Nash equilibrium

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pages: 1,535 words: 337,071

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

Albert Einstein, AltaVista, clean water, conceptual framework, Daniel Kahneman / Amos Tversky, Douglas Hofstadter, Erdős number, experimental subject, first-price auction, fudge factor, 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, 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, Simon Singh, slashdot, social web, Steve Jobs, stochastic process, Ted Nelson, The Market for Lemons, The Wisdom of Crowds, trade route, transaction costs, ultimatum game, Vannevar Bush, Vickrey auction, Vilfredo Pareto, Yogi Berra, zero-sum game

To prove that the set of Nash equilibria remains the same through one round of deletion, we need to show two things. First, any Nash equilibrium of the original game is a Nash equilibrium of the reduced game. To see this, note that otherwise there would be a Nash equilibrium of the original game involving a strategy S that was deleted. But in this case, S is strictly dominated by some other strategy S . Hence S cannot be part of a Nash equilibrium of the original game: it is not a best response to the strategies of the other players, since the strategy S that dominates it is a better response. This establishes that no Nash equilibrium of the original game can be removed by the deletion process. Second, we need to show that any Nash equilibrium of the reduced game is also a Nash equilibrium of the original game. In order for this not to be the case, there would have to be a Nash equilibrium E = (S1, S2, . . . , Sn) of the reduced game, and a strategy S that was deleted i from the original game, such that player i has an incentive to deviate from its strategy Si in E to the strategy S .

We can check that for symmetric two-player, two-strategy games, the condition for (S, S) to be a strict Nash equilibrium is that a > c. So we see that in fact these different notions of equilibrium naturally refine each other. The concept of an evolutionarily stable strategy can be viewed as a refinement of the concept of a Nash equilibrium: the set of evolutionarily stable strategies S is a subset of the set of strategies S for which (S, S) is a Nash equilibrium. Similarly, the concept of a strict Nash equilibrium (when the players use the same strategy) is a refinement of evolutionary stability: if (S, S) is a strict Nash equilibrium, then S is evolutionarily stable. It is intriguing that, despite the extremely close similarities between the conclusions of evolutionary stability and Nash equilibrium, they are built on very different underlying stories. In a Nash equilibrium, we consider players choosing mutual best responses to each other’s strategy.

We say that this pair of strategies (S, T ) is a Nash equilibrium if S is a best response to T , and T is a best response to S. Nash shared the 1994 Nobel Prize in Economics for his development and analysis of this idea. To understand the idea of Nash equilibrium, we should first ask why a pair of strategies that are not best responses to each other would not constitute an equilibrium. The answer is that the players cannot both believe that these strategies will be actually used in the game, as they know that at least one player would have an incentive to deviate to another strategy. So Nash equilibrium can be thought of as an equilibrium in beliefs. If each player believes that the other player will actually play a strategy that is part of a Nash equilibrium, then she is willing to play her part of the Nash equilibrium. Let’s consider the Three-Client Game from the perspective of Nash equilibrium.


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, Benoit Mandelbrot, butterfly effect, call centre, Chance favours the prepared mind, Claude Shannon: information theory, collateralized debt obligation, correlation does not imply causation, diversification, Edward Lorenz: Chaos theory, Edward Thorp, Everything should be made as simple as possible, Flash crash, Gerolamo Cardano, Henri Poincaré, Hibernia Atlantic: Project Express, if you build it, they will come, invention of the telegraph, Isaac Newton, 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

Such approaches can be particularly important in games like poker, which can have more than two players. Recall that, in game theory, optimal strategies are said to be in Nash equilibrium: no single player will gain anything by picking a different strategy. Neil Burch, one of the researchers in the University of Alberta poker group, points out that it makes sense to look for such strategies if you have a single opponent. If the game is zero-sum—with everything you lose going to your opponent, and vice versa—then a Nash equilibrium strategy will limit your losses. What’s more, if your opponent deviates from an equilibrium strategy, your opponent will lose out. “In two player games that are zero-sum, there’s a really good reason to say that a Nash equilibrium is the correct thing to play,” Burch said. However, it isn’t necessarily the best option when more players join the game.

Three poker players could choose Nash equilibrium strategies, and when these strategies are put together, it may turn out that two players have selected tactics that just so happen to pick on the third player. This is why three-player poker is so difficult to tackle from a game theory point of view. Not only is the game far more complicated, with more potential moves to analyze, it’s not clear that hunting for the Nash equilibrium is always the best approach. “Even if you could compute one,” Michael Johanson said, “it wouldn’t necessarily be useful.” There are other drawbacks, too. Game theory can show you how to minimize your losses against a perfect opponent. But if your opponent has flaws—or if there are more than two players in the game—you might want to deviate from the “optimal” Nash equilibrium strategy and instead take advantage of weaknesses.

By doing so, it would either take market share from companies that didn’t promote their products or avoid losing customers to firms that did. Although everyone would save money by cooperating, each individual firm would always benefit by advertising. Which meant all the companies inevitably ended up in the same position, putting out advertisements to hinder the other firms. Economists refer to such a situation—where each person is making the best decision possible given the choices made by others—as a “Nash equilibrium.” Spending would rise further and further until this costly game stopped. 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.


Economic Origins of Dictatorship and Democracy by Daron Acemoğlu, James A. Robinson

Andrei Shleifer, British Empire, business cycle, colonial rule, conceptual framework, constrained optimization, Corn Laws, declining real wages, Edward Glaeser, European colonialism, Gunnar Myrdal, income inequality, income per capita, invisible hand, Jean Tirole, John Markoff, Kenneth Rogoff, land reform, minimum wage unemployment, Nash equilibrium, Nelson Mandela, oil shock, open economy, Pareto efficiency, rent-seeking, strikebreaker, total factor productivity, transaction costs, Washington Consensus, William of Occam, women in the workforce

Therefore, the predictions of this model can be summarized by the corresponding Nash equilibrium, in which each party chooses the policy that maximizes its utility given the policy of the other party. Nash equilibrium policy platforms, (q A∗ , q B∗ ), satisfy the following conditions: q A∗ = arg max {P (q A , q B∗ ) (R + WA (q A )) + (1 − P (q A , q B∗ ))WA (q B∗ )} q A ∈Q and, simultaneously: q B∗ = arg max {(1 − P (q A∗ , q B )) (R + WB (q B )) + P (q A∗ , q B )WB (q A∗ )} q B ∈Q Intuitively, these conditions state that in a Nash equilibrium, taking q B∗ as given, q A∗ should maximize party A’s expected utility. At the same time, it must be true that taking q A∗ as given, q B∗ should maximize B’s expected utility. The problem in characterizing this Nash equilibrium is that the function P (q A , q B ), as shown by (12.1), is not differentiable.

A player chooses a strategy to maximize this function where a strategy is a function that determines which action to take at every node in which a player has to make a decision.3 A strategy here is simply how to vote in different pairwise comparisons. The basic solution concept for such a game is a Nash equilibrium, which is a set of n strategies, one for each player, such that no player can increase his payoff by unilaterally changing strategy. Another way to say this is that players’ strategies have to be mutual best responses. We also extensively use a refinement of Nash equilibrium – the concept of subgame perfect Nash equilibrium – in which players’ strategies have to be mutual best responses on every proper subgame, not just the whole game. (The relationship between these two concepts is discussed in Chapter 5.) Nevertheless, compared to the models we now discuss, the assumption of open agenda makes it difficult to write down the game more carefully.

Faced with this threat, it is optimal for the elite to give the citizens all of their money. This is one Nash equilibrium. However, it rests on the threat that if the elite refuses, the citizens will blow up the world. This threat is off the equilibrium path because the elite hand over their money and the citizens, therefore, do not have to carry out their threat. Imagine, however, that the elite refuses. Now, the citizens must decide whether to blow up the world. Faced with this situation, the citizens renege on their threat because, plausibly, it is better to get nothing from the elite than to kill themselves. Therefore, their threat is not credible, and the Nash equilibrium supported by this noncredible threat is not appealing. Fortunately, there is another more plausible Nash equilibrium in which the elite refuses to give the citizens anything and the citizens do not blow up the world.


pages: 453 words: 111,010

Licence to be Bad by Jonathan Aldred

"Robert Solow", Affordable Care Act / Obamacare, Albert Einstein, availability heuristic, Ayatollah Khomeini, Benoit Mandelbrot, Berlin Wall, Black Swan, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Cass Sunstein, clean water, cognitive dissonance, corporate governance, correlation does not imply causation, cuban missile crisis, Daniel Kahneman / Amos Tversky, Donald Trump, Douglas Engelbart, Douglas Engelbart, Edward Snowden, 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, George Akerlof, glass ceiling, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Jeff Bezos, John Nash: game theory, John von Neumann, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, meta analysis, 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, Plutocrats, positional goods, 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 Shiller, Ronald Coase, Ronald Reagan, Skype, Social Responsibility of Business Is to Increase Its Profits, spectrum auction, The Nature of the Firm, The Wealth of Nations by Adam Smith, transaction costs, trickle-down economics, Vilfredo Pareto, wealth creators, zero-sum game

The key question, then, is often less about why a Nash equilibrium persists once the players are playing their equilibrium strategies, and more about whether we will reach that equilibrium in the first place: a question of history rather than game theory. (In the case of QWERTY, its convoluted form was precisely the point: it was invented to slow down typists in an era of mechanical typewriters with keys that were liable to jam when used at speed.) Most troubling of all for game-theoretic orthodoxy, even if a game has only one Nash equilibrium, it does not follow that we will reach it – that it will be the outcome when the game is actually played. Playing the Nash equilibrium strategy is only the best way for you to play the game if everyone else is playing the Nash equilibrium strategy too. But as we have seen, there are several good reasons why you might think others won’t be playing their Nash strategy – because they are not selfish, or because they don’t think like game theorists.

You and the other spectators face a Prisoner’s Dilemma when deciding whether to stand up for a better view at a sports event: everyone stands, so everyone is worse off than if they had remained seated. In the original Prisoner’s Dilemma story, the reasoning described earlier implies that both players should confess. And this outcome is a Nash equilibrium: if your partner confesses, you do best by confessing too. So the blame for the damaging non-cooperation nurtured by this reasoning may seem to lie with John Nash’s equilibrium idea. But – although millions of students in social science, philosophy, law and biology are today introduced to game theory via the Prisoner’s Dilemma and its Nash equilibrium ‘solution’ – the Nash equilibrium idea is not driving the outcome here. There is a more basic logic at work: regardless of what the other player does, your best action is to confess. Any predictions about, or agreements with, your opponent are irrelevant: you will always do better in Prisoner’s Dilemma situations if you respond with a ‘non-cooperative’ action.

But crucially, in many contexts, we cannot assume that everyone else is behaving selfishly in the first place. And without this assumption, the explanation for why we get locked into non-cooperative situations disappears. Put another way, game theory says we will end up in a Nash equilibrium, but it does not explain which equilibrium – cooperative, non-cooperative or otherwise. It is a Nash equilibrium that everyone drives on the same side of the road, and there are two equilibria: everyone drives on the left, and everyone drives on the right. Game theory has little to say about which equilibrium will emerge, and why it differs across countries. Likewise, the QWERTY layout for keyboards is a Nash equilibrium: if everyone is using QWERTY to type, and almost all keyboards are manufactured with QWERTY, then you should learn to type using QWERTY too, and new keyboards will be made with that design.


pages: 298 words: 43,745

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

AltaVista, barriers to entry, Black Swan, bounce rate, business intelligence, butterfly effect, call centre, Claude Shannon: information theory, complexity theory, correlation does not imply causation, en.wikipedia.org, first-price auction, information asymmetry, information retrieval, intangible asset, inventory management, life extension, linear programming, longitudinal study, megacity, Nash equilibrium, Network effects, PageRank, place-making, price mechanism, psychological pricing, random walk, Schrödinger's Cat, sealed-bid auction, search engine result page, second-price auction, second-price sealed-bid, sentiment analysis, social web, software as a service, stochastic process, telemarketer, the market place, The Present Situation in Quantum Mechanics, the scientific method, The Wisdom of Crowds, Vickrey auction, Vilfredo Pareto, yield management

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

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

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


pages: 523 words: 143,139

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 trading, anthropic principle, asset allocation, autonomous vehicles, Bayesian statistics, Berlin Wall, Bill Duvall, bitcoin, Community Supported Agriculture, complexity theory, constrained optimization, cosmological principle, cryptocurrency, Danny Hillis, David Heinemeier Hansson, delayed gratification, dematerialisation, diversification, Donald Knuth, double helix, Elon Musk, fault tolerance, Fellow of the Royal Society, Firefox, first-price auction, Flash crash, Frederick Winslow Taylor, George Akerlof, global supply chain, Google Chrome, Henri Poincaré, information retrieval, Internet Archive, Jeff Bezos, Johannes Kepler, John Nash: game theory, John von Neumann, Kickstarter, knapsack problem, Lao Tzu, Leonard Kleinrock, linear programming, martingale, Nash equilibrium, natural language processing, NP-complete, P = NP, packet switching, Pierre-Simon Laplace, prediction markets, race to the bottom, RAND corporation, RFC: Request For Comment, Robert X Cringely, Sam Altman, 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, traveling salesman, Turing machine, urban planning, Vickrey auction, Vilfredo Pareto, Walter Mischel, Y Combinator, zero-sum game

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

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

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


pages: 323 words: 100,772

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

Albert Einstein, anti-communist, cuban missile crisis, Douglas Hofstadter, Frank Gehry, From Mathematics to the Technologies of Life and Death, 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, statistical model, the market place, zero-sum game

Had Flood and Dresher used a “fair” playoff table, the cooperation rate might have been higher yet. Flood and Dresher wondered what John Nash would make of this. Mutual defection, the Nash equilibrium, occurred only fourteen times. When they showed their results to Nash, he objected that “the flaw in the experiment as a test of equilibrium point theory is that the experiment really amounts to having players play one large multi-move game. One cannot just as well think of the thing as a sequence of independent games as one can in zero-sum cases. There is too much interaction, which is obvious in the results of the experiment.” This is true enough. However, if you work it out, you find that the Nash equilibrium strategy for the multi-move “supergame” is for both players to defect in each of the hundred trials. They didn’t do that. TUCKER’S ANECDOTE The odd little game in the Flood-Dresher experiment intrigued the RAND community.

Here’s an example of a non-zero-sum game and its equilibrium point solution: Strategy 1 Strategy 2 Strategy 1 1, 100 0, 1 Strategy 2 2, 0 5, 2 We can use the same type of table we have been using for zero-sum games, with one difference. It’s necessary to put two numbers in each cell of the game table. The first gives the payoff to the “row player” (the one who chooses the row of the outcome). The second number in each cell is the payoff of the “column player.” No longer can we assume that one player’s gain is another’s loss. Some cells have a higher combined payoff than others. The Nash equilibrium solution is for both players to choose their strategy 2 (lower right cell, boldface). Obviously the row player is satisfied with this, for he wins 5 points, the most he could win under any circumstances. But this outcome can be justified to the column player as well. Playing Monday-morning quarterback, given that the row player chose strategy 2, the column player cannot regret having chosen his strategy 2.

The minimax solutions of zero-sum games qualify as equilibrium points, but Nash’s proof says that non-zero-sum games have equilibrium points, too. That is a new result. But there are a few catches. These equilibrium points can have “strange and undesirable properties,” as Philip D. Straffin, Jr., put it (1980). The above example was chosen to show a game where the equilibrium point solution clearly makes sense. Other times, equilibrium point solutions appear less inevitable than the solutions of zero-sum games. In fact, sometimes Nash equilibriums appear to be distinctly irrational. We will explore the consequences of this in the following chapters. 1. “The Rand Hymn” words and music by Malvina Reynolds. © Copyright 1961 Schroder Music Co. (ASCAP). Renewed 1989 by Nancy Schimmel. 2. But Flood doubts that even von Neumann could have calculated that fast. He suspects that someone had told von Neumann of the coin earlier. 6 PRISONER’S DILEMMA People are irrational.


pages: 998 words: 211,235

A Beautiful Mind by Sylvia Nasar

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

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

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

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


pages: 543 words: 153,550

Model Thinker: What You Need to Know to Make Data Work for You by Scott E. Page

"Robert Solow", Airbnb, Albert Einstein, Alfred Russel Wallace, algorithmic trading, Alvin Roth, assortative mating, Bernie Madoff, bitcoin, Black Swan, blockchain, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Checklist Manifesto, computer age, corporate governance, correlation does not imply causation, cuban missile crisis, deliberate practice, discrete time, distributed ledger, en.wikipedia.org, Estimating the Reproducibility of Psychological Science, Everything should be made as simple as possible, experimental economics, first-price auction, Flash crash, Geoffrey West, Santa Fe Institute, germ theory of disease, Gini coefficient, High speed trading, impulse control, income inequality, Isaac Newton, John von Neumann, Kenneth Rogoff, knowledge economy, knowledge worker, Long Term Capital Management, loss aversion, low skilled workers, Mark Zuckerberg, market design, meta analysis, meta-analysis, money market fund, Nash equilibrium, natural language processing, Network effects, p-value, Pareto efficiency, pattern recognition, Paul Erdős, Paul Samuelson, phenotype, pre–internet, prisoner's dilemma, race to the bottom, random walk, randomized controlled trial, Richard Feynman, Richard Thaler, school choice, sealed-bid auction, second-price auction, selection bias, six sigma, social graph, spectrum auction, statistical model, Stephen Hawking, Supply of New York City Cabdrivers, The Bell Curve by Richard Herrnstein and Charles Murray, The Great Moderation, The Rise and Fall of American Growth, the rule of 72, the scientific method, The Spirit Level, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, urban sprawl, value at risk, web application, winner-take-all economy, zero-sum game

In a sequential game, a strategy corresponds to an action choice at each node. Suppose that the existing firm chooses to compete if the entrant enters. If the entrant knows this, the entrant would not enter, as doing so would produce negative profits. This set of actions, the entrant choosing to not enter and the existing firm planning to compete if the entrant did enter, are a Nash equilibrium. However, this is not the only Nash equilibrium, nor is it the most likely outcome. There is a second equilibrium in which the entrant chooses to enter the market and the existing firm accepts the entrants move and does not compete. To select among these two equilibria, we apply a refinement criterion. In sequential games, a common refinement chooses the subgame perfect equilibrium. We solve for the subgame equilibrium using backward induction: we start at the end nodes and choose the optimal action at each.

Their utility can be written as follows: Utility(M) = B − θ · M where B denotes the maximal benefit, and θ is a congestion parameter. The remaining (N − M) people abstain and receive utility of zero.9 Socially optimal: M = Utility = Nash equilibrium: M = Utility() = 0 In the socially optimal solution, the number of people who use the resource equals the maximal possible benefit divided by twice the congestion parameter. Those findings align with our intuition. The number of people who use the resource should increase with the maximal benefit and decrease with greater congestion effects. In the Nash equilibrium solution, exactly double the socially optimal number of people use the resource. Congestion becomes so severe that no one receives any benefit. That result is an artifact of the assumption that not using the resource gives a utility of zero.

That assumption would capture resources like roads, in which the first few other users have no effect on an individual’s benefit and in which at some point the resource is so overcrowded as to be useless. 9 The total utility from M people using the resource equals (B − θ · M). Taking the derivative with respect to M and setting it equal to zero equals (B − 2Mθ) = 0. Solving gives M = . To solve for the Nash equilibrium, we set the value of abstaining equal to zero. People use the resource until the benefit equals the outside option: M = . 10 Note: we set the maximal benefit B equal to the population size N to reduce the number of variables. To solve for the socially optimal outcomes and Nash equilibrium, we first note that total utility equals (N − M) · M + 3(N − (N − M)) · (N − M), which reduces to 4(N − M)M. Taking the derivative with respect to M gives 4N −8M = 0. Solving gives M = . Total utility equals . To solve for the equilibrium, we find an M such that the marginal utilities at the two parks are equal.


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

affirmative action, Affordable Care Act / Obamacare, Airbnb, Albert Einstein, anti-pattern, Anton Chekhov, 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, David Attenborough, delayed gratification, deliberate practice, discounted cash flows, disruptive innovation, Donald Trump, Douglas Hofstadter, Edward Lorenz: Chaos theory, Edward Snowden, effective altruism, Elon Musk, en.wikipedia.org, experimental subject, fear of failure, feminist movement, Filter Bubble, framing effect, friendly fire, fundamental attribution error, Gödel, Escher, Bach, hindsight bias, housing crisis, Ignaz Semmelweis: hand washing, illegal immigration, income inequality, information asymmetry, Isaac Newton, Jeff Bezos, John Nash: game theory, lateral thinking, loss aversion, Louis Pasteur, Lyft, mail merge, Mark Zuckerberg, meta analysis, meta-analysis, Metcalfe’s law, Milgram experiment, minimum viable product, moral hazard, mutually assured destruction, Nash equilibrium, Network effects, nuclear winter, offshore financial centre, p-value, Parkinson's law, Paul Graham, peak oil, Peter Thiel, phenotype, Pierre-Simon Laplace, placebo effect, Potemkin village, 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, 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, survivorship bias, The Present Situation in Quantum Mechanics, the scientific method, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, transaction costs, uber lyft, ultimatum game, uranium enrichment, urban planning, Vilfredo Pareto, wikimedia commons

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. To both get a shorter sentence, they’d have to act cooperatively, coordinating their strategies. That coordinated strategy is unstable (i.e., not an equilibrium) because either player could then betray the other to better their outcome. In any game you play, you want to know whether there is a Nash equilibrium, as that is the most likely outcome unless something is done to change the parameters of the game.

In any game you play, you want to know whether there is a Nash equilibrium, as that is the most likely outcome unless something is done to change the parameters of the game. For example, the Nash equilibrium for an arms race is choosing a high arms strategy where both parties continue to arm themselves. Here’s an example of a payoff matrix for this scenario: Arms Race Payoff Matrix: Economic Outcomes B disarms B arms A disarms win, win lose big, win big A arms win big, lose big lose, lose As you can see, the arms race directly parallels the prisoner’s dilemma. Both A and B arming (the lose-lose situation) is the Nash equilibrium, because if either party switched to disarming, they’d be worse off, enabling an even poorer outcome, such as an invasion they couldn’t defend against (denoted as “lose big”).

Again, like straw man and appeal to emotion, these models attempt to frame a situation away from an important issue and toward another that is easier to criticize. When you are in a conflict, you should consider how its framing is shaping the perception of it by you and others. Take the prisoner’s dilemma. The prosecutors have chosen to frame the situation competitively because, for them, the Nash equilibrium with both criminals getting five years is actually the preferred outcome. However, if the criminals can instead frame the situation cooperatively—stick together at all costs—they can vastly improve their outcome. WHERE’S THE LINE? In Chapter 3, we advised seeking out design patterns that help you more quickly address issues, and watching out for anti-patterns, intuitively attractive yet suboptimal solutions.


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

affirmative action, Albert Einstein, business cycle, Debian, desegregation, Donald Trump, en.wikipedia.org, Everything should be made as simple as possible, global village, guest worker program, 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, transcontinental railway, Unsafe at Any Speed, Y2K

Myerson, saw a clever way of treating the problem. 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).

No one would choose to change the way he voted, if given the chance, after learning how everyone else voted. Spoilers and vote splitting lead to outcomes that are not Nash equi- 214 Bad Santa libria. If I cast a plurality vote for Nader, thinking that Gore is sure to win, and then Bush wins because of my vote and I kick myself for not having voted for Gore, my vote would not be part of a Nash equilibrium. It goes without saying that 99-plus percent of voters have never heard of a Nash equilibrium. No matter; opinion polls tend to herd voters into equilibrium outcomes. What worries Saari is roughly this. r go into the voting booth believing that the race is between Bill Clinton and George H. W. Bush. I cast an approval vote for whichever front runner I like better. Then there's Perot. Something about the little guy appeals to me. Maybe I want to protest inside-the-Beltway thinking by voting for Perot.

I may say I'll approve your candidate if you approve mine. With a secret ballot, you'll never know whether I did. A pact is credible only when both sides can assure themselves that no one has an incentive to violate the pact-in other words, when it's a Nash equilibrium. In that case, you don't need a pact. Everyone can be expected to vote in his own best interests anyway. Myerson and Weber treat a hypothetical race similar to Buckley v. Goodell v. Ottinger. Preelection polls would help voters decide which of the two "clone" candidates is stronger. Say it was Ottinger. The Nash equilibrium outcome would then be for Ottinger's supporters to approve only Ottinger, for Goodell's supporters to approve both Goodell and Ottinger, and for Buckley's supporters to approve Buckley alone. Ottinger would get about 60 percent approval vote, easily beating Buckley's 40 percent or so, and also beating Goodell.


The Ethical Algorithm: The Science of Socially Aware Algorithm Design by Michael Kearns, Aaron Roth

23andMe, affirmative action, algorithmic trading, Alvin Roth, Bayesian statistics, bitcoin, cloud computing, computer vision, crowdsourcing, Edward Snowden, Elon Musk, Filter Bubble, general-purpose programming language, Google Chrome, ImageNet competition, Lyft, medical residency, Nash equilibrium, Netflix Prize, p-value, Pareto efficiency, performance metric, personalized medicine, pre–internet, profit motive, quantitative trading / quantitative finance, RAND corporation, recommendation engine, replication crisis, ride hailing / ride sharing, Robert Bork, Ronald Coase, self-driving car, short selling, sorting algorithm, speech recognition, statistical model, Stephen Hawking, superintelligent machines, telemarketer, Turing machine, two-sided market, Vilfredo Pareto

A solution in which there are no such potential defections is called a stable matching. A matching with this property is not at risk of unraveling as students and hospitals iteratively defect from their proposed matches. A stable matching is conceptually quite similar to a Nash equilibrium, but now two parties (a candidate and a medical school) must jointly defect to a mutually preferred outcome, due to the two-sided nature of the market. And like a Nash equilibrium, a stable matching in no way promises that everyone will be satisfied with the outcome: a candidate assigned to her 117th-favorite hospital may not be happy, but as in a Nash equilibrium, there is nothing she can do about it, because the 116 hospitals she prefers already have candidates they like better than her. Candidates and hospitals that are paired together in a stable matching are stuck with each other.

It is assumed that each “player” in the system (such as a user of Coffee Meets Bagel) will behave selfishly (for example, by setting or changing her dating preferences) to advance her own goals, in response to similarly selfish behavior by others, and without regard to the consequences for other players or the global outcome. An equilibrium is thus a kind of selfish standoff, in which all players are optimizing their own situation simultaneously, and no one can improve their situation by themselves. Technically speaking, the underlying mathematical notion of equilibrium we refer to here is known as a Nash equilibrium, named for the Nobel Prize–winning mathematician and economist John Forbes Nash, who proved that such equilibria always exist under very general conditions. We’ll shortly have reason to consider non-equilibrium solutions to game-theoretic interactions, as well as alternative notions of equilibrium that are more cooperative. When equilibrium is described as a selfish standoff, it’s not particularly surprising that sometimes equilibrium can be undesirable to any particular individual in the system (like Amanda Lewis), or even to the entire population.

We mentioned briefly in that chapter that one solution to this problem involved an algorithm that simulated play between a Learner who would like to minimize error and a Regulator who continually confronts the Learner with subgroups suffering discrimination under the Learner’s current model. This is another example of simulated game play as design principle, with the Regulator taking the place of a backgammon program or a Generator. Here the Regulator’s goal (fairness) may be in conflict with the Learner’s (accuracy), and the outcome (which is actually a Nash equilibrium of a precisely defined game) will be a compromise of the two—as desired. Similarly, game-theoretic algorithm design has also proven useful in differential privacy. For example, while there may not be much motivation to generate fake cat pictures—we have plenty of the real thing—there is very good reason to generate realistic-looking but fake or synthetic medical records. In this case, the real thing can’t generally be widely shared because of privacy concerns—often to the detriment of scientific research.


pages: 500 words: 145,005

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

"Robert Solow", 3Com Palm IPO, Albert Einstein, Alvin Roth, Amazon Mechanical Turk, Andrei Shleifer, Apple's 1984 Super Bowl advert, Atul Gawande, Berlin Wall, Bernie Madoff, Black-Scholes formula, 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, 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, market clearing, Mason jar, mental accounting, meta analysis, meta-analysis, money market fund, More Guns, Less Crime, mortgage debt, Myron Scholes, Nash equilibrium, Nate Silver, New Journalism, nudge unit, Paul Samuelson, payday loans, Ponzi scheme, presumed consent, pre–internet, principal–agent problem, prisoner's dilemma, profit maximization, random walk, randomized controlled trial, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, Silicon Valley, South Sea Bubble, Stanford marshmallow experiment, statistical model, Steve Jobs, Supply of New York City Cabdrivers, 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. But if everyone guessed 2 you would want to guess 1.33, and so forth. If and only if all participants guessed zero would no one want to change his or her guess.

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

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


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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, Andrew Wiles, artificial general intelligence, Asilomar, Asilomar Conference on Recombinant DNA, augmented reality, autonomous vehicles, basic income, blockchain, brain emulation, Cass Sunstein, Claude Shannon: information theory, complexity theory, computer vision, connected car, crowdsourcing, Daniel Kahneman / Amos Tversky, delayed gratification, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, Ernest Rutherford, Flash crash, full employment, future of work, Gerolamo Cardano, 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, Mark Zuckerberg, Nash equilibrium, Norbert Wiener, NP-complete, openstreetmap, P = NP, Pareto efficiency, Paul Samuelson, Pierre-Simon Laplace, positional goods, probability theory / Blaise Pascal / Pierre de Fermat, profit maximization, RAND corporation, random walk, Ray Kurzweil, recommendation engine, RFID, Richard Thaler, ride hailing / ride sharing, Robert Shiller, Robert Shiller, 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, Thales of Miletus, The Future of Employment, Thomas Bayes, Thorstein Veblen, transport as a service, Turing machine, Turing test, universal basic income, uranium enrichment, Von Neumann architecture, Wall-E, Watson beat the top human players on Jeopardy!, web application, zero-sum game

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. For Alice and Bob’s soccer game, there is only one equilibrium. In other cases, there may be several, so the concept of Nash equilibria, unlike that of expected-utility decisions, does not always lead to a unique recommendation for how to behave. Worse still, there are situations in which the Nash equilibrium seems to lead to highly undesirable outcomes. One such case is the famous prisoner’s dilemma, so named by Nash’s PhD adviser, Albert Tucker, in 1950.25 The game is an abstract model of those all-too-common real-world situations where mutual cooperation would be better for all concerned but people nonetheless choose mutual destruction.

Now, Alice reasons as follows: “If Bob is going to confess, then I should confess too (ten years is better than twenty); if he is going to refuse, then I should confess (going free is better than spending two years in prison); so either way, I should confess.” Bob reasons the same way. Thus, they both end up confessing to their crimes and serving ten years, even though by jointly refusing they could have served only two years. The problem is that joint refusal isn’t a Nash equilibrium, because each has an incentive to defect and go free by confessing. Note that Alice could have reasoned as follows: “Whatever reasoning I do, Bob will also do. So we’ll end up choosing the same thing. Since joint refusal is better than joint confession, we should refuse.” This form of reasoning acknowledges that, as rational agents, Alice and Bob will make choices that are correlated rather than independent.

It’s just one of many approaches that game theorists have tried in their efforts to obtain less depressing solutions to the prisoner’s dilemma.27 Another famous example of an undesirable equilibrium is the tragedy of the commons, first analyzed in 1833 by the English economist William Lloyd28 but named, and brought to global attention, by the ecologist Garrett Hardin in 1968.29 The tragedy arises when several people can consume a shared resource—such as common grazing land or fish stocks—that replenishes itself slowly. Absent any social or legal constraints, the only Nash equilibrium among selfish (non-altruistic) agents is for each to consume as much as possible, leading to rapid collapse of the resource. The ideal solution, where everyone shares the resource such that the total consumption is sustainable, is not an equilibrium because each individual has an incentive to cheat and take more than their fair share—imposing the costs on others. In practice, of course, humans do sometimes avoid this tragedy by setting up mechanisms such as quotas and punishments or pricing schemes.


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

Andrew Wiles, Asian financial crisis, Berlin Wall, bonus culture, British Empire, business process, Cass Sunstein, computer age, corporate raider, credit crunch, Daniel Kahneman / Amos Tversky, discounted cash flows, discovery of penicillin, diversification, Donald Trump, Fall of the Berlin Wall, financial innovation, Gordon Gekko, greed is good, invention of the telephone, invisible hand, Jane Jacobs, lateral thinking, Long Term Capital Management, Louis Pasteur, market fundamentalism, Myron Scholes, Nash equilibrium, pattern recognition, Paul Samuelson, purchasing power parity, RAND corporation, regulatory arbitrage, shareholder value, Simon Singh, Steve Jobs, Thales of Miletus, The Death and Life of Great American Cities, The Predators' Ball, The Wealth of Nations by Adam Smith, ultimatum game, urban planning, value at risk

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

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


pages: 313 words: 95,077

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

Andrew Keen, Berlin Wall, bioinformatics, Brewster Kahle, c2.com, Charles Lindbergh, crowdsourcing, en.wikipedia.org, hiring and firing, hive mind, Howard Rheingold, Internet Archive, invention of agriculture, invention of movable type, invention of the printing press, invention of the telegraph, jimmy wales, Joi Ito, Kuiper Belt, liberation theology, Mahatma Gandhi, means of production, Merlin Mann, Metcalfe’s law, Nash equilibrium, Network effects, Nicholas Carr, Picturephone, place-making, Pluto: dwarf planet, prediction markets, price mechanism, prisoner's dilemma, profit motive, Richard Stallman, Robert Metcalfe, Ronald Coase, Silicon Valley, slashdot, social software, Stewart Brand, supply-chain management, The Nature of the Firm, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, transaction costs, ultimatum game, Vilfredo Pareto, Yogi Berra

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

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


pages: 415 words: 125,089

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

"Robert Solow", Albert Einstein, Alvin Roth, Andrew Wiles, Antoine Gombaud: Chevalier de Méré, Bayesian statistics, 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 innovation, full employment, 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, probability theory / Blaise Pascal / Pierre de Fermat, random walk, Richard Thaler, Robert Shiller, Robert Shiller, 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

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

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

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


pages: 631 words: 177,227

The Secret of Our Success: How Culture Is Driving Human Evolution, Domesticating Our Species, and Making Us Smarter by Joseph Henrich

agricultural Revolution, capital asset pricing model, Climategate, cognitive bias, Daniel Kahneman / Amos Tversky, delayed gratification, demographic transition, endowment effect, experimental economics, experimental subject, Flynn Effect, impulse control, Monkeys Reject Unequal Pay, Nash equilibrium, out of africa, phenotype, placebo effect, profit maximization, randomized controlled trial, risk tolerance, side project, social intelligence, social web, Steven Pinker, The Wisdom of Crowds, theory of mind, ultimatum game

Thus, the predicted winning strategy in a contest of intelligent rational actors is that Matchers should randomize their responses, playing L 50% of the time, while Mismatchers should randomize by playing L only 20% of the time. This outcome is called the Nash equilibrium. The fraction of the time that one should play L can be moved around by simply changing the payoffs for matching or mismatching on L or R. A research team from Caltech and Kyoto University tested six chimpanzees and two groups of human adults: Japanese undergraduates and Africans from Bossou, in the Republic of Guinea. When chimpanzees played this asymmetric variant of Matching Pennies (figure 2.4), they zoomed right in on the predicted result, the Nash equilibrium. Humans, however, systematically and consistently missed the rational predictions, with Mismatchers performing particularly poorly. This deviation from “rationality,” though it was in line with many prior tests of human rationality, was nearly seven times greater than the chimpanzees’ deviation.

Moreover, detailed analyses of the patterns of responses over many rounds of play show that the chimps responded more quickly to both their opponents’ recent moves and to changes in their payoffs (i.e., when they switched from playing the Matcher to the Mismatcher). Chimpanzees seem to be better at individual learning and strategic anticipation, at least in this game.20 The performance of the apes in this setup was no fluke. The Caltech-Kyoto team also ran two other versions of the game, each with different payoffs. In both versions, the chimps zeroed in on the Nash equilibrium as it moved around from game to game. This means that chimps can develop what game theorists call a mixed strategy, which requires them to randomize their behavior around a certain probability. Humans, however, often struggle with this. A final insight into the humans’ poor performance comes from an analysis of participants’ response times, which measures the time from the start of a round until the player selects his move.

The humans would no doubt counter by complaining that although the chimpanzees were rewarded with snacks for each correct sequence, the students received no snacks (and may thus have been lacking a key glucose boost). The humans would also argue that Ayumu is clearly a ringer who figured out some secret way of winning that none of his fellow chimps have replicated. Humphrey (2012) provides an interesting discussion of potential issues with this research. 19. See Byrne and Whiten 1992, Dunbar 1998, and Humphrey 1976. 20. See Martin et al. 2014. The average deviation from the Nash equilibrium target was 0.02 for the chimps but 0.14 for the humans. 21. See Cook et al. 2012, Belot, Crawford, and Heyes 2013, and Naber, Pashkam, and Nakayama 2013. 22. On heuristics and biases from psychology and economics, see Gilovich, Griffin, and Kahneman 2002, Kahneman 2011, Kahneman, Slovic, and Tversky 1982, Camerer 1989, Gilovich, Vallone, and Tversky 1985, and Camerer 1995. For asking the question of how we are so well adapted given our apparent irrationality, see Henrich 2002 and Henrich et al. 2001a.


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A Mathematician Plays the Stock Market by John Allen Paulos

Benoit Mandelbrot, Black-Scholes formula, Brownian motion, business climate, business cycle, butter production in bangladesh, butterfly effect, capital asset pricing model, 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, 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, John Nash: game theory, 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, Ponzi scheme, price anchoring, Ralph Nelson Elliott, random walk, Richard Thaler, Robert Shiller, Robert Shiller, short selling, six sigma, Stephen Hawking, stocks for the long run, survivorship bias, transaction costs, ultimatum game, Vanguard fund, Yogi Berra

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

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


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

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

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

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

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


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

"Robert Solow", Albert Einstein, Asian financial crisis, Barry Marshall: ulcers, Berlin Wall, Big bang: deregulation of the City of London, business cycle, California gold rush, 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, Edward Lloyd's coffeehouse, equity premium, Ernest Rutherford, European colonialism, experimental economics, Exxon Valdez, failed state, financial innovation, Francis Fukuyama: the end of history, George Akerlof, George Gilder, greed is good, Gunnar Myrdal, haute couture, 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, Kenneth Arrow, Kevin Kelly, knowledge economy, light touch regulation, Long Term Capital Management, loss aversion, Mahatma Gandhi, market bubble, market clearing, market fundamentalism, means of production, Menlo Park, 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, popular electronics, price discrimination, price mechanism, prisoner's dilemma, profit maximization, purchasing power parity, QWERTY keyboard, Ralph Nader, RAND corporation, random walk, rent-seeking, Right to Buy, risk tolerance, road to serfdom, Ronald Coase, Ronald Reagan, second-price auction, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, Steve Jobs, 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, 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. His claim to fame rests mainly on two articles, published almost twenty-five years apart.

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

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


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The New Rules of War: Victory in the Age of Durable Disorder by Sean McFate

active measures, anti-communist, barriers to entry, Berlin Wall, blood diamonds, cognitive dissonance, commoditize, computer vision, corporate governance, corporate raider, cuban missile crisis, Donald Trump, double helix, drone strike, European colonialism, failed state, hive mind, index fund, invisible hand, John Markoff, joint-stock company, moral hazard, mutually assured destruction, Nash equilibrium, offshore financial centre, pattern recognition, Peace of Westphalia, plutocrats, Plutocrats, private military company, profit motive, RAND corporation, ransomware, Ronald Reagan, Silicon Valley, South China Sea, Stuxnet, technoutopianism, Washington Consensus, Westphalian system, yellow journalism, Yom Kippur War, zero day, zero-sum game

Deep state institutions place their own interests above that of the state and its citizens. There may be a legitimate government in place, but it’s the deep state that really calls the shots. The institutions that comprise the deep state do not plot their actions like participants in a conspiracy. Rather, they engage in passive synchronization. They cooperate because their institutional interests align, as in a Nash equilibrium, resulting in mutually reinforcing actions that protect their common goals. Gradually this tacit consensus congeals into a deep state that can control a nation. They can overrule, sabotage, and reverse legitimate government decisions with no accountability or even visibility. Conspiracies and deep states are natural enemies. Conspiracies seek to undermine the system, while deep states seek to hijack it.

(West Point), 235, 236 Military budget, 37–38, 41, 46, 47, 50, 102, 106–7, 445 Military contractors, 51, 101–2, 128–31 Military education, 235–40 Military force, declining utility of, 104–8 Military-industrial complex, 50, 166–67 Militias, 3, 101, 123–24, 153 Mimicry operations, 191 Mitchell, William “Billy,” 17–19, 20, 238, 249, 250 Mobutu Sese Seko, 157 Montgomery, Bernard, 234 Moral corruption, 113 “Moral hazard,” 186–87 More, Thomas, 127 Morocco, 97 Mueller, Robert, 202 Mutually assured destruction (“MAD”), 78–79 Myanmar, 150 My Lai massacre, 122 Myth-busting, 111 Myth of bifurcated victory, 232–33, 235 Napoleon Bonaparte, 32, 230, 250 Narco-wars. See Drug wars Narrative, controlling the, 41, 66, 67–68, 108–13, 227 Nash equilibrium, 161 Nasrallah, Hassan, 242 Natanz nuclear facility, 16 National debt, 46, 167 National Defense University, 23, 71, 232–33, 237–38 National guard vs. active duty, realignment of, 38–40 Nationalism, 105 National Security Agency, 137–38, 202 National Security Strategy, 75, 76–77 Nation-building, 4, 93–94, 150 Nation-states, 8, 247 conventional war and, 30–32 retreat of, 147–50 NATO (North Atlantic Treaty Organization), 2, 13, 21, 33, 37, 103–4, 168, 200, 245 Naval training, 55–57 Navy SEALs, 38, 172 Newbold, Gregory, 263n New Rules of War, 6, 9–10, 80, 248 New superpowers.


pages: 272 words: 83,798

A Little History of Economics by Niall Kishtainy

"Robert Solow", Alvin Roth, British Empire, Capital in the Twenty-First Century by Thomas Piketty, car-free, central bank independence, clean water, Corn Laws, creative destruction, credit crunch, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Eugene Fama: efficient market hypothesis, first-price auction, floating exchange rates, follow your passion, full employment, George Akerlof, greed is good, Hyman Minsky, inflation targeting, invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, loss aversion, market clearing, market design, means of production, moral hazard, Nash equilibrium, new economy, Occupy movement, Pareto efficiency, Paul Samuelson, prisoner's dilemma, RAND corporation, rent-seeking, Richard Thaler, rising living standards, road to serfdom, Robert Shiller, Robert Shiller, 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 fact Nash’s idea became the most important in game theory, still used all the time today. He said that the outcome of a game – its ‘equilibrium’ – is that in which each player does the best for himself given what the other player does. When everyone’s doing that, no one has any reason to change what they’re doing, so that’s the equilibrium of the game. Nash proved that most games have an equilibrium – what became known as a ‘Nash equilibrium’. Take me and my enemy. Given that my enemy buys missiles, then my best response is to do the same: the worst thing would be to be unarmed in the face of enemy threats. The same reasoning applies to my enemy: if I arm, then they should definitely arm. Both of us building up our stock of missiles is the equilibrium of the game. The arms race is a version of a really famous game, the ‘prisoners’ dilemma’, which was invented by mathematicians at RAND.

(i), (ii) Kerala (India) (i) Keynes, John Maynard (i), (ii), (iii), (iv), (v), (vi) Keynesian theory (i), (ii), (iii) Klemperer, Paul (i) Krugman, Paul (i), (ii) Kydland, Finn (i), (ii) labour (i) in ancient Greece (i) and market clearing (i) women as unpaid (i) labour theory of value (i), (ii) laissez-faire (i) landowners (i), (ii), (iii) Lange, Oskar (i) law of demand (i), (ii) leakage of spending (i) Lehman Brothers (i) leisure class (i) leisured, women as (i) Lenin, Vladimir Ilyich (i), (ii) Lerner, Abba (i) Lewis, Arthur (i) Lincoln, Abraham (i) List, Friedrich (i) loss aversion (i) Lucas, Robert (i), (ii) MacKay, Charles (i) Macmillan, Harold (i) macro/microeconomics (i) Malaysia, and speculators (i) Malthus, Thomas (i), (ii), (iii) Malynes, Gerard de (i), (ii) manufacturing (i), (ii) division of labour (i) see also Industrial Revolution margin (i) marginal costs (i), (ii) marginal principle (i), (ii), (iii) marginal revenue (i) marginal utility (i), (ii) market, the (i) market clearing (i) market design (i) market failure (i), (ii), (iii), (iv) ‘Market for Lemons, The’ (Akerlof) (i) market power (i) markets, currency (i), (ii) Marshall, Alfred (i), (ii), (iii), (iv), (v) Marx, Karl (i), (ii), (iii), (iv), (v), (vi), (vii) Marxism (i) mathematics (i), (ii), (iii) means of production (i) mercantilism (i), (ii) Mesopotamia (i) Mexico, pegged currency (i) micro/macroeconomics (i) Microsoft (i) Midas fallacy (i) minimum wage (i) Minsky, Hyman (i) Minsky moment (i), (ii) Mirabeau, Marquis de (i), (ii), (iii) Mises, Ludwig von (i), (ii), (iii), (iv) mixed economies (i), (ii) Mobutu Sese Seko (i) model villages (i) models (economic) (i), (ii), (iii), (iv) modern and traditional economies (i), (ii) monetarism (i) monetary policy (i), (ii) money (i), (ii), (iii), (iv), (v), (vi) see also coins; currency money illusion (i) money wages (i) moneylending see usury monopolies (i), (ii) monopolistic competition (i), (ii) monopoly, theory of (i) monopoly capitalism (i), (ii), (iii) monopsony (i) moral hazard (i), (ii) multiplier (i) Mun, Thomas (i), (ii), (iii) Muth, John (i) Nash, John (i), (ii) Nash equilibrium (i) national income (i), (ii), (iii), (iv), (v) National System of Political Economy (List) (i) Nelson, Julie (i) neoclassical economics (i) net product (i) Neumann, John von (i) New Christianity, The (Saint-Simon) (i) new classical economics (i) New Harmony (Indiana) (i) New Lanark (Scotland) (i) Nkrumah, Kwame (i), (ii) non-rival good (i) Nordhaus, William (i), (ii) normative economics (i), (ii) Obstfeld, Maurice (i) Occupy movement (i) oligopolies (i) opportunity cost (i), (ii) organ transplant (i) output per person (i) Owen, Robert (i) paper money (i), (ii) Pareto, Vilfredo (i) pareto efficiency (i), (ii) pareto improvement (i) Park Chung-hee (i) partial equilibrium (i) pegged exchange rate (i) perfect competition (i), (ii), (iii), (iv), (v) perfect information (i) periphery (i) phalansteries (i) Phillips, Bill (i) Phillips curve (i), (ii), (iii), (iv), (v), (vi), (vii) physiocracy (i), (ii) Pigou, Arthur Cecil (i), (ii), (iii) Piketty, Thomas (i), (ii), (iii) Plato (i), (ii), (iii) policy discretion (i) Ponzi, Charles (i) Ponzi finance (i) population and food supply (i), (ii), (iii) of women (i) positive economics (i) poverty (i), (ii), (iii), (iv), (v) in Cuba (i) Sen on (i) and utopian thinkers (i) Prebisch, Raúl (i) predicting (i) Prescott, Edward (i), (ii) price wars (i), (ii) primary products (i) prisoners’ dilemma (i) private costs and benefits (i) privatisation (i) productivity (i), (ii), (iii) profit (i), (ii), (iii), (iv) and capitalism (i), (ii) proletariat (i), (ii) property (private) (i), (ii), (iii), (iv), (v) and communism (i), (ii), (iii), (iv) protection (i), (ii), (iii) provisioning (i) public choice theory (i) public goods (i) quantity theory of money (i) Quesnay, François (i) Quincey, Thomas de (i), (ii) racism (i) Rand, Ayn (i) RAND Corporation (i), (ii) rate of return (i), (ii) rational economic man (i), (ii), (iii), (iv), (v) rational expectations (i), (ii), (iii), (iv), (v) real wages (i), (ii), (iii) recession (i) and governments (i), (ii), (iii) Great Recession (i) Keynes on (i), (ii) Mexican (i) redistribution of wealth (i) reference points (i) relative poverty (i) rent on land (i), (ii), (iii) rents/rent-seeking (i) resources (i), (ii) revolution (i), (ii), (iii), (iv) Cuban (i) French (i), (ii), (iii), (iv) Russian (i), (ii) Ricardo, David (i), (ii), (iii) risk aversion (i) Road to Serfdom, The (Hayek) (i) robber barons (i) Robbins, Lionel (i) Robinson, Joan (i) Roman Empire (i) Romer, Paul (i) Rosenstein-Rodan, Paul (i) Roth, Alvin (i), (ii) rule by nature (i) rules of the game (i) Sachs, Jeffrey (i) Saint-Simon, Henri de (i) Samuelson, Paul (i), (ii) savings (i), (ii) and Say’s Law (i) Say’s Law (i) scarcity (i), (ii), (iii), (iv), (v), (vi) Schumpeter, Joseph (i), (ii) sealed bid auction (i) second price auction (i) Second World War (i) securitisation (i) self-fulfilling crises (i) self-interest (i) Sen, Amartya (i), (ii) missing women (i), (ii), (iii) services (i) shading bids (i), (ii) shares (i), (ii), (iii), (iv), (v), (vi) see also stock market Shiller, Robert (i), (ii) signalling (i) in auctions (i) Smith, Adam (i), (ii), (iii), (iv), (v) social costs and benefits (i) Social Insurance and Allied Services (Beveridge) (i) social security (i), (ii) socialism (i), (ii), (iii), (iv), (v) socialist commonwealth (i) Socrates (i) Solow, Robert (i) Soros, George (i), (ii), (iii) South Africa, war with Britain (i) South Korea, and the big push (i) Soviet Union and America (i) and communism (i), (ii) speculation (i) speculative lending (i) Spence, Michael (i) spending government (fiscal policy) (i), (ii), (iii), (iv), (v), (vi), (vii) and recessions (i), (ii) and Say’s Law (i) see also investment stagflation (i), (ii) Stalin, Joseph (i) standard economics (i), (ii), (iii), (iv) Standard Oil (i) Stiglitz, Joseph (i) stock (i) stock market (i), (ii), (iii), (iv), (v) stockbrokers (i) Strassmann, Diana (i), (ii) strategic interaction (i), (ii) strikes (i) subprime loans (i) subsidies (i), (ii) subsistence (i) sumptuary laws (i) supply curve (i) supply and demand (i), (ii), (iii), (iv) and currencies (i) and equilibrium (i), (ii) in recession (i), (ii), (iii) supply-side economics (i) surplus value (i), (ii) Swan, Trevor (i) tariff (i) taxes/taxation (i) and budget deficit (i) carbon (i) and carbon emissions (i) and France (i) and public goods (i) redistribution of wealth (i) and rent-seeking (i) technology as endogenous/exogenous (i) and growth (i) and living standards (i) terms of trade (i) Thailand (i) Thaler, Richard (i) theory (i) Theory of the Leisure Class, The (Veblen) (i) Theory of Monopolistic Competition (Chamberlain) (i) Thompson, William Hale ‘Big Bill’ (i) threat (i) time inconsistency (i), (ii) time intensity (i) Tocqueville, Alexis de (i) totalitarianism (i) trade (i), (ii), (iii) and dependency theory (i) free (i), (ii), (iii) trading permit, carbon (i) traditional and modern economies (i), (ii) transplant, organ (i) Treatise of the Canker of England’s Common Wealth, A (Malynes) (i) Tversky, Amos (i), (ii) underdeveloped countries (i) unemployment in Britain (i) and the government (i) and the Great Depression (i) and information economics (i) and Keynes (i) and market clearing (i) and recession (i) unions (i), (ii) United States of America and free trade (i) and growth of government (i) industrialisation (i) and Latin America (i) Microsoft (i) recession (i), (ii) and the Soviet Union (i) and Standard Oil (i) stock market (i) wealth in (i) women in the labour force (i) unpaid labour, and women (i) usury (i), (ii), (iii) utility (i), (ii), (iii), (iv) utopian thinkers (i), (ii) Vanderbilt, Cornelius (i), (ii) Veblen, Thorstein (i), (ii), (iii) velocity of circulation (i), (ii) Vickrey, William (i) wage, minimum (i) Walras, Léon (i) Waring, Marilyn (i) wealth (i) and Aristotle (i), (ii) and Christianity (i) Piketty on (i) and Plato (i) Smith on (i) Wealth of Nations, The (Smith) (i), (ii) welfare benefits (i), (ii), (iii), (iv) welfare economics (i) Who Pays for the Kids?


pages: 88 words: 25,047

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, recommendation engine, Skype, statistical model

If the blonde had an obvious preference for the best-looking man and showed no interest in the other three, then the strategies for everyone would be clear. The best-looking man should go for the blonde, while the other three should pair off with the brunettes. In that case, if any of the three tried to switch to the blonde at the last minute, their attempts would be rejected and only damage their chances with the brunettes. All the men would then be doing what’s right for themselves (this is called a ‘Nash equilibrium’), and at the same time doing what’s best for the group (making this also a ‘Pareto equilibrium’). Sadly, it’s rather rare to find such a neat real-world situation, with four opinion-free brunette clones and one stand-out blonde babe whom everyone is madly in love with. In real life, people have different preferences in a group, and generally it’s difficult to persuade people to ignore those preferences for the greater good.


pages: 374 words: 94,508

Infonomics: How to Monetize, Manage, and Measure Information as an Asset for Competitive Advantage by Douglas B. Laney

3D printing, Affordable Care Act / Obamacare, banking crisis, blockchain, business climate, business intelligence, business process, call centre, chief data officer, Claude Shannon: information theory, commoditize, conceptual framework, crowdsourcing, dark matter, data acquisition, digital twin, discounted cash flows, disintermediation, diversification, en.wikipedia.org, endowment effect, Erik Brynjolfsson, full employment, informal economy, intangible asset, Internet of things, linked data, Lyft, Nash equilibrium, Network effects, new economy, obamacare, performance metric, profit motive, recommendation engine, RFID, semantic web, smart meter, Snapchat, software as a service, source of truth, supply-chain management, text mining, uber lyft, Y2K, yield curve

Would knowing these concepts and how to apply them to information assets be beneficial to their employers? Absolutely. Indeed, many if not most microeconomic and macroeconomic principles can be applied to information assets. Some are obvious and need little treatment, such as the diminishing marginal cost of information (a feature of any storage device or service). Yet others like Ricardian Rent, Nash Equilibrium, and Bekenstein Bounds are out of bounds for a book of this nature. Therefore, we’ll explore only those which have the greatest relevance in the context of information assets, and that require some reformulation to guide information producers and consumers such as CDOs, CIOs, and enterprise-, application-, and data architects. They include: How the principle of supply and demand operates differently with information than with other assets.

Power 57, 67, 229 Jessup, Beau Rose 35 Juniper Networks 33 keiretsus 132 Keough, Don 132 Knowledge Centered Support (KCS) 171n15 knowledge management (KM): information strategy 179; knowhow 155–6; people 191 “KnowMe” program, Westpac 54 Kosmix 31 Kovitz Investment 164 Kraft 39 Kreditech 62 Krishna, Dilip 260 Kroger 32, 36 Kumar, V. 30 Kushner, Theresa 272 Kyoto Protocol 63 Ladley, John 25, 120n13, 148, 187 Last.fm 34 Latulippe, Barb 188, 195, 234–5 Leatherberry, Tonie 260 legal rulings, information property rights 303–5 LexisNexis 57 liability, information as 216 library and information science (LIS) 156–8 library science: information strategy 179–80; metrics 184 lifecycle 252; see also information lifecycle LinkedIn 64 liquidity, information 20–1 Lockheed Martin 41–3, 62; project information 88 Logan, Valerie 144, 244 logical data warehouse (LDW) 181 Loss Adjustment Expense (LAE) 95 Lovelock, James 144n7 Lowans, Brian 272 loyalty 15, 22, 37, 80, 246 Lyft 141 McCrory, Dave 261 McDonald’s 236 McGilvray, Danette 272 McKnight, William 148 Magic Quadrants 68 marginal utility 273, 276; architecting for optimized information utility 278–9; concept of 284n4; of information 276–8; information for people 277; of information for people 277; information for technologies 278; of information for technologies 278; law of diminishing 276; negative 276; positive 276; understanding 273 market: cultivating for information product 73; entering new 35–6; market value of information (MVI) 257, 262, 266, 274; monetization success 74 Mashey, James 101n8 Mears, Rena 260 measurement: business-related benefits 244–5; data quality 246–8; future of infonomics 292; information assets 242–6; information asset valuation models 249–60; information–related benefits 242–4; information valuation 260–1; value of information 246–61 Mechanical Turk 65 Medicaid 44, 98 Medicare 44, 98 Megaupload 225 Memorial Healthcare System 62 Merck 66 Mercy Hospitals 98 metrics: applied asset management 184–6; assessing data quality 246–9; information asset management 182–6; information management challenges 299; information supply chain 126–7; objective quality 247–8; subjective quality 249 Microsoft 42, 223–5, 239n8 Microstrategy 133 Miller, Nolan 231, 272 Mishra, Gokula 235 MISO Energy 267 Mobilink 80 Mondelez 39 monetization 11–13, 16–18, 20, 29, 31–2, 34, 40–1, 44, 46, 55–6, 66–9, 80–100, 139, 176, 195, 244–5, 257, 265–6, 273, 277, 281, 286–7, 290, 292 monetizing information 28–9; analytics as engine of 77; bartering for favorable terms and conditions 38–9; bartering for goods and services 37–8; being in information business 48–9; creating supplemental revenue stream 32–3; defraying costs of information management and analytics 40–1; enabling competitive differentiation 36–7; entering new markets 35–6; future of infonomics 292; improving citizen well-being 45–8; increasing customer acquisition and retention 29–31; introducing a new line of business 33–4; measurement benefits 244–5; more than cash for 14–16; myths of 12–13; possibilities of 11–12; recognizing organizational roadblocks to 287–8; reducing fraud and risk 44–5; reducing maintenance costs, cost overruns and delays 41–4; success of 74–6; understanding unstructured information 94–5; value of 265–6 monetizing information steps 55–74; alternatives for direct and indirect monetization 66–8; available information assets 59–66; feasibility of ideas 69–73; high-value ideas from other industries 69; information product management function 56–9; market cultivation for information 73–4; preparing data for monetization 73 Monsanto 8, 21 Mozenda 65 Mullier, Graham 239n15 multiple listing service (MLS) 53–4 Multispectral 35 Nabisco 39 Nash Equilibrium 273 National Health Service 232 Naudé, Glabriel 156 Negroponte, Nicholas 147 Netflix 59 network effect 25, 27n14 New Jersey, state of 179, 192 New York City, reducing fraud and risk 44–5 New York Stock Exchange 23, 134 Ng, Andrew 231 Nielsen 34, 57, 63, 67 non-rivalrous 19, 131, 235, 256, 277, 280 non-rivalry principle 142, 274 Nordic Wellness Products 33 North Atlantic Treaty Organization (NATO) 147–8 Oberholzer-Gee, Felix 169 Ocean Tomo 213 O’Neal, Kelle 272 OpenClinical.org 98 operational data, information asset 61 opportunity cost for information 279–80 Orange 33 ownership: brief history of 223; habeas corpus of rulings on 226–7; information 221–2, 237–8; information location 223–5; infothievery 225–6; internal, of information 233–7; owning usage of information 230–1; personal, of personal information 231–3; see also information ownership; property, information as Pacioli, Luca 210 Panchmatia, Nimish 43 Patel, Ash 134 patent 1, 19, 28; algorithm 239nn17–18; applications 230–1, 260; economic value 229; intangible asset 168, 207; intellectual property 128, 130 Patrick, Charlotte 34 People Capability Maturity Model (P-CMM) 165–6 people-process-technology 99 Pepsi 40 performance metrics, information supply chain 126–7 performance value of information (PVI) 254–5 periodicity 248 personal information, ownership of 231–3 personally identifiable information (PII) 25, 76, 178 physical asset management 158–63; asset condition 161–2; asset maintenance and replacement costs 162–3; asset register 160–1; asset risks 161–2; governance 188; vision 176 Pigott, Ian 7 Pinterest 31 Plotkin, David 187 PNC Bank 192 Poste Italiane 47 Post Malaysia 47 Potbot 64 Preska, Loretta 224 Prevedere Software 97 Price, James 106, 114–15, 181, 186, 272 price elasticity of information 275–6 process: applied asset management 194–6; information management 193–6; information management challenges 301–2; maturity, challenges and remedies 193–4 production possibility frontier 280 productive efficiency 280 productization, monetization success 75 product management function 56–9 profitability, information 24–6 ProgrammableWeb 63 property, information as 227–30 public data, information asset 64 Publicly Available Specification (PAS): metrics 184; physical asset management 158–60, 162–3 public-private partnerships 47 quality see data quality Radio Shack 141 Rajesekhar, Ruchi 267 Raskino, Mark 37 Realtor.com 53 records information management (RIM) 152–3 Reddit 23 Redman, Thomas 235, 272 relationships, bartering for 38–9 reusable nature, information 19–20 revenue: monetization success 74; supplemental stream 32–3; value of expanded 266 Ricardian Rent 273 risk 12, 14, 28, 44–5, 62, 74–5, 85, 89, 91–2, 106, 115, 125, 139, 152, 159–61, 185, 194, 216, 242–4, 256–7, 286–90; reduction 44–5, 74–5, 85, 89; monetization success 74 Rite Aid 32 Roosevelt, Franklin 37 Rosenkranz, E.


pages: 312 words: 91,835

Global Inequality: A New Approach for the Age of Globalization by Branko Milanovic

"Robert Solow", Asian financial crisis, assortative mating, Berlin Wall, bitcoin, Black Swan, Branko Milanovic, Capital in the Twenty-First Century by Thomas Piketty, centre right, colonial exploitation, colonial rule, David Ricardo: comparative advantage, deglobalization, demographic transition, Deng Xiaoping, discovery of the americas, European colonialism, Fall of the Berlin Wall, Francis Fukuyama: the end of history, full employment, Gini coefficient, Gunnar Myrdal, income inequality, income per capita, invisible hand, labor-force participation, liberal capitalism, low skilled workers, Martin Wolf, means of production, mittelstand, moral hazard, Nash equilibrium, offshore financial centre, oil shock, open borders, Paul Samuelson, place-making, plutocrats, Plutocrats, post scarcity, post-industrial society, profit motive, purchasing power parity, Ralph Nader, Second Machine Age, seigniorage, Silicon Valley, Simon Kuznets, special economic zone, stakhanovite, trade route, transfer pricing, very high income, Vilfredo Pareto, Washington Consensus, women in the workforce

The current era of globalization has witnessed a huge increase in available labor, both because world population has increased by two-thirds since 1980 and because China and the former communist countries have entered the global labor market. This growth in the availability of labor, according to Solow, has weakened labor’s position worldwide and allowed capital owners to take most of the rent for themselves. A similar idea is expressed by Chau and Kanbur (2013), who model it as a Nash equilibrium game where the fallback position of capital, because of its ability to move from one country to another in search of lower taxes, is much stronger than that of labor. The reasons for the increase in inequality in OECD countries have been extensively studied in the last two decades, since the increase became apparent. Originally, lots of attention was paid to wage-stretching, especially, in the United States, with two main contenders as explanatory factors being skill-biased technological change and globalization.49 After the publication of Piketty’s Capital in the Twenty-First Century, the role of capital income (both its rate of return and the increasing capital-income ratio) has attracted more attention.

See also specific countries Milanovic, Branko, 16, 18, 52, 121, 122, 253n3, 261n30 military-industrial complex, 163 military power, 250n33, 251nn40,41 Miller, David, 255n19 mobility, upward, 202–204, 261n32 Moellendorf, Darrel, 142 money, 14–15, 236, 239. See also rich people and money monopolization, 75 Moraga, Jesús Fernández-Huertas, 255n16 Morrisson, Christian, 119, 121, 253n2 Myrdal, Gunnar, 20–21 Nash equilibrium game, 106 nationalism, methodological, 235–239 nationalization, 100 national self-determination, 139–142 nativism, 164, 191, 204, 208, 210 Nefedov, Sergey, 247n17 Neiman, Brent, 181 neoliberalism, 20, 158 New Deal, 72, 98 “new Democrat” era, 54 “New Labour” era, 54 “new society,” 257n2 nineteenth century: late-twenty-first century compared, 5; Napoleonic wars and, 62, 80; markets and, 95; inequality among countries and, 119–120; global and US inequality, 124; horizontal inequality and, 225–226; inequality studies, 253n3.


pages: 519 words: 104,396

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

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

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

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


pages: 137 words: 36,231

Information: A Very Short Introduction by Luciano Floridi

agricultural Revolution, Albert Einstein, bioinformatics, carbon footprint, Claude Shannon: information theory, conceptual framework, double helix, Douglas Engelbart, Douglas Engelbart, George Akerlof, Gordon Gekko, industrial robot, information asymmetry, intangible asset, Internet of things, invention of writing, John Nash: game theory, John von Neumann, Laplace demon, 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

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


pages: 482 words: 125,973

Competition Demystified by Bruce C. Greenwald

additive manufacturing, airline deregulation, AltaVista, asset allocation, barriers to entry, business cycle, creative destruction, cross-subsidies, deindustrialization, discounted cash flows, diversified portfolio, 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, pets.com, price discrimination, price stability, selective serotonin reuptake inhibitor (SSRI), shareholder value, Silicon Valley, six sigma, Steve Jobs, transaction costs, yield management, zero-sum game

Given the stability of expectations, no competitor can improve its outcome by choosing an alternative course of action. 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. With both at $105, they split the market and Lowe’s gross profit rises from $120 to $150.

See Central processing units Microsoft advantages applications brand exploitation competitors creation, diversification, economies of scale in gaming industry IBM and industry map market share stability profitability returns symmetry principle Midway (Airlines) Miller beer MIT Mobil Monopolies boundaries, defining Moody’s Moore, Gordon Most favored nation provision (MFN), Motor cycle industry Motorola, Apple and IBM and, Intel v. Mountain Dew Movie studios See also Broadcasting industry MS-DOS Murdoch, Rupert Music industry, recorded cost structure of history iPod’s influence industry map market segments Nalco, Nash, John equilibrium theory developed by, linear invariance developed by, threat point outcomes developed by, Nash equilibrium NBC, competitors programming strength of Net present value. (NPV) Netscape Navigator Network effect benefits Networks (telecommunications). See also Broadcasting industry Cisco’s influence Research and development telecommunications New Deal Newman, Paul News Corporation Newton (Apple) New York Air Niche markets cooperation direct competition avoidance, efficiency growth dilemma identification Nifty Fifty Nintendo competitors decline economies of scale industry map licensing profitability quality retailers of technology Northwest Airlines Notebooks.


pages: 607 words: 133,452

Against Intellectual Monopoly by Michele Boldrin, David K. Levine

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

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

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


pages: 467 words: 154,960

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

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

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

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


pages: 598 words: 134,339

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

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

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

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


pages: 665 words: 146,542

Money: 5,000 Years of Debt and Power by Michel Aglietta

bank run, banking crisis, Basel III, Berlin Wall, bitcoin, blockchain, Bretton Woods, British Empire, business cycle, capital asset pricing model, capital controls, cashless society, central bank independence, collapse of Lehman Brothers, collective bargaining, corporate governance, David Graeber, debt deflation, dematerialisation, Deng Xiaoping, double entry bookkeeping, energy transition, eurozone crisis, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, forward guidance, Francis Fukuyama: the end of history, full employment, German hyperinflation, income inequality, inflation targeting, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invention of writing, invisible hand, joint-stock company, Kenneth Arrow, Kickstarter, liquidity trap, margin call, means of production, money market fund, moral hazard, Nash equilibrium, Network effects, Northern Rock, oil shock, planetary scale, plutocrats, Plutocrats, price stability, purchasing power parity, quantitative easing, race to the bottom, reserve currency, secular stagnation, seigniorage, shareholder value, special drawing rights, special economic zone, stochastic process, the payments system, the scientific method, too big to fail, trade route, transaction costs, transcontinental railway, Washington Consensus

.), Beyond Microfoundations: Post-Walrasian Macroeconomics, Cambridge University Press, 1996, pp. 21–37. 13 Nobuhiro Kiyotaki and Randall Wright, ‘A Contribution to the Pure Theory of Money’, Journal of Economic Theory, vol. 53, no. 2, 1991, pp. 215–35. So-called search models belong to an evolutionist theory that proposes to demonstrate the possibility of decentralised exchanges. Indeed, the common acceptance of a form of money results from a bootstrap effect, as the result of a non-cooperative game. Money is the result of a Nash equilibrium. Just as there exist a multiplicity of such equilibriums, including a moneyless economy which thus has no exchanges (an autarchic equilibrium), there remains a fundamental indeterminacy over the means of exchange. 14 Michel Aglietta and André Orléan, La violence de la monnaie, Paris: PUF, 1982. 15 Michel Aglietta and Jean Cartelier, ‘Ordre monétaire des économies de marché’, in Michel Aglietta and André Orléan (eds), La monnaie souveraine, Paris: Odile Jacob, 1998, p. 131. 16 Orléan, L’Empire de la valeur, pp. 148–52. 17 Michel Aglietta, Pepita Ould Ahmed and Jean-François Ponsot, ‘La monnaie, la valeur et la règle’, Revue de la régulation, vol. 16, no. 2, Autumn 2014. 18 On the ontogenesis of money, see Aglietta and Orléan, La violence de la monnaie. 19 Albert O.

See also specific types of money absolute liquidity as essential quality sought for in, 37 alternative views of genesis of, 40t ambivalence of, 53–4, 61, 95, 138, 195 as common good, 80b creation of bank money, 44t as defined by three functions, 35 definition, 12, 32–3 essential function of, 33 as foundation of value, 17–58 as instituting relationship of social belonging, 79b as instituting value, 32 as institution of social belonging, 30–5 as intergenerational bond that guarantees immortality of society, 63 as language, 31–3, 78b, 82–3, 168 legitimacy of, 69–75 logical genesis of, 35–9 logic of in decadent Roman Republic, 102–3 making metal into, 43t as market’s logical foundation, 30 as more fundamental social bond than the market, 30 nationalisation of, 150 neutrality of, 27–30 new forms of, 164–83 as not integrated into pure economics, 28 as preceding market relations, 30 presence of as obsession, 26 problem of coordination of market exchange without, 19–22 as a relation of social belonging, 11–16 relationship of with finance, 12 as result of Nash equilibrium, 29n13 as sources of confidence in democratic societies, 75f and sovereignty, 83 studies of, 111, 112t as system, 83 teaching money, 75–80b as total social phenomenon, 81 value of, 29 as vulnerable to crises, 54 money anchorage regimes, 256t money market funds, 268, 273, 275, 385 money-neutrality hypothesis, 262, 267 Morgan, John P., 217, 219 Morgan, Lewis Henry, 67 Morgenthau, Henry, Jr, 316 multi-currency payment systems, 152, 153 Mundell, Robert, 349, 351–5 Mundell’s triangle, 352, 353, 354f Muth, John, 26 N NAIRU (non-accelerating inflation rate of unemployment), 268 National Bank Act of 1863, 140, 215, 216, 218 national currency, 69, 78b, 150, 188, 201, 222, 232, 236, 241, 314, 343, 362 national debt, 133–4, 203, 207 national financiers, 200 National Monetary Commission, 219 national payment systems, 143, 151 National Reserve Association, 220 nation-states, 122, 145–6, 147, 167, 200–1, 209, 287, 359 natural interest rate, 262, 267, 276, 278f, 280, 342 naturalist theory of utility value, 30, 53 naturalist theory of value, 31, 34, 36, 44, 64, 81 natural monetary order, 124 natural order, 4, 82, 125, 126, 128, 134, 145, 147, 162, 254, 296 natural rate, 262, 263, 264b, 278–9, 280, 281 neutral real interest rate, 267, 342 neutral real rate, 262, 263f, 267 New York Clearing House Association (NYCHA), 141, 219 Nixon, Richard, 326, 327 nominal natural rate, 279, 280 nominal rate, zero-limit to, 278–80 non-accelerating inflation rate of unemployment (NAIRU), 268 Nye, Joseph, 358n9 O objective financial asset prices, hypothesis of, 24n6 OECD, 279, 358, 391 official foreign exchange reserves, annual mean variation in, 321t order of Christendom, 125 ordoliberalism, 56, 96, 129, 130, 131, 149, 160, 161t, 254, 260–1, 366 Oresmes, Nicolas, 113 Organisation for European Economic Co-operation (OEEC), 319 Ossola report, 325 Overend Gurney Company, 211 overlapping generation models, 62, 63, 64, 66 overlapping hierarchical sovereignty, 105–6 P paeleomonies, 77b PAI (Immediate Action Programme), 234 Panic of 1907, 143 Panizza, Ugo, 343 paper money, 77b, 171, 206, 215 Patinkin, Don, 28 payments definition, 31–2 finality of, 34, 44–9, 53, 175, 350, 398 hierarchical organisation of, 52f large-value payments, 152–3, 155 low-value (retail) payments, 152 matrix of, 46t retail payments, 151, 154t as social judgement, 34–5 payments technology, 116, 138, 149, 175, 246 payment system(s), 34, 38, 39, 40–1, 42, 43, 44, 47, 49, 50, 51, 53, 54, 58, 61, 65, 69, 75, 78b, 79b, 80b, 83, 87–8, 100, 135, 136, 138, 141, 142, 143, 144, 150, 151, 185–6, 188t, 189, 195, 213, 220, 245–6, 247, 248, 249, 286, 290, 294, 313, 363, 398, 399.


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, Black Swan, British Empire, business process, butterfly effect, centre right, Charles Lindbergh, circulation of elites, cognitive dissonance, coherent worldview, collective bargaining, complexity theory, conceptual framework, corporate raider, correlation does not imply causation, creative destruction, cuban missile crisis, Daniel Kahneman / Amos Tversky, defense in depth, desegregation, Edward Lorenz: Chaos theory, en.wikipedia.org, endogenous growth, endowment effect, Ford paid five dollars a day, framing effect, Frederick Winslow Taylor, Gordon Gekko, greed is good, 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, shareholder value, 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, ultimatum game, unemployed young men, Upton Sinclair, urban sprawl, Vilfredo Pareto, War on Poverty, women in the workforce, Yogi Berra, zero-sum game

In their landmark book of 1957, which gave the field renewed vigor, Duncan Luce and Howard Raiffa noted prematurely the decline of the “naive bandwagon-feeling that game theory solved innumerable problems of sociology and economics, or at the least, that it made their solution a practical matter of a few years’ work.”2 They urged social scientists to recognize that game theory was not descriptive. Instead it was “rather (conditionally) normative. It states neither how people do behave nor how they should behave in an absolute sense, but how they should behave if they wish to achieve certain ends.”3 Their injunction was ignored and game theory came to be adopted as more of a descriptive than normative tool. One reason for this was the development of the Nash equilibrium, named after the mathematician John Nash (whose struggle with mental illness became the subject of a book and a movie).4 This was an approach to nonzero-sum games. The idea was to find a point of equilibrