strategy given the opponent’s best strategy; any unilateral change would make them worse off. The discovery that in some situations a rational agent must be superhumanly random is just one of the conclusions from game theory that seems outlandish until you realize that the situations are not uncommon in life. The equilibrium in Scissors-Paper-Rock is called an outguessing standoff, and examples are common in sports like tennis, baseball, hockey, and soccer.

At that moment I realized that a critical concept was missing from the good doctor’s worldview: game theory, the analysis of how to make rational choices when the payoffs depend on someone else’s rational choices. Game theory was presented to the world by von Neumann and Morgenstern in the same book in which they explained expected utility and rational choice.2 But unlike the dilemmas in which we take our chances against a brainless wheel of fortune and the best strategies turn out to be pretty intuitive, game theory deals with dilemmas that pit us against equally cunning deciders, and the outcomes can turn our intuitions upside down and sideways.

Our disproportionate reaction to murder most foul may be irrational in the framework of probability theory but rational in the framework of game theory (chapter 8). Homicide is not like other lethal hazards. A hurricane or shark doesn’t care how we will respond to the harm they have in store for us, but a human killer might. So when people react to a killing with public shock and anger, and redouble their commitment to self-defense, justice, or revenge, it sends a signal to the premeditating killers out there, possibly giving them second thoughts. Game theory may also explain the frenzy set off by a special kind of event that Thomas Schelling described in 1960, which may be called a communal outrage.27 A communal outrage is a flagrant, widely witnessed attack upon a member or symbol of a collective.


Visual Thinking: The Hidden Gifts of People Who Think in Pictures, Patterns, and Abstractions by Temple Grandin, Ph.D.

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 3D printing, a long time ago in a galaxy far, far away, air gap, Albert Einstein, American Society of Civil Engineers: Report Card, Apollo 11, Apple II, ASML, Asperger Syndrome, autism spectrum disorder, autonomous vehicles, Black Lives Matter, Boeing 737 MAX, Captain Sullenberger Hudson, clean water, cloud computing, computer vision, Computing Machinery and Intelligence, coronavirus, cotton gin, COVID-19, defense in depth, Drosophila, Elon Musk, en.wikipedia.org, GPT-3, Gregor Mendel, Greta Thunberg, hallucination problem, helicopter parent, income inequality, industrial robot, invention of movable type, Isaac Newton, James Webb Space Telescope, John Nash: game theory, John von Neumann, Jony Ive, language acquisition, longitudinal study, Mark Zuckerberg, Mars Rover, meta-analysis, Neil Armstrong, neurotypical, pattern recognition, Peter Thiel, phenotype, ransomware, replication crisis, Report Card for America’s Infrastructure, Robert X Cringely, Saturday Night Live, self-driving car, seminal paper, Silicon Valley, Skinner box, space junk, stem cell, Stephen Hawking, Steve Jobs, Steve Wozniak, Tacoma Narrows Bridge, TaskRabbit, theory of mind, TikTok, twin studies, unpaid internship, upwardly mobile, US Airways Flight 1549, warehouse automation, warehouse robotics, web application, William Langewiesche, Y Combinator

A mild case of schizophrenia can confer tremendous creative abilities. A full-blown case can cause paranoid delusions and destroy a person’s mental health. After a meteoric rise as a young mathematician at Princeton University, earning a PhD in just two years at age twenty-two, John Nash made a significant contribution to game theory, a mathematical tool used to analyze how people might behave in certain interactive situations. Game theory can be applied to any area to resolve conflict, most notably economics and politics. As with so many scientists with exceptional abilities, Nash showed signs of brilliance in childhood. According to Sylvia Nasar’s biography, A Beautiful Mind, he taught himself to read at four and turned his childhood bedroom into a laboratory where he “tinkered with radios, fooled around with electrical gadgets, and did chemistry experiments.”

Most often, schizophrenia starts to manifest in the teen years, when a skimpy neural network starts to fall apart. At around age thirty, Nash began to experience psychotic symptoms, and throughout the rest of his life he continued to suffer breakdowns, although he would go on to receive the Nobel Prize in Economics for advancing the mathematics of game theory. What we cannot know is if his early genius was in some way a product of his nascent schizophrenia. The central idea behind neurodiversity is to find a new paradigm for thinking about neurological disorders, including dispensing with the word disorders. Instead of pathologizing conditions like autism, proponents of neurodiversity advocate that these “conditions” be looked at as positive differences.

D’Agostino Greenberg Music School, 29 Filtergraph, 105–6 Finkemeier, Marie-Antonine, 269 Fisher, Karla, 100–101 Fitzgerald, Michael, 172 5G cell phone service, 231–32 Flaubert, Gustave, 176 Flint, Michigan, 202 Florida State University, 188 fMRI (functional magnetic resonance imaging), 23, 26, 39 food-processing industry/plants, 76, 91–93, 96, 130–31 food supply business, 3–5 Forbes, 73, 113 Ford, Henry, 90, 126 Forest City Gear, 92–93 Fort Collins, Colorado, 204 Foster, Craig, 267 Frames of Mind: The Theory of Multiple Intelligences (Gardner), 64–65 Fraser, Donald, 144 Frener & Reifer, 5 Frith, Uta, 12–13, 166 Fritsch, Gustav, 22 Frontiers in Psychology, 215 Fukushima Daiichi nuclear power plant, 6, 223–28 Daini nuclear power plant, 224–27, 235 fusion reactor designs, 152–53 Future Farmers of America (FFA), 91 G Gage, Phineas, 23 Gallup, Gordon, 258 Galton, Francis, 167–68 game theory, 160–61 García, Lily Eskelsen, 51 Gardner, Howard, 64–65, 176 Gates, Bill, 70, 124, 180–81, 183, 190 genetics and animals, 199, 245–46, 260, 263, 269–71 and autism, 28, 44, 162, 166–67, 271 careers in, 108–9 and creativity, 156 geniuses and, 165–71 of human brain, 28, 162, 166–67 genius allowing development of, 189–91 attempts to explain it, 156 definition/hallmarks of, 180, 184–91 and dyslexia, 174–78 genetics of, 165–71 geniuses Asperger’s and, 163–64, 181–82 autism and, 15–16, 155–57, 164, 172–74, 181, 189 brains of, 187–89 coders/computer programmers, 178–83 and deciphering of Rosetta Stone, 146–48 need for mentors and exposure, 158–59, 173 poor performers in school, 155–57, 159, 174–76 schizophrenia and, 160–61 and spatial/object thinking, 156, 173–75, 186 as visual thinkers, 6, 138, 174–78, 182–83, 187–89, 191 See also inventors; specific names Gennari, Francesco, 21 genomic trade-offs, 28, 44, 162, 175 Germany, 5, 22, 32, 82, 94–95, 180, 256, 269 Gibson, Eleanor J., 194–95 Giger, Walter, 129 Ginsburg, Noel, 114 Glickstein, Mitchell, 21 Go (game), 232–33 Goldberg, David E., 63 Goldberg, Elkhonon, 184 Golden Gate Bridge, 208 Goldman Sachs, 104–5 Goodall, Jane, 248, 260 Goodson-Espy, Tracy, 62 Google, 2, 116, 124, 148, 232–34 Goyal, Nikhil, 51 Grain Resolution Test, 33 Great Chain of Being, 241–42 Griffin, Edward, 99 Grit (Duckworth), 99 Gropius, Walter, 133 Gualtieri, Camillo Thomas, 28 Gutenberg, Johannes, 90 H Haciomeroglu, Erhan, 74 Hacker, Andrew, 57–58 Halfon, Eyal, 240 Halsey, Brad, 46 Hammerstein, Oscar, 6, 150–51 Handshake (job search website), 117 Happy (elephant), 244 Harris, Elizabeth A., 72 Harvard, 31, 70, 105, 142, 181, 249 Harvard Business Review, 105, 223 Harvey, Allison, 41 Haskell, Molly, 174 Hawking, Stephen, 17 health care workers, 96, 114 health insurance business, 201 Hearing the Voice project, 13 Heathcoat Fabrics, 93 Hegarty, John P., 170 helicopter parents, 77–78 Hendren, Sara, 130 Herculano-Houzel, Suzana, 253 Hewlett Packard Enterprise, 105, 139, 183 Hickenlooper, John, 114 Hidden Life of Dogs, The (Thomas), 271 high-definition fiber tracking (HDFT), 25 Hill, Erica, 240 Hill, Peter, 93 Hines, William C., 200 Hitch, Graham J., 14 Hitzig, Eduard, 22 Höffler, Tim, 32 Holmes, Elizabeth, 152 home economics, 42, 50–51, 53 Home Insurance Building (Chicago), 134–35 homeschooling, 65–67, 100, 157–58 Hopper, Grace Murray, 17 Horgan, Rob, 209 horses and emotion, 259 hands-on work with, 66, 76, 98 laws to protect, 242–44 training of, 246, 267–68 and visual thinkers, 190–91, 268, 274 How to Raise an Adult (Lythcott-Haims), 77 Howe, Elias, 50, 85, 87–88 Hubbard, Douglas W., 201 Hubble Space Telescope, 47, 97, 197 Hug Machine, 190–91 human-animal relationship, 11–12, 100, 238, 247–48, 267–73 Hunt, Gavin, 259 Hunt, Ray, 268 Huntington Ingalls Industries, 109–10 hyperphantasia, 39–42 I IBM, 117, 197–98 IKEA, 176 IKEA Test, 17 Illinois Valedictorian Project, 75–76 In the Mind’s Eye (West), 83, 173–74 Individualized Education Program (IEP), 66, 82 Individuals with Disabilities Education Act (IDEA), 82–83 industrial designers, 3, 106–7, 132 versus engineers, 126–27, 134, 196 as object visualizers, 32–33, 91, 126–27, 134, 196 See also drawing/drafting: and industrial design infrastructure, 6, 55, 79, 119, 202–5, 223, 276–77 Innovation Boot Camp, 46 innovators.


pages: 396 words: 116,332

Political Ponerology (A Science on the Nature of Evil Adjusted for Political Purposes) by Andrew M. Lobaczewski

anti-communist, corporate raider, disinformation, en.wikipedia.org, false flag, information security, John Nash: game theory, means of production, phenotype, Project for a New American Century

From interpersonal relationships and their expression of archetypal dramas to the vectoring of human behaviour to achieve hyperdimensional purposes, Almost Human reveals the mechanics of evil, how it creeps into our lives, and what we need to be aware of in order to avoid it. The case studies of John Nash, the schizoidal creator of Game Theory, and Ira Einhorn, the New Age psychopath who murdered his girlfriend, are the window through which Knight-Jadczyk unravels the intricate web of deception, aims, and counter-aims of the Powers That Be. Almost Human is essential reading for anyone wondering why our world is becoming increasingly controlled and our freedoms more restricted.

Braithwaite’s work in the philosophy of the physical sciences was important for his theories on the nature of scientific inductive reasoning and the use of models, as well as on the use of probabilistic laws. He also applied his scientific background to his studies of moral and religious philosophy, particularly in the application of mathematical game theory. In his book Theory of Games as a Tool for the Moral Philosopher (1955), he demonstrated the ways in which game theory could be used to arrive at moral choices and ethical decisions. His classic work was Scientific Explanation: A Study of Theory, Probability and Law in Science (1953), on the methodology of natural science. (Encyclopaedia Britannica Online, http://www.britannica.com/ eb/article-9016188/RB-Braithwaite) [Editor’s note


pages: 374 words: 114,600

The Quants by Scott Patterson

Alan Greenspan, Albert Einstein, AOL-Time Warner, asset allocation, automated trading system, Bear Stearns, beat the dealer, Benoit Mandelbrot, Bernie Madoff, Bernie Sanders, Black Monday: stock market crash in 1987, Black Swan, Black-Scholes formula, Blythe Masters, Bonfire of the Vanities, book value, Brownian motion, buttonwood tree, buy and hold, buy low sell high, capital asset pricing model, Carl Icahn, centralized clearinghouse, Claude Shannon: information theory, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, commoditize, computerized trading, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, Doomsday Clock, Dr. Strangelove, Edward Thorp, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial engineering, Financial Modelers Manifesto, fixed income, Glass-Steagall Act, global macro, Gordon Gekko, greed is good, Haight Ashbury, I will remember that I didn’t make the world, and it doesn’t satisfy my equations, index fund, invention of the telegraph, invisible hand, Isaac Newton, Jim Simons, job automation, John Meriwether, John Nash: game theory, junk bonds, Kickstarter, law of one price, Long Term Capital Management, Louis Bachelier, low interest rates, mandelbrot fractal, margin call, Mark Spitznagel, merger arbitrage, Michael Milken, military-industrial complex, money market fund, Myron Scholes, NetJets, new economy, offshore financial centre, old-boy network, Paul Lévy, Paul Samuelson, Ponzi scheme, proprietary trading, quantitative hedge fund, quantitative trading / quantitative finance, race to the bottom, random walk, Renaissance Technologies, risk-adjusted returns, Robert Mercer, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Savings and loan crisis, Sergey Aleynikov, short selling, short squeeze, South Sea Bubble, speech recognition, statistical arbitrage, The Chicago School, The Great Moderation, The Predators' Ball, too big to fail, transaction costs, value at risk, volatility smile, yield curve, éminence grise

It arrived in the spring of 1959, just before Thorp moved from UCLA to the Massachusetts Institute of Technology. At MIT, Thorp found a hotbed of intellectual creativity that was quietly revolutionizing modern society. The job he stepped into, the coveted position of C. L. E. Moore Instructor, had previously been held by John Nash, the math prodigy who eventually won the Nobel Prize in economics in 1994 for his work on game theory, a mathematical approach to how people compete and cooperate. (Nash later became known as the subject of A Beautiful Mind, the book and movie about the competing forces of his genius and mental illness.) That first summer in Cambridge, Thorp crunched the numbers on blackjack, slowly evolving what would become a historic breakthrough in the game.

In 1985, Ax moved the operation to Huntington Beach, California. Axcom was to act as the trading advisor for the fund, which was nominally run as an investing firm owned by a company Simons had founded in July 1982 called Renaissance Technologies. Soon Simons’s growing crew of quants added another math wizard, Elwyn Berlekamp, a game theory expert at Berkeley. Like Ed Thorp, Berlekamp had worked with Claude Shannon and John Kelly at MIT. He’d briefly met Simons during a stint at IDA in the 1960s. The fund put up solid returns for several years, even managing to trade through Black Monday with relatively little damage. In 1988, Ax and Simons renamed the fund Medallion in honor of a math award they’d both won.

In 1997, it was absorbed into the Medallion mother ship and called the Factor Nova Funds, adding stat arb firepower to an already state-of-the-art investment machine. It was the first step in making Medallion a genuine multistrategy fund. By then, Berlekamp was gone. He’d left Renaissance at the end of 1990 to pursue academic interests at Berkeley, where he went on to crack game theory puzzlers such as mathematical chess. But the Medallion legend continued to grow. To be sure, the fund has had a few hiccups over the years. In March 2000, when the dot-com bubble began to implode, reversing trends in technology stocks that had been in place for several years, Medallion lost $250 million in three days, nearly wiping out its year-to-date profit.


Theory of Games and Economic Behavior: 60th Anniversary Commemorative Edition (Princeton Classic Editions) by John von Neumann, Oskar Morgenstern

Abraham Wald, Albert Einstein, business cycle, collective bargaining, full employment, Isaac Newton, John Nash: game theory, John von Neumann, linear programming, Nash equilibrium, Parkinson's law, Paul Samuelson, profit motive, RAND corporation, the market place, zero-sum game

Afterword ARIEL RUBINSTEIN During the past ten years Princeton University Press has done a remarkable job of republishing, in a beautiful and eye-catching format, many of the seminal works from the early days of game theory at Princeton. This new printing of Theory of Games and Economic Behavior, marking the book’s sixtieth anniversary, continues the celebration of game theory. Since the original publication of the book, game theory has moved from the fringe of economics into its mainstream. The distinction between economic theorist and game theorist has virtually disappeared. The 1994 Nobel Prize awarded to John Nash, John Harsanyi, and Reinhard Selten was viewed not just as recognition of three great scholars but also as a victory for game theory as a discipline. Evidence of the immense importance of this book in the development of game theory is the fact that, notwithstanding the intense search for the ancient origins of its ideas, there is consensus that the book was the first major publication in the field.

As a consequence, the theory of games was developed almost exclusively by mathematicians in this period. To describe the spirit of the time as seen by another outside observer, we shall paraphrase a section of Robert J. Aumann’s magnificent article on game theory from The New Palgrave Dictionary of Economics [14]. The period of the late ’40s and early ’50s was a period of excitement in game theory. The discipline had broken out of its cocoon and was testing its wings. Giants walked the earth. At Princeton, John Nash laid the groundwork for the general non-cooperative theory and for cooperative bargaining theory. Lloyd Shapley defined a value for coalitional games, initiated the theory of stochastic games, coinvented the core with D.

According to this opinion, game theory does not have normative implications and its empirical significance is very limited. Game theory is viewed as a cousin of logic. Logic does not allow us to screen out true statements from false ones and does not help us distinguish right from wrong. Game theory does not tell us which action is preferable or predict what other people will do. If game theory is nevertheless useful or practical, it is only indirectly so. In any case, lhe burden of proof is on those who use game theory to make policy recommendations, not on those who doubt the practical value of game theory in the first place.


pages: 377 words: 121,996

Live and Let Spy: BRIXMIS - the Last Cold War Mission by Steve Gibson

Adam Curtis, behavioural economics, Berlin Wall, Bletchley Park, British Empire, corporate social responsibility, cuban missile crisis, disinformation, Fall of the Berlin Wall, John Nash: game theory, libertarian paternalism, long peace, means of production, Mikhail Gorbachev, moral panic, mutually assured destruction, precautionary principle, RAND corporation, road to serfdom, Ronald Reagan, unbiased observer, WikiLeaks

Its most depressing manifestation today is government’s moralising intervention in every aspect of private life – drinking, eating, leisure, health, children – that would have been unconscionable just thirty years ago. The brilliant, paranoid-schizophrenic, and Nobel Prize-winning mathematician largely responsible for this development, John Nash, called it ‘Game Theory’. The underlying assumption of Game Theory was that a fearful and suspicious human being would always be inclined to maximise self-interest over any alternative altruistic, collective or collaborative action. The sum of these individual self-interests would in turn create a fearful equilibrium – control – across society that out-weighed the alternative – chaos.

It was compounded by an imploding political left incapable of true political activity in the sense of acting together in a common cause beyond selfish opportunism. Indeed, the very notion of the public – a self-conscious body operating in a cohesive and collective interest – became redundant. Yet, many proponents of Game Theory themselves recognise the limitations: simplistic assumptions about human nature; a wilful dismissal of free will; and, stubborn acts of unrequited altruism, philanthropy and self-sacrifice all served to defeat the predicted outcomes of Game Theory calculations – the management of human beings by numbers continues to preside over a rise in inequality and the diminution of social mobility within Western societies, rather than liberate them.

Yet, Live and Let Spy also argues that, while Cold War warriors fought a tyrannical and ruthless version of Communism abroad, they remained ignorant of – and lost – an ideological battle at home. That battle saw government and business come to dominate the expectations of their populations in the post-WWII world. This political ideology was fuelled by the construction of a convenient ‘enemy’ abroad, while utilising the Cold War’s Game Theory and Freudian-based public relations management to tame the irrational, self-serving, unconscious nature of individuals at home. Gibson argues that in doing so, liberal democracies traduced power to construct regimes of vacuous politics and ‘negative’ freedom, absent of purpose, meaning, and moral autonomy.


pages: 561 words: 120,899

The Theory That Would Not Die: How Bayes' Rule Cracked the Enigma Code, Hunted Down Russian Submarines, and Emerged Triumphant From Two Centuries of Controversy by Sharon Bertsch McGrayne

Abraham Wald, Alan Greenspan, Bayesian statistics, bioinformatics, Bletchley Park, British Empire, classic study, Claude Shannon: information theory, Daniel Kahneman / Amos Tversky, data science, double helix, Dr. Strangelove, driverless car, Edmond Halley, Fellow of the Royal Society, full text search, government statistician, Henri Poincaré, Higgs boson, industrial research laboratory, Isaac Newton, Johannes Kepler, John Markoff, John Nash: game theory, John von Neumann, linear programming, longitudinal study, machine readable, machine translation, meta-analysis, Nate Silver, p-value, Pierre-Simon Laplace, placebo effect, prediction markets, RAND corporation, recommendation engine, Renaissance Technologies, Richard Feynman, Richard Feynman: Challenger O-ring, Robert Mercer, Ronald Reagan, seminal paper, speech recognition, statistical model, stochastic process, Suez canal 1869, Teledyne, the long tail, Thomas Bayes, Thomas Kuhn: the structure of scientific revolutions, traveling salesman, Turing machine, Turing test, uranium enrichment, We are all Keynesians now, Yom Kippur War

The method figured prominently in three Nobel Prizes awarded for theoretical economics, in 1990, 1994, and 2004. The first Nobel involved the Italian Bayesian de Finetti, who anticipated the Nobel Prize–winning work of Harry Markowitz by more than a decade. Mathematical game theorists John C. Harsanyi and John Nash (the latter the subject of a book and movie, A Beautiful Mind) shared a Bayesian Nobel in 1994. Harsanyi often used Bayes to study competitive situations where people have incomplete or uncertain information about each other or about the rules. Harsanyi also showed that Nash’s equilibrium for games with incomplete or imperfect information was a form of Bayes’ rule.

., 81, 82 Food and Drug Administration, 228–29 forensic science, 235–36 Fox, Robert, 35 Franco, Francisco, 190, 194 French Revolution, 29, 35–36 frequentism: Bayes’ rule accepted in, 233–34 Bayes’ rule compared empirically, 157–58, 159–61 business and, 141, 142 change points and, 216–17 computation and, 214, 225 Cornfield and, 116–17 decision theory and, 236 dimensionality and, 214 expert opinion and, 179 The Federalist papers and, 157–58, 159–61 genetic science and, 47–48 hypotheses and, 116–17, 142, 217, 234 image analysis and, 219 insurance and, 92, 94 likelihood principle and, 132, 233 Lindley’s Paradox and, 132–33 military and, 241 movies and, 178 nuclear weapons and, 123 philosophy and, 253–54 practical applications and, generally, 209 priors and, 104, 177 probability and, 36, 50, 55–57, 99, 130, 142, 145–46, 156, 170 social science and, 217 statistics and, 47–48, 87–88, 98–99, 104–5, 142, 214, 234, 253 Stein’s Paradox and, 131–32 subjectivity and, 104, 129 Tukey and, 169–70 uncertainty and, 55–57, 142 unified approach and, 170 Friedman, Milton, 102, 159, 235 Fuchs, Klaus, 85 gambling: astronomy and, 36 Bayes’ rule and, 11 beliefs and, 51–52 game theory, 236 at Harvard Business School, 148 Laplace and, 19, 20, 21, 32 probability and, 6, 9, 51–52 statistics and, 106–7 subjectivity and, 185 game theory, 236. See also gambling Gastwirth, Joseph L., 227 Gates, Bill, 242 Gauss, C. F., 102 Gelfand, Alan E., 220–22, 224–25 Geman, Donald, 218–19, 221 Geman, Stuart, 218–19, 221, 251 gender, x, 24–27 generating functions, 25 genetic science, xi, 45–48, 225, 235–36, 238–40 Gerrodette, Timothy, 230 Gibbs, Josiah Willard, 219 Gibbs sampling, 218–19, 221, 225–26 Gilbert, Edgar N., 169 Gillispie, Charles Coulston, 35 Gini, Corrado, 52 Gleason, Andrew, 83 God: Bayes’ rule and, ix, 10, 11, 253–54 cause-and-effect and, 5–6 evil and, 4 existence of, 177, 235 happiness and, 4 natural law and, 6, 30 probability and, 19–20.

It was becoming the only mathematics of uncertainty with an explicit, powerful, and secure foundation in logic. How to apply it, though, remained a controversial question. Lindley’s enormous influence as a teacher and organizer bore fruit in the generation to come, while Savage’s book spread Bayesian methods to the military and to business, history, game theory, psychology, and beyond. Although Savage wrote about rabbit ears and neon light in beer, he personally encouraged researchers who would apply Bayes’ rule to life-and-death problems. 8. jerome cornfield, lung cancer, and heart attacks Bayes came to medical research through the efforts of a single scientist, Jerome Cornfield, whose only degree was a B.A. in history and who relied on the rule to identify the causes of lung cancer and heart attacks.


pages: 412 words: 115,266

The Moral Landscape: How Science Can Determine Human Values by Sam Harris

Albert Einstein, banking crisis, Bayesian statistics, behavioural economics, cognitive bias, cognitive load, end world poverty, endowment effect, energy security, experimental subject, framing effect, higher-order functions, hindsight bias, impulse control, John Nash: game theory, language acquisition, longitudinal study, loss aversion, meta-analysis, mirror neurons, Monty Hall problem, out of africa, Paradox of Choice, pattern recognition, peak-end rule, placebo effect, Ponzi scheme, public intellectual, Richard Feynman, risk tolerance, scientific worldview, stem cell, Stephen Hawking, Steven Pinker, TED Talk, the scientific method, theory of mind, traumatic brain injury, trolley problem, ultimatum game, World Values Survey

We can say that a psychopath like Ted Bundy takes satisfaction in the wrong things, because living a life purposed toward raping and killing women does not allow for deeper and more generalizable forms of human flourishing. Compare Bundy’s deficits to those of a delusional physicist who finds meaningful patterns and mathematical significance in the wrong places. The mathematician John Nash, while suffering the symptoms of his schizophrenia, seems a good example: his “Eureka!” detectors were poorly calibrated; he saw meaningful patterns where his peers would not—and these patterns were a very poor guide to the proper goals of science (i.e., understanding the physical world). Is there any doubt that Ted Bundy’s “Yes!

For the purposes of this discussion, however, it seems sufficient to point out that we are beginning to understand the kinds of brain pathologies that lead to the most extreme forms of human evil. And just as some people have obvious moral deficits, others must possess moral talent, moral expertise, and even moral genius. As with any human ability, these gradations must be expressed at the level of the brain. Game theory suggests that evolution probably selected for two stable orientations toward human cooperation: tit for tat (often called “strong reciprocity”) and permanent defection.91 Tit for tat is generally what we see throughout society: you show me some kindness, and I am eager to return the favor; you do something rude or injurious, and the temptation to respond in kind becomes difficult to resist.

But consider how permanent defection would appear at the level of human relationships: the defector would probably engage in continuous cheating and manipulation, sham moralistic aggression (to provoke guilt and altruism in others), and strategic mimicry of positive social emotions like sympathy (as well as of negative emotions like guilt). This begins to sound like garden-variety psychopathy. The existence of psychopaths, while otherwise quite mysterious, would seem to be predicted by game theory. And yet, the psychopath who lives his entire life in a tiny village must be at a terrible disadvantage. The stability of permanent defection as a strategy would require that a defector be able to find people to fleece who are not yet aware of his terrible reputation. Needless to say, the growth of cities has made this way of life far more practicable than it has ever been.


pages: 436 words: 76

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

Alan Greenspan, Albert Einstein, Asian financial crisis, Barry Marshall: ulcers, behavioural economics, Berlin Wall, Big bang: deregulation of the City of London, Bletchley Park, business cycle, California gold rush, Charles Babbage, complexity theory, computer age, constrained optimization, corporate governance, corporate social responsibility, correlation does not imply causation, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Donald Trump, double entry bookkeeping, double helix, Dr. Strangelove, Dutch auction, Edward Lloyd's coffeehouse, electricity market, equity premium, equity risk premium, Ernest Rutherford, European colonialism, experimental economics, Exxon Valdez, failed state, Fairchild Semiconductor, financial innovation, flying shuttle, Ford Model T, Francis Fukuyama: the end of history, George Akerlof, George Gilder, Goodhart's law, Great Leap Forward, greed is good, Gunnar Myrdal, haute couture, Helicobacter pylori, illegal immigration, income inequality, industrial cluster, information asymmetry, intangible asset, invention of the telephone, invention of the wheel, invisible hand, John Meriwether, John Nash: game theory, John von Neumann, junk bonds, Kenneth Arrow, Kevin Kelly, knowledge economy, Larry Ellison, light touch regulation, Long Term Capital Management, loss aversion, Mahatma Gandhi, market bubble, market clearing, market fundamentalism, means of production, Menlo Park, Michael Milken, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Naomi Klein, Nash equilibrium, new economy, oil shale / tar sands, oil shock, Pareto efficiency, Paul Samuelson, pets.com, Phillips curve, popular electronics, price discrimination, price mechanism, prisoner's dilemma, profit maximization, proprietary trading, purchasing power parity, QWERTY keyboard, Ralph Nader, RAND corporation, random walk, rent-seeking, Right to Buy, risk tolerance, road to serfdom, Robert Solow, Ronald Coase, Ronald Reagan, Savings and loan crisis, second-price auction, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, Steve Jobs, Stuart Kauffman, telemarketer, The Chicago School, The Market for Lemons, The Nature of the Firm, the new new thing, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, total factor productivity, transaction costs, tulip mania, urban decay, Vilfredo Pareto, Washington Consensus, women in the workforce, work culture , yield curve, yield management

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

If Part III of the book was mostly concerned with these anonymous interactions, Part IV describes how the working of markets differs when these interactions are not anonymous. Game theory established mathematical Culture and Prosperity {205} tools for discussing strategic interrelationships in small groups and is essential for this analysis. 18 Game theory has a popular appeal that fixed-point theorems will never achieve. This is partly the product of larger-than-life examples. The Prisoner's Dilemma, the most preposterous but the best known of all contributions to game theory, will appear in chapter 21. Game theory's characters are also larger-than-life. Von Neumann, born in Hungary, was one of the geniuses of his age. 19 At eighteen he was studying for three different degrees in different subjects at different universities in different countries.

The Arrow-Debreu results are the culmination of a long tradition in economics that emphasizes supply and demand, perfectly competitive markets, and the search for market equilibrium, conducted by independent, self-regarding agents. Economic research since Arrow and Debreu has drawn game theory, transactions costs, and most recently behavioral economics into the mainstream of economic theory. In the Arrow-Debreu framework, interactions are anonymous and every market has many buyers and sellers. In game theory, the players are few and not anonymous. In the Arrow-Debreu framework, institutions do not exist or are dealt with in a reductionist way. Institutional, or transactions costs, economics recognizes that economic lives are lived in and through economic institutions.


pages: 500 words: 145,005

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

3Com Palm IPO, Alan Greenspan, Albert Einstein, Alvin Roth, Amazon Mechanical Turk, Andrei Shleifer, Apple's 1984 Super Bowl advert, Atul Gawande, behavioural economics, Berlin Wall, Bernie Madoff, Black-Scholes formula, book value, business cycle, capital asset pricing model, Cass Sunstein, Checklist Manifesto, choice architecture, clean water, cognitive dissonance, conceptual framework, constrained optimization, Daniel Kahneman / Amos Tversky, delayed gratification, diversification, diversified portfolio, Edward Glaeser, endowment effect, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, George Akerlof, hindsight bias, Home mortgage interest deduction, impulse control, index fund, information asymmetry, invisible hand, Jean Tirole, John Nash: game theory, John von Neumann, Kenneth Arrow, Kickstarter, late fees, law of one price, libertarian paternalism, Long Term Capital Management, loss aversion, low interest rates, market clearing, Mason jar, mental accounting, meta-analysis, money market fund, More Guns, Less Crime, mortgage debt, Myron Scholes, Nash equilibrium, Nate Silver, New Journalism, nudge unit, PalmPilot, Paul Samuelson, payday loans, Ponzi scheme, Post-Keynesian economics, presumed consent, pre–internet, principal–agent problem, prisoner's dilemma, profit maximization, random walk, randomized controlled trial, Richard Thaler, risk free rate, Robert Shiller, Robert Solow, Ronald Coase, Silicon Valley, South Sea Bubble, Stanford marshmallow experiment, statistical model, Steve Jobs, sunk-cost fallacy, Supply of New York City Cabdrivers, systematic bias, technology bubble, The Chicago School, The Myth of the Rational Market, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, transaction costs, ultimatum game, Vilfredo Pareto, Walter Mischel, zero-sum game

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

At that point he had picked up an MBA and was nearly done with a PhD from the University of Chicago, and he had not yet turned twenty-one. Colin has made many important contributions to behavioral economics. Two stand out. First, he more or less invented the field of behavioral game theory, the study of how people actually play games, as opposed to standard game theory, which studies how Econs would play games if they knew that everyone else playing was also an Econ. More recently, he has been at the forefront of neuro-economics, which uses techniques such as brain imaging to learn more about how people make decisions.

Chapter 18: Anomalies 169 The Structure of Scientific Revolutions: Kuhn (1962). 174 the first two columns: Thaler (1987a, 1987b). 174 A burst of papers: Rozeff and Kinney (1976). 174 Another anomaly came from bettors at the racetrack: Thaler (1992). Chapter 19: Forming a Team 176 game theory in the 1940s: The catalyst was arguably von Neumann and Morgenstern (1947), the first edition of which was published in 1944. 176 the field of behavioral game theory: Camerer (2003). 180 Stanley Schachter: Schachter et al. (1985a, 1985b), Hood et al. (1985). 180 generating new psychology of our own: An exception is the research associated with Sendhil Mullainathan and Eldar Shafir’s (2013) book Scarcity, one of those rare collaborations between an economist and a psychologist. 182 paper by Fehr that captured our attention: Fehr, Kirchsteiger, and Riedl (1993). 182 employment contracts could be viewed partially as a gift exchange: Akerlof (1982). 182 Rabin’s model: Rabin (1993). 20: Narrow Framing on the Upper East Side 186 bold forecasts and timid choices: Kahneman and Lovallo (1993). 186 described . . . in Thinking, Fast and Slow: Kahneman (2011), ch. 22. 189 benefits are demonstrably large: Mullainathan (2013), Baicker, Mullainathan, and Schwartzstein (2013). 191 equity premium puzzle: Mehra and Prescott (1985). 192 six years to get the paper published: Rajnish Mehra told me this. 192 none of the explanations had proven to be completely satisfactory: Mehra (2007). 194 words with one syllable: Samuelson (1979), p. 306. 194 “Risk and Uncertainty: A Fallacy of Large Numbers”: Samuelson (1963). 195 “myopic loss aversion”: Benartzi and Thaler (1995). 195 The only way you can ever take 100 attractive bets: Barberis, Huang and Santos (2001) formalize this intuition in a dynamic model. 195 experiment using recently hired non-faculty employees: Benartzi and Thaler (1999). 197 Quarterly Journal of Economics dedicated to Amos’s memory: Thaler et al. (1997). 198 A paper by . . .


pages: 461 words: 128,421

The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street by Justin Fox

"Friedman doctrine" OR "shareholder theory", Abraham Wald, activist fund / activist shareholder / activist investor, Alan Greenspan, Albert Einstein, Andrei Shleifer, AOL-Time Warner, asset allocation, asset-backed security, bank run, beat the dealer, behavioural economics, Benoit Mandelbrot, Big Tech, Black Monday: stock market crash in 1987, Black-Scholes formula, book value, Bretton Woods, Brownian motion, business cycle, buy and hold, capital asset pricing model, card file, Carl Icahn, Cass Sunstein, collateralized debt obligation, compensation consultant, complexity theory, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, democratizing finance, Dennis Tito, discovery of the americas, diversification, diversified portfolio, Dr. Strangelove, Edward Glaeser, Edward Thorp, endowment effect, equity risk premium, Eugene Fama: efficient market hypothesis, experimental economics, financial innovation, Financial Instability Hypothesis, fixed income, floating exchange rates, George Akerlof, Glass-Steagall Act, Henri Poincaré, Hyman Minsky, implied volatility, impulse control, index arbitrage, index card, index fund, information asymmetry, invisible hand, Isaac Newton, John Bogle, John Meriwether, John Nash: game theory, John von Neumann, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Arrow, libertarian paternalism, linear programming, Long Term Capital Management, Louis Bachelier, low interest rates, mandelbrot fractal, market bubble, market design, Michael Milken, Myron Scholes, New Journalism, Nikolai Kondratiev, Paul Lévy, Paul Samuelson, pension reform, performance metric, Ponzi scheme, power law, prediction markets, proprietary trading, prudent man rule, pushing on a string, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Richard Thaler, risk/return, road to serfdom, Robert Bork, Robert Shiller, rolodex, Ronald Reagan, seminal paper, shareholder value, Sharpe ratio, short selling, side project, Silicon Valley, Skinner box, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, statistical model, stocks for the long run, tech worker, The Chicago School, The Myth of the Rational Market, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, Thorstein Veblen, Tobin tax, transaction costs, tulip mania, Two Sigma, Tyler Cowen, value at risk, Vanguard fund, Vilfredo Pareto, volatility smile, Yogi Berra

Monissen, The Economics of Irving Fisher: Reviewing the Scientific Work of a Great Economist (Cheltenham, UK, Northampton, Mass.: Edward Elgar, 1999), 6. 5. E. Roy Weintraub, “On the Existence of Competitive Equilibrium: 1930–1954,” Journal of Economic Literature (March 1983): 13. 6. It was left to others, such as John Nash of A Beautiful Mind fame, to develop a multiplayer theory of games better suited to modeling economic interactions. 7. John von Neumann and Oskar Morgenstern, Theory of Games and Economic Behavior, 65th Anniversary Edition (Princeton: Princeton University Press, 2004), 177–78. 8. Daniel Bernoulli, “Exposition of a New Theory on the Measurement of Risk,” Econometrica (Jan. 1954): 23–36. 9.

The result was the 641-page Theory of Games and Economic Behavior, coauthored by von Neumann and Morgenstern and published in 1944. As far as pure game theory went, the book added little to what von Neumann had written in 1928,6 although it gave form and heft to von Neumann’s big idea. It also solved the quandary faced by poor Sherlock Holmes and Dr. Moriarty. According to von Neumann’s calculations, Holmes should choose randomly with a 60 percent probability of getting off at the intermediate station, while Moriarty should pick with a 60 percent probability of proceeding straight to Dover.7 Got that? For economists, the part of the book that made the biggest immediate impression was not game theory itself but the chapter outlining how one should weigh potential outcomes before deciding on a move.

At Cowles, he gathered around him a spectacular assemblage of future Nobel winners (“I pick people with good eyes,” he explained9) who together explored the cutting edge of mathematical economics. Von Neumann and Morgenstern’s book was on that cutting edge, and Marschak brought von Neumann to Chicago for a two-day seminar on game theory in 1945. Soon afterward, he wrote an article translating von Neumann and Morgenstern’s concept of expected utility into language that would be understood by his fellow economists. “To be an ‘economic man,’” Marschak summed up, “implies being a ‘statistical man.’”10 IF EVER THERE WAS A statistical man, it was Harry Markowitz.


Adam Smith: Father of Economics by Jesse Norman

active measures, Alan Greenspan, Andrei Shleifer, balance sheet recession, bank run, banking crisis, Basel III, Bear Stearns, behavioural economics, Berlin Wall, Black Swan, Branko Milanovic, Bretton Woods, British Empire, Broken windows theory, business cycle, business process, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, centre right, cognitive dissonance, collateralized debt obligation, colonial exploitation, Corn Laws, Cornelius Vanderbilt, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, David Brooks, David Ricardo: comparative advantage, deindustrialization, electricity market, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Fellow of the Royal Society, financial engineering, financial intermediation, frictionless, frictionless market, future of work, George Akerlof, Glass-Steagall Act, Hyman Minsky, income inequality, incomplete markets, information asymmetry, intangible asset, invention of the telescope, invisible hand, Isaac Newton, Jean Tirole, John Nash: game theory, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, lateral thinking, loss aversion, low interest rates, market bubble, market fundamentalism, Martin Wolf, means of production, mirror neurons, money market fund, Mont Pelerin Society, moral hazard, moral panic, Naomi Klein, negative equity, Network effects, new economy, non-tariff barriers, Northern Rock, Pareto efficiency, Paul Samuelson, Peter Thiel, Philip Mirowski, price mechanism, principal–agent problem, profit maximization, public intellectual, purchasing power parity, random walk, rent-seeking, Richard Thaler, Robert Shiller, Robert Solow, Ronald Coase, scientific worldview, seigniorage, Socratic dialogue, South Sea Bubble, special economic zone, speech recognition, Steven Pinker, The Chicago School, The Myth of the Rational Market, The Nature of the Firm, The Rise and Fall of American Growth, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Malthus, Thorstein Veblen, time value of money, transaction costs, transfer pricing, Veblen good, Vilfredo Pareto, Washington Consensus, working poor, zero-sum game

The ingenuity of Edgeworth’s approach was that it plausibly related much more realistic descriptions of how people actually bargain to the mathematically idealized outcomes of perfect competition—it was in this sense more Smithian than Walrasian. Ignored for decades, his ideas were rediscovered and reinvigorated with the work of John Nash and others in the second half of the twentieth century, when they gave rise to important work in the theory of cooperative and non-cooperative games. Game theory was yet another example of mathematics being incorporated into economics. But the core concept of man as a rational economic agent, homo economicus, lay at the centre of all this work; and as economics grew more mathematical, so the idea of homo economicus became progressively narrower.

It provides a psychologically plausible account of a core norm of fairness, of ‘putting oneself in another’s shoes’ and seeing things from their perspective—the kind of norm that underlies, for example, the well-known theory of justice developed by the philosopher John Rawls. Overall, the use of game theory enables the idea of norms to be integrated into the equilibrium models beloved of economists. But this is also its weakness, for as a purely formal treatment it operates at a single moment or repeated succession of moments in time. It thus misses the continuous, energetic and ever-changing understanding of human interaction to be found in Smith. As game theory reminds us, far from being irrelevant or subordinate to economics and commercial activity, norms bear directly upon them.

These include the work of Frans de Waal and others on norms of reciprocity in primates; of Joe Henrich and others on the evolutionary selection of social norms in different populations; and of Giacomo Rizzolatti and others on the activity of ‘mirror neurons’—neurons that fire both when a monkey or human performs an action and when they see another monkey or human doing a similar action. Some people have seen a potential grounding in neuroscience for Smith’s idea of ‘sympathy’. Perhaps most striking of all is the degree to which game theory has developed and illuminated ideas to be found in Hume and Smith. From this perspective, norms are a central mechanism by which people come to coordinated solutions to social problems. These solutions can often be formally modelled as ‘Nash equilibria’—that is, as stable states of affairs in which each participant knows the strategies of the others and cannot improve their own strategy as a result.


pages: 402 words: 110,972

Nerds on Wall Street: Math, Machines and Wired Markets by David J. Leinweber

"World Economic Forum" Davos, AI winter, Alan Greenspan, algorithmic trading, AOL-Time Warner, Apollo 11, asset allocation, banking crisis, barriers to entry, Bear Stearns, Big bang: deregulation of the City of London, Bob Litterman, book value, business cycle, butter production in bangladesh, butterfly effect, buttonwood tree, buy and hold, buy low sell high, capital asset pricing model, Charles Babbage, citizen journalism, collateralized debt obligation, Cornelius Vanderbilt, corporate governance, Craig Reynolds: boids flock, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Danny Hillis, demand response, disintermediation, distributed generation, diversification, diversified portfolio, electricity market, Emanuel Derman, en.wikipedia.org, experimental economics, fake news, financial engineering, financial innovation, fixed income, Ford Model T, Gordon Gekko, Hans Moravec, Herman Kahn, implied volatility, index arbitrage, index fund, information retrieval, intangible asset, Internet Archive, Ivan Sutherland, Jim Simons, John Bogle, John Nash: game theory, Kenneth Arrow, load shedding, Long Term Capital Management, machine readable, machine translation, Machine translation of "The spirit is willing, but the flesh is weak." to Russian and back, market fragmentation, market microstructure, Mars Rover, Metcalfe’s law, military-industrial complex, moral hazard, mutually assured destruction, Myron Scholes, natural language processing, negative equity, Network effects, optical character recognition, paper trading, passive investing, pez dispenser, phenotype, prediction markets, proprietary trading, quantitative hedge fund, quantitative trading / quantitative finance, QWERTY keyboard, RAND corporation, random walk, Ray Kurzweil, Reminiscences of a Stock Operator, Renaissance Technologies, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Metcalfe, Ronald Reagan, Rubik’s Cube, Savings and loan crisis, semantic web, Sharpe ratio, short selling, short squeeze, Silicon Valley, Small Order Execution System, smart grid, smart meter, social web, South Sea Bubble, statistical arbitrage, statistical model, Steve Jobs, Steven Levy, stock buybacks, Tacoma Narrows Bridge, the scientific method, The Wisdom of Crowds, time value of money, tontine, too big to fail, transaction costs, Turing machine, two and twenty, Upton Sinclair, value at risk, value engineering, Vernor Vinge, Wayback Machine, yield curve, Yogi Berra, your tax dollars at work

Source: Robert Almgren and Neil Chriss, “Optimal Execution of Portfolio Transactions,” Journal of Risk 3, no. 2 (Winter 2000/2001). 10 Share Holdings 8 C B 6 4 A 2 0 0 1 2 3 Time Periods 77 4 5 Mathematical models of markets can become very elaborate. Game theoretic approaches to other market participants, human and machine, in the spirit of the Beautiful Mind ideas of John Nash, bring another level of insight. Known Unknowns and Unknown Unknowns Almgren and Chriss close with an important point about the limitations of all model-driven strategies. As part of the Algos 201 track, here is what they say about connecting algorithms to real-world events: Finally, we note that any optimal execution strategy is vulnerable to unanticipated events.

Markowitz and Sharpe, in particular, pioneered the ideas of balancing risk and reward in a systematic way, which when applied to finance, eventually led to their sharing the Nobel Prize in 1990. To digress just a bit, RAND’s interest in systematically approaching risk and reward, optimization, decision under uncertainty, and game theory was not initially conceived in the context of finance. RAND was motivated by the challenges of World War II and the Cold War.Think of the types of problems faced by the Army Air Corps, predecessor of the modern U.S. Air Force, in World War I. Military aviation involved flying small planes to take a look at the situation on the ground, occasionally encountering someone doing the same thing for the other side.


One Bullet Away: The Making of a Marine Officer by Fick, Nathaniel C.(October 3, 2005) Hardcover by Nathaniel C. Fick

clean water, defense in depth, double helix, dual-use technology, friendly fire, John Nash: game theory, Khyber Pass, no-fly zone, Silicon Valley

I thank my parents, Niel and Jane, and my sisters, Maureen and Stephanie, for their boundless love and support. In worrying, mailing cookies, and listening, they also served. My fellow platoon commanders were, and are, comrades in the truest sense. Thank you to Patrick English, Vijay George, Ed Hinman, Ty Moore, Walt Messick, Brendan Sullivan, John Nash, and Jim Beal. My former commanding officer Rich Whitmer taught me more than he will ever acknowledge. Thank you, Oden Six. To Keith Marine, I can only say “Dang.” I am forever grateful to Mike Wynn, Brad Colbert, Shawn Patrick, Rudy Reyes, Steve Lovell, Tony Espera, Tim Bryan, Mike Stinetorf, Hector Leon, Gabe Garza, Evan Stafford, Anthony “Manimal” Jacks, Walt Hasser, Nathan Christopher, James Chaffin, Harold Trombley, Teren “T” Holsey, John Christeson, Michael Brunmeier, Jason Lilley, Josh Person, Leandro “Shady” Baptista, Eric Kocher, Dan Redman, and A.

Not yelled commands in mid-assault, but multipage written orders built around the five-paragraph format called SMEAC: situation, mission, execution, administration and logistics, command and signal. We wrote dozens of them. Instruction at TBS goes far beyond rote memorization, growing into some amalgamation of chess, history, boxing, and game theory. We studied the fog and friction of war, how the simplest things become difficult. During our written test on the subject, the instructors cranked Metallica at full volume, hurled tennis balls at our heads, and sprayed our faces with water pistols. The lesson was focus: ignore the distractions and do your job.


pages: 505 words: 142,118

A Man for All Markets by Edward O. Thorp

"RICO laws" OR "Racketeer Influenced and Corrupt Organizations", 3Com Palm IPO, Alan Greenspan, Albert Einstein, asset allocation, Bear Stearns, beat the dealer, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, Black-Scholes formula, book value, Brownian motion, buy and hold, buy low sell high, caloric restriction, caloric restriction, carried interest, Chuck Templeton: OpenTable:, Claude Shannon: information theory, cognitive dissonance, collateralized debt obligation, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Edward Thorp, Erdős number, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, Garrett Hardin, George Santayana, German hyperinflation, Glass-Steagall Act, Henri Poincaré, high net worth, High speed trading, index arbitrage, index fund, interest rate swap, invisible hand, Jarndyce and Jarndyce, Jeff Bezos, John Bogle, John Meriwether, John Nash: game theory, junk bonds, Kenneth Arrow, Livingstone, I presume, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, Mason jar, merger arbitrage, Michael Milken, Murray Gell-Mann, Myron Scholes, NetJets, Norbert Wiener, PalmPilot, passive investing, Paul Erdős, Paul Samuelson, Pluto: dwarf planet, Ponzi scheme, power law, price anchoring, publish or perish, quantitative trading / quantitative finance, race to the bottom, random walk, Renaissance Technologies, RFID, Richard Feynman, risk-adjusted returns, Robert Shiller, rolodex, Sharpe ratio, short selling, Silicon Valley, Stanford marshmallow experiment, statistical arbitrage, stem cell, stock buybacks, stocks for the long run, survivorship bias, tail risk, The Myth of the Rational Market, The Predators' Ball, the rule of 72, The Wisdom of Crowds, too big to fail, Tragedy of the Commons, uptick rule, Upton Sinclair, value at risk, Vanguard fund, Vilfredo Pareto, Works Progress Administration

MIT had become one of the world’s great mathematics centers, following its transformation by projects for the government during World War II from a technical school to a scientific powerhouse. Simply walking down the hall, I would chat with people like the prodigy Professor Norbert Wiener (cybernetics) and the future Abel Prize winner Isadore Singer. The C. L. E. Moore Instructorship program, of which I was part, had brought in new PhDs like John Nash, who later won the Nobel for economics, and future Fields Medal winner Paul Cohen. Though there’s no Nobel Prize for mathematics, the Fields and the Abel prizes have that status. Cohen had left a few days before I arrived; his name was just being scraped off his door. I finally decided not to stay on.

Based on his work, he launched the first market-neutral hedge fund in 1969. Dr. Thorp, with Claude Shannon, also invented the first wearable computer in 1961 to win at roulette. He has also written Elementary Probability (1966), The Mathematics of Gambling (1984), and numerous mathematical papers on probability, game theory, and functional analysis. He completed undergraduate and graduate work at UCLA, receiving the BA and MA in physics, and the PhD in mathematics in 1958. He has taught at UCLA, MIT, and New Mexico State University, and was Professor of Mathematics and Finance at the University of California, Irvine.


pages: 604 words: 161,455

The Moral Animal: Evolutionary Psychology and Everyday Life by Robert Wright

agricultural Revolution, Andrei Shleifer, Apollo 13, Asian financial crisis, British Empire, centre right, cognitive dissonance, cotton gin, double entry bookkeeping, double helix, Easter island, fault tolerance, Francis Fukuyama: the end of history, Garrett Hardin, George Gilder, global village, Great Leap Forward, invention of gunpowder, invention of movable type, invention of the telegraph, invention of writing, invisible hand, John Nash: game theory, John von Neumann, Marshall McLuhan, Multics, Norbert Wiener, planetary scale, planned obsolescence, pre–internet, profit motive, Ralph Waldo Emerson, random walk, Richard Thaler, rising living standards, Robert Solow, Silicon Valley, social intelligence, social web, Steven Pinker, talking drums, technological determinism, the medium is the message, The Wealth of Nations by Adam Smith, trade route, Tragedy of the Commons, your tax dollars at work, zero-sum game

Apparently there are some kinds of non-zero-sum games that people just won’t play.† And this pride is found cross culturally; experiments in Japan, Slovenia, the United States, and Israel yield the same basic results. To say that people naturally resist extremely raw deals isn’t, of course, to say that raw deals don’t happen. In 1994, the game theorist John Nash won the Nobel Prize for, among other things, rigorously exploring how various circumstances could weaken one’s bargaining position, so that “logical” outcomes of non-zero-sum games may not be what most of us would call fair. Thus, when people of different income levels bargain over how to divide the benefits of their joint and equal labors, the richer person is in a stronger position; the player who needs the money less can more credibly threaten to drop out of the game altogether.† In chiefdoms, the commoners’ bargaining disadvantage went beyond their low incomes.

But I did liberally pepper the book with the term—and with such allied terms as “non-zero-sum” and “negative sum,” and so on. What’s more, I did title the book “Nonzero.” Why am I so attached to the terminology of game theory? Does it really add anything to more familiar words? Can’t we just say, for example, that zero-sum games are competitive and non-zero-sum games are cooperative? There are several reasons that I think the answer is no—that there’s no substitute for game theory as a way of looking at the history of our species. For starters, there are a number of cases in which people comply with non-zero-sum logic, and yet “cooperate” is a misleading word.

And it seemed to me that, if I wanted a vocabulary that would apply not just to people, but to genes, then it was better to minimize the use of fuzzy terms like “cooperate” and stick mainly with cold, precise terms such as “non-zero-sum.” (A particular appeal of using game theory in biology is that in Darwinian theory the “payoff” is clearly and quantitatively defined—as genetic proliferation; so actually adding up the nonzero sums is in theory doable without making artificial assumptions.) The terminology of game theory helps unify not just human history and organic history. Within each of these realms, the terminology can be unifying. If you ask what is common to reciprocal altruism and kin selection (two basic biological routes to social integration), the answer is non-zero-sum logic.


pages: 467 words: 154,960

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

Albert Einstein, Alvin Toffler, Atul Gawande, backtesting, Bear Stearns, beat the dealer, Bernie Madoff, Black Swan, buy and hold, buy low sell high, California energy crisis, capital asset pricing model, Carl Icahn, 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, Future Shock, game design, global macro, hindsight bias, housing crisis, index fund, Isaac Newton, Jim Simons, John Bogle, John Meriwether, John Nash: game theory, linear programming, Long Term Capital Management, managed futures, mandelbrot fractal, margin call, market bubble, market fundamentalism, market microstructure, Market Wizards by Jack D. Schwager, mental accounting, money market fund, Myron Scholes, Nash equilibrium, new economy, Nick Leeson, Ponzi scheme, prediction markets, random walk, Reminiscences of a Stock Operator, Renaissance Technologies, Richard Feynman, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, shareholder value, Sharpe ratio, short selling, South Sea Bubble, Stephen Hawking, survivorship bias, systematic trading, Teledyne, the scientific method, Thomas L Friedman, too big to fail, transaction costs, upwardly mobile, value at risk, Vanguard fund, William of Occam, zero-sum game

Now, suppose the payoff was changed to 3/2, a gain of $1.50 in addition to a $1 bet—the expectation would change to: (.5) (1.5) + (.5) (–1) = +.25 Playing this game 100 times would give us a positive expectation of .25.8 This is the kind of edge cultivated and honed daily by trend followers. You might ask, “If everyone knows about expectation, how can I ever find my edge?” Think about it this way. Consider a scene from the movie A Beautiful Mind, the biography of mathematician John Nash. Nash and some of his mathematician buddies are in a bar when a sexy blonde and four brunettes walk in. After they admire the new arrivals, Nash and his friends decide to compete for the blonde. However, Nash has reservations, correctly observing that, if everyone goes for the same woman, they will just end up blocking each other out.

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

, 273-274 fashion metaphor, 50 fat tails, 228 Faulkner, Charles, 3, 15, 21, 28, 33, 66, 193-194, 197-198, 201-203, 206-208, 214, 223, 253, 282, 299-302 Fawcett, George, 273 Federal Reserve announcements, reaction to, 56-57 Feinstein, Diane, 146 Feynman, Richard, 16 “fight-or-flight” mode, 197 First Gulf War, 176-178 five-year notes trading, 130 Florida Marlins, 187 Forrester, Jay, 62-63 Fouts, Roger, 209 Franiak, Frank J., 167 Freud, Sigmund, 206, 221 Friedman, Thomas, 28, 143, 256, 267 FTSE chart (2002), trend-followers and, 141 fundamental analysis, 7-9, 177, 212 Futures and Options Expo, 72 futures exchanges, 3 Futures Magazine, xvi Galilei, Galileo, 68 Galton, Francis, 32 game theory, 251 game, trading as, 277-278 Garcia, Jerry, 243 Gardner, David, 9 Gardner, Tom, 9 Gartman, Dennis, 116 “The Gartman Letter,” 116 Gawande, Atul, 209 generalists, trend followers as, 28 German Bund chart (1998), trend-followers and, 159 Gigerenzer, Gerd, 211, 213-214, 216, 224 Gladwell, Malcolm, 158, 169 Glassman, James, 231-232, 235 gold trading, 129 Goldman Sachs, 153 Goleman, Daniel, 196, 200-201 Good to Great (Collins), xviii, 33 Goodman, Marc, 105 Gould, Stephen Jay, 189 government, market system and, 4 Graham Capital Management, 21, 147 greed and behavioral finance, 196 Greenberg, Alan “Ace”, 205 Griffin, Ken, 111 Griffith, Bill, 18 Gulf War (first), 176-178 Gunther, Max, 283 Hamer, Jim, 66 Harding, David, xv, xx, 29-32, 105, 109, 124, 182, 199, 215, 230, 281, 289, 295 Harris, Larry, 114-115, 278 Harrison, Alfred, 235 “Has Trend Following Changed?”


pages: 462 words: 150,129

The Rational Optimist: How Prosperity Evolves by Matt Ridley

"World Economic Forum" Davos, 23andMe, Abraham Maslow, agricultural Revolution, air freight, back-to-the-land, banking crisis, barriers to entry, Bernie Madoff, British Empire, call centre, carbon credits, carbon footprint, carbon tax, Cesare Marchetti: Marchetti’s constant, charter city, clean water, cloud computing, cognitive dissonance, collateralized debt obligation, colonial exploitation, colonial rule, Corn Laws, Cornelius Vanderbilt, cotton gin, creative destruction, credit crunch, David Ricardo: comparative advantage, decarbonisation, dematerialisation, demographic dividend, demographic transition, double entry bookkeeping, Easter island, Edward Glaeser, Edward Jenner, electricity market, en.wikipedia.org, everywhere but in the productivity statistics, falling living standards, feminist movement, financial innovation, flying shuttle, Flynn Effect, food miles, Ford Model T, Garrett Hardin, Gordon Gekko, greed is good, Hans Rosling, happiness index / gross national happiness, haute cuisine, hedonic treadmill, Herbert Marcuse, Hernando de Soto, income inequality, income per capita, Indoor air pollution, informal economy, Intergovernmental Panel on Climate Change (IPCC), invention of agriculture, invisible hand, James Hargreaves, James Watt: steam engine, Jane Jacobs, Jevons paradox, John Nash: game theory, joint-stock limited liability company, Joseph Schumpeter, Kevin Kelly, Kickstarter, knowledge worker, Kula ring, Large Hadron Collider, Mark Zuckerberg, Medieval Warm Period, meta-analysis, mutually assured destruction, Naomi Klein, Northern Rock, nuclear winter, ocean acidification, oil shale / tar sands, out of africa, packet switching, patent troll, Pax Mongolica, Peter Thiel, phenotype, plutocrats, Ponzi scheme, precautionary principle, Productivity paradox, profit motive, purchasing power parity, race to the bottom, Ray Kurzweil, rent-seeking, rising living standards, Robert Solow, Silicon Valley, spice trade, spinning jenny, stem cell, Steve Jobs, Steven Pinker, Stewart Brand, supervolcano, technological singularity, Thales and the olive presses, Thales of Miletus, the long tail, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade route, Tragedy of the Commons, transaction costs, ultimatum game, upwardly mobile, urban sprawl, Vernor Vinge, Vilfredo Pareto, wage slave, working poor, working-age population, world market for maybe five computers, Y2K, Yogi Berra, zero-sum game

Polity Press. See also Eisner, M. 2001. Modernization, Self-Control and Lethal Violence. The Long-term Dynamics of European Homicide Rates in Theoretical Perspective The British Journal of Criminology 41:618-638. p. 85 ‘Greenstreet whispers to Bogart’. Siegfried, T. 2006. A Beautiful Math: John Nash, Game Theory and the Modern Quest for a Code of Nature. Joseph Henry Press. p. 86 ‘As the economist Herb Gintis puts it’. http://www.reason.com/news/show/34772.html. p. 86 ‘people in fifteen mostly small-scale tribal societies were enticed to play the Ultimatum Game’. Henrich, J. et al. 2005. ‘Economic man’ in crosscultural perspective: Behavioral experiments in 15 small-scale societies.


pages: 512 words: 165,704

Traffic: Why We Drive the Way We Do (And What It Says About Us) by Tom Vanderbilt

Albert Einstein, autonomous vehicles, availability heuristic, Berlin Wall, Boeing 747, call centre, cellular automata, Cesare Marchetti: Marchetti’s constant, cognitive dissonance, computer vision, congestion charging, congestion pricing, Daniel Kahneman / Amos Tversky, DARPA: Urban Challenge, Donald Shoup, endowment effect, extreme commuting, fundamental attribution error, Garrett Hardin, Google Earth, hedonic treadmill, Herman Kahn, hindsight bias, hive mind, human-factors engineering, if you build it, they will come, impulse control, income inequality, Induced demand, invisible hand, Isaac Newton, Jane Jacobs, John Nash: game theory, Kenneth Arrow, lake wobegon effect, loss aversion, megacity, Milgram experiment, Nash equilibrium, PalmPilot, power law, Sam Peltzman, Silicon Valley, SimCity, statistical model, the built environment, The Death and Life of Great American Cities, Timothy McVeigh, traffic fines, Tragedy of the Commons, traumatic brain injury, ultimatum game, urban planning, urban sprawl, women in the workforce, working poor

After all, if the driver gets off the highway and goes to Sure Thing Street, he or she will not save time. The driver will save time only if others get off the highway—but why should they? The drivers are locked into what is called a Nash equilibrium, a strategic concept from the annals of Cold War thinking. Popularized by the Nobel mathematician John Nash, it describes a state in which no one player of an experimental game can make himself better off by his own action alone. If you cannot improve your situation, why move to a different road? The irony is that when everyone does what is best for him- or herself, they’re not doing what is best for everyone.

It is easier not to give if one does not make eye contact, which is why one sees, as in other cities, so many drivers looking rigidly ahead as they wait for the light. Your daily drive may not seem to have much to do with the strategies of the Cold War, but every time two cars approach an unmarked intersection simultaneously, or four cars sidle up to a four-way stop at about the same time, a form of game theory is being applied. Game theory, as defined by the Nobel Prize–winning economist Thomas Schelling, is the process of strategic decision making that occurs when, as in a nuclear standoff or a stop-sign showdown, “two or more individuals have choices to make, preferences regarding the outcomes, and some knowledge of the choices available to each other and of each other’s preferences.

Game theory, as defined by the Nobel Prize–winning economist Thomas Schelling, is the process of strategic decision making that occurs when, as in a nuclear standoff or a stop-sign showdown, “two or more individuals have choices to make, preferences regarding the outcomes, and some knowledge of the choices available to each other and of each other’s preferences. The outcome depends on the choices that both of them make, or all of them if there are more than two.” Traffic is filled with these daily moments of impromptu decision making and brinksmanship. As Schelling has argued, one of the most effective, albeit risky, strategies in game theory involves the use of an “asymmetry in communication.” One driver, like Barrios Gómez in Mexico City, makes himself “unavailable” to receive messages, and thus cannot be swayed from going first through the intersection. These sorts of tactics can be quite effective, if you feel like risking your neck to prove a bit of Cold War strategy.


pages: 665 words: 159,350

Shape: The Hidden Geometry of Information, Biology, Strategy, Democracy, and Everything Else by Jordan Ellenberg

Albert Einstein, AlphaGo, Andrew Wiles, autonomous vehicles, British Empire, Brownian motion, Charles Babbage, Claude Shannon: information theory, computer age, coronavirus, COVID-19, deep learning, DeepMind, Donald Knuth, Donald Trump, double entry bookkeeping, East Village, Edmond Halley, Edward Jenner, Elliott wave, Erdős number, facts on the ground, Fellow of the Royal Society, Geoffrey Hinton, germ theory of disease, global pandemic, government statistician, GPT-3, greed is good, Henri Poincaré, index card, index fund, Isaac Newton, Johannes Kepler, John Conway, John Nash: game theory, John Snow's cholera map, Louis Bachelier, machine translation, Mercator projection, Mercator projection distort size, especially Greenland and Africa, Milgram experiment, multi-armed bandit, Nate Silver, OpenAI, Paul Erdős, pets.com, pez dispenser, probability theory / Blaise Pascal / Pierre de Fermat, Ralph Nelson Elliott, random walk, Rubik’s Cube, self-driving car, side hustle, Snapchat, social distancing, social graph, transcontinental railway, urban renewal

* No, not a “sphere”; that’s the set of points at distance exactly 1 from a given point. The Earth’s surface is a sphere (okay, an ever-so-slightly oblate spheroid), but the Earth itself is a ball. The distinction is the same one we made earlier between a “circle” and a “disc.” * Who, as the hand double standing in for Russell Crowe in all the blackboard scenes in the John Nash biopic A Beautiful Mind, has a Bacon number of 2 via Ed Harris, and an Erdős number of 2 via Diaconis, whose paper with Erdős on the greatest common divisor was published eight years after Erdős’s death. That paper, in turn, is the first link in the length-4 path from Erdős to Danica McKellar. * A physicist reading this will understand this to be an oversimplification of the way modern people think about entropy.

., 277 federalism, 349–50, 408n Federalist Papers, 352–53, 384–85 Federalist Party, 363 feedback, 179, 185 Feingold, Russ, 347 Fermat, Pierre de, 151–52, 154, 158 Fermat’s Last Theorem, 151, 151n Fermat’s Little Theorem, 151, 154 Ferranti, 124–25 Fibonacci sequence and carbon molecule, 318 and eigenstates, 294 and eigenvalues, 284–85 and golden ratio, 269–71, 274–78, 280–82 and irrational numbers, 271, 274–75 and Pell sequence, 282 and Pi film, 276–77 and poetic meters, 235–36 and SIR model, 238 and stock market prediction, 281–82, 281n Fields Medal, 419 finance, mathematical, 82 FiveThirtyEight website, 73 Flajolet-Martin algorithm, 335–36 “Flash Cards” (Dove), 414–15 Flatland (Abbott), 411–13, 416, 417n Flight Research Division of NASA, 3 floating voters, 365–66 fluxions, 240 formal gardens, 411 formal logic, 22–24, 26 Fourier transformations, 298 Fourteenth Amendment, 352, 408n Fourth Congressional District of Illinois, 366 fractals, 369 fractions, 251n, 271–75 Franco-Prussian War, 38–39 Franklin, Benjamin, 13n free will, 84, 87, 89 Frénicle de Bessy, Bernard, 151–52 Frisius, Gemma, 307 From Here to Eternity (film), 310 Frost, Robert, 174–75 Fukushima nuclear disaster, 233 Fuller, Everett, 98 functions, 155–56, 169 Gaddie, Keith, 345, 391 Galileo Galilei, 258 Galton, Francis, 77–78, 319 gambler’s ruin problem, 158–59, 159n games and game theory checkers, 97–99, 127, 128n, 137–39, 139–42, 152, 163, 164, 203–4 chess, 127–29, 137, 141–42, 144–45, 146, 155, 164 codes and ciphers, 129–33, 134–37 and Conway, 223–24 draw games, 125–26, 137–38, 140n Game of Life, 224, 325n Go, 139, 140, 141, 155–57, 162–64, 168, 170, 203, 259, 276, 392 modeling gaming programs, 259–60 and Nim, 100–103, 106, 110–15, 121–22, 122–28, 162–63, 223 and redistricting methods, 408 and restriction systems, 138 and stalemate rules, 127–28, 128n subtraction games, 115–17, 117–22, 144 tic-tac-toe, 125–26, 128, 137, 164 and tree diagrams, 103–10, 110–15, 125–28, 137–38, 140–43 Gardner, Martin, 325, 325n Gateway Arch, 258 Gauss, Carl Friedrich, 46, 308 GCHQ, 136 gematria, 276 gender issues in math, 16–17, 197–99, 198, 213–14, 413 Gentry, Jan, 115 geometric mean, 214–15 geometric progressions and eigenvalues, 265–66, 284–86, 290–92, 292–98 modeling spread of diseases, 214–20, 220–22, 231–34, 244, 246, 248, 255, 282–87, 284n, 300–301 and SIR model, 238 and spanning trees, 398 See also exponential growth “Geometry” (Dove), 415 Geometry No Friend to Infidelity (Jurin), 413 geometry of all geometries, 418 Geometry of Statistics (Pearson), 77 Geometry Revisited (Coxeter and Greitzer), 56 German mathematics and Analytical Society, 253 influence on the French, 38–39 and math pedagogy, 17 and Pearson’s background, 75 and Sylvester’s background, 319, 323 germ theory, 256 Geronimo, 59 Gerry, Elbridge, 5, 354, 362–63 gerrymandering current and ongoing issues, 407–10 examples of, 358–59, 361, 366 and geometry of district shapes, 366–72 and GOP map of Wisconsin, 344–48 history of, 362–66 legal battles over, 383–85, 401–7 mathematical methods applied to, 386–93, 393–400 politics of, 357–62 and proportional representation standard, 372–75, 375–78, 380, 382, 383, 385, 386, 402–5 quantifying, 375–81, 376n, 401 and representation priorities, 348–57 and statistical malfeasance, 381–83 and Wisconsin 2018 midterms, 340–44, 341 Gettysburg Address, 12 Ghana, 218 Gifted (film), 68–70, 315 Girls’ Public Day School Company, 413 Glasgow Herald, The, 75 globes, 305–10 gnomic projection, 308 Go and author’s background, 139 game-playing programs, 141, 155–57, 164, 168, 177, 203, 259 and gradient descent, 168, 170 in Pi (film), 276 and random walk theory, 155–57, 392 and space of strategies, 162–65 tree analysis of strategies, 162–65 and tree structure of games, 140–41 Goethe, Johann Wolfgang von, 75 Goffman, Casper, 311 golden ratio, 269–75, 270, 276–82, 283–85 gonorrhea, 227 Gonotsky, Samuel, 138 Google, 92, 94, 195–96, 261–63, 288–92, 330 Google PageRank, 290, 330 Google Translate, 178 Gorsuch, Neil, 384, 385, 402, 404 Gottlieb, Robin, 200 GPT-3, 95–96, 168, 185 GPU chips, 185 Grace, Mckenna, 68–69 gradient descent, 166–76, 177n, 185, 186, 262 gradient of confidence, 22–23 Grammar of Science, The (Pearson), 83 Grandjean, Burke, 98 Granville, Andrew, 201 graphic notation, 318–19 graphs and graph theory, 314–19, 333–35, 338n, 393–400 Grassi, Giovanni, 208 gravity, 238–39, 239–41, 239n great circle routes, 306 Great Easter Brood, 149–50 greedy algorithms, 172, 185 Greitzer, Samuel, 56, 58 Gresham, Thomas, 77 Gresham Professorship in Geometry, 76, 321 Griffith, Elmer Cummings, 363, 366n Grothendieck, Alexander, 421–22 group testing, 226–29 group theory, 391–92 Guam, 356 Guare, John, 333–34, 339 Gulliver, J.


pages: 829 words: 186,976

The Signal and the Noise: Why So Many Predictions Fail-But Some Don't by Nate Silver

airport security, Alan Greenspan, Alvin Toffler, An Inconvenient Truth, availability heuristic, Bayesian statistics, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, big-box store, Black Monday: stock market crash in 1987, Black Swan, Boeing 747, book value, Broken windows theory, business cycle, buy and hold, Carmen Reinhart, Charles Babbage, classic study, Claude Shannon: information theory, Climategate, Climatic Research Unit, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, computer age, correlation does not imply causation, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, Daniel Kahneman / Amos Tversky, disinformation, diversification, Donald Trump, Edmond Halley, Edward Lorenz: Chaos theory, en.wikipedia.org, equity premium, Eugene Fama: efficient market hypothesis, everywhere but in the productivity statistics, fear of failure, Fellow of the Royal Society, Ford Model T, Freestyle chess, fudge factor, Future Shock, George Akerlof, global pandemic, Goodhart's law, haute cuisine, Henri Poincaré, high batting average, housing crisis, income per capita, index fund, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), Internet Archive, invention of the printing press, invisible hand, Isaac Newton, James Watt: steam engine, Japanese asset price bubble, John Bogle, John Nash: game theory, John von Neumann, Kenneth Rogoff, knowledge economy, Laplace demon, locking in a profit, Loma Prieta earthquake, market bubble, Mikhail Gorbachev, Moneyball by Michael Lewis explains big data, Monroe Doctrine, mortgage debt, Nate Silver, negative equity, new economy, Norbert Wiener, Oklahoma City bombing, PageRank, pattern recognition, pets.com, Phillips curve, Pierre-Simon Laplace, Plato's cave, power law, prediction markets, Productivity paradox, proprietary trading, public intellectual, random walk, Richard Thaler, Robert Shiller, Robert Solow, Rodney Brooks, Ronald Reagan, Saturday Night Live, savings glut, security theater, short selling, SimCity, Skype, statistical model, Steven Pinker, The Great Moderation, The Market for Lemons, the scientific method, The Signal and the Noise by Nate Silver, The Wisdom of Crowds, Thomas Bayes, Thomas Kuhn: the structure of scientific revolutions, Timothy McVeigh, too big to fail, transaction costs, transfer pricing, University of East Anglia, Watson beat the top human players on Jeopardy!, Wayback Machine, wikimedia commons

Or we may simply focus on the ones that fit with bureaucratic protocol, like the doctrine that sabotage rather than an air attack was the more likely threat to Pearl Harbor. The Unfamiliar and the Improbable Rumsfeld’s favorite part of Wohlstetter’s book is the foreword, composed by the Nobel Prize–winning economist Thomas Schelling, who was instrumental in translating John Nash’s early work on game theory into national-security contexts. Schelling writes of our propensity to mistake the unfamiliar for the improbable: There is a tendency in our planning to confuse the unfamiliar with the improbable. The contingency we have not considered seriously looks strange; what looks strange is thought improbable; what is improbable need not be considered seriously.

“Positions that are good for computers are complex positions with lots of pieces on the board so there’s lots of legal moves available,” Campbell told me. “We want the positions where tactics are more important than strategy. So you can do some minor things to encourage that.” In this sense, Deep Blue was more “human” than any chess computer before or since. Although game theory does not come into play in chess to the same degree it does in games of incomplete information like poker, the opening sequences are one potential exception. Making a slightly inferior move to throw your opponent off-balance can undermine months of his preparation time—or months of yours if he knows the right response to it.

., 5, 149 progress and, 5 updating of, 73 forecasting, global warming, 380–82 complexity in, 382 consensus in, 382–84 uncertainty in, 382 ForecastWatch.com, 132 foreshocks, 144, 154, 155–57, 476 Fort Dix, 204, 206, 208, 223–25, 229 Fort Riley, 205 fortune-telling, 5 Fourier, Joseph, 375 foxes, 53–54, 54, 55, 73 consensus process emulated by, 67 improvements in predictions by, 57, 68 as television pundits, 56 Fox News, 51n, 55, 56 France, 120 Franklin, Benjamin, 262 Freakonomics (Levitt and Dubner), 9 Freakonomics blog, 136–37, 334 FRED, 225–26 Freddie Mac, 33 free agents, 82, 90, 94, 99 free markets, 1, 128, 332, 369, 370, 451, 496–97 free will, 112 see also determinism French Wars of Religion, 4 frequentism, 252–53, 254, 259, 260 Freud, Sigmund, 53 Friedel, Frederic, 278–79, 282–83 Fritz, 278, 282n Frontline, 370n Fukushima nuclear reactor, 11, 168 Full Tilt Poker, 309 fundamental analysis, 341, 348, 354 fundamentals-based models, in elections forecasting, 68 futarchy, 201 Future Shock (Toffler), 12, 13 Galfond, Phil, 309 Galileo, 4, 254 Gallup polls, 364–65, 497 gambling, 232–61, 238 on baseball, 286 Bayesian philosophy’s esteem for, 255–56, 362 over-under line, 239–40, 257, 286 point spread, 239 Game Change, 59 Game of the Century, 286–88, 287 game theory, 284–85, 311, 419 Gates, Bill, 264 Gates, H. L. “Skip,” 417n GDP, 482 forecasting of, 180, 181–83, 182, 186n, 190, 194, 198, 199, 200–201, 202–3 growth in, vs. job growth, 189 Gehringer, Charlie, 84, 85 German Peasants’ War, 4 Germany, 2, 115, 120, 210 Germany, East, 52 Giambi, Jason, 99 GIGO (garbage in, garbage out), 289 GISS temperature record, 393–95 Giuliani, Giampaolo, 143, 144–45, 146, 476 Gladwell, Malcolm, 53 global cooling, 399–400 global financial crisis, 11, 16, 20, 30–36, 39–43, 118–19, 329 failure to predict, 181, 327 global population, growth of, 212 global warming, 13 causality and, 372–73 Climategate and, 408 contrarianism and, 380 Copenhagen conference on, 378–80 IPCC report on, see International Panel on Climate Change (IPCC) predictions of, 373–76, 393, 397–99, 401–6, 402, 507 self-interest and, 380 skepticism of, 377, 380, 383, 384–85 use of term, 376, 377n Goldman Sachs, 24n, 184–85, 199, 364 gonorrhea, 222 Goodhart’s law, 188 Google, 264, 290–92 creative culture at, 291 Google searches, 200, 290–91 Gorbachev, Mikhail, 50, 51, 52, 160 Gore, Al, 11, 67, 68, 381–82, 381, 385, 403, 514, 469 government spending, 42, 186n GPS, 174–75, 219 Graham, Benjamin, 364 Grand Forks, N.


pages: 1,073 words: 314,528

Strategy: A History by Lawrence Freedman

Albert Einstein, anti-communist, Anton Chekhov, Ayatollah Khomeini, barriers to entry, battle of ideas, behavioural economics, Black Swan, Blue Ocean Strategy, British Empire, business process, butterfly effect, centre right, Charles Lindbergh, circulation of elites, cognitive dissonance, coherent worldview, collective bargaining, complexity theory, conceptual framework, Cornelius Vanderbilt, corporate raider, correlation does not imply causation, creative destruction, cuban missile crisis, Daniel Kahneman / Amos Tversky, defense in depth, desegregation, disinformation, Dr. Strangelove, Edward Lorenz: Chaos theory, en.wikipedia.org, endogenous growth, endowment effect, escalation ladder, Ford Model T, Ford paid five dollars a day, framing effect, Frederick Winslow Taylor, Gordon Gekko, greed is good, Herbert Marcuse, Herman Kahn, Ida Tarbell, information retrieval, interchangeable parts, invisible hand, John Nash: game theory, John von Neumann, Kenneth Arrow, lateral thinking, linear programming, loose coupling, loss aversion, Mahatma Gandhi, means of production, mental accounting, Murray Gell-Mann, mutually assured destruction, Nash equilibrium, Nelson Mandela, Norbert Wiener, Norman Mailer, oil shock, Pareto efficiency, performance metric, Philip Mirowski, prisoner's dilemma, profit maximization, race to the bottom, Ralph Nader, RAND corporation, Richard Thaler, road to serfdom, Ronald Reagan, Rosa Parks, scientific management, seminal paper, shareholder value, social contagion, social intelligence, Steven Pinker, strikebreaker, The Chicago School, The Myth of the Rational Market, the scientific method, theory of mind, Thomas Davenport, Thomas Kuhn: the structure of scientific revolutions, Torches of Freedom, Toyota Production System, transaction costs, Twitter Arab Spring, ultimatum game, unemployed young men, Upton Sinclair, urban sprawl, Vilfredo Pareto, W. E. B. Du Bois, War on Poverty, women in the workforce, Yogi Berra, zero-sum game

In a 1949 article, Brodie referred to game theory in a footnote as a source of “mathematical systematization,” adding that “for various reasons” he did not share the authors’ “conviction that their theory could be directly and profitably applied to problems of military strategy.”15 Later, while finding its “refinements” of little use, he acknowledged the value of the “constant reminder that in war we shall be dealing with an opponent who will react to our moves and to whom we must react.”16 Few of the books on nuclear strategy made much, if any, mention of game theory. This absence was notable in a book by one of the founders of game theory, Oskar Morgenstern.17 Bruce-Briggs suggests that the close association between nuclear strategy and game theory was a consequence of the reception of Kahn’s On Thermonuclear War. Although Kahn had used neither game theory nor mathematics, he was accused of being the most extreme example of a game-theory-wielding militarist, a moniker implying great technical capacity but no moral sensibility. Schelling was also included in this category.18 Schelling observed at the time, “I don’t see that game theory is any more involved than Latin grammar or geophysics; but its quaint name makes mysterious and patronizing references to it an effective ploy.”19 Schelling had little background in military issues.

He shared the view, growing among the operational research community, that advanced mathematics and abstract models were making their work less accessible to potential users,12 and he always opposed the suggestion that strategy was or should be “a branch of mathematics.”13 He confessed to having learned more “from reading ancient Greek history and by looking at salesmanship than studying game theory.” The greatest achievement of game theory, as far as he was concerned, was the payoff matrix. It was extraordinarily useful to be able to put together in a matrix a “simple situation involving as few as two people and two choices.”14 His equivocation on game theory was not unique. Other nuclear strategists who worked at RAND during the 1950s tended to talk of following the “spirit” of game theory rather than its rules. In a 1949 article, Brodie referred to game theory in a footnote as a source of “mathematical systematization,” adding that “for various reasons” he did not share the authors’ “conviction that their theory could be directly and profitably applied to problems of military strategy.”15 Later, while finding its “refinements” of little use, he acknowledged the value of the “constant reminder that in war we shall be dealing with an opponent who will react to our moves and to whom we must react.”16 Few of the books on nuclear strategy made much, if any, mention of game theory.

After the mid-1960s, when he felt he had said much of what he wanted to say about nuclear matters, he turned his attention to other issues, ranging from crime to cigarette smoking, but still applied the same essential approach. His achievement was underlined by the award of a Nobel Prize in economics in 2005 for “having enhanced our understanding of conflict and cooperation through game-theory analysis.”10 Yet Schelling’s relationship to game theory was equivocal. He did not describe himself as a game theorist but rather a social scientist who used game theory on occasion. He hit upon his big idea before he came across game theory as a means through which it could be expressed. He preferred to reason through analogy in ways that purists found maddening. Schelling’s reputation depended on his gifts as a brilliant expositor who wrote with elegance and lucidity, traits for which this particular field of endeavor were not well known.11 Schelling did not claim to have achieved the “science” that had long been sought in strategy or that formal logic could in principle lead to a mathematical solution.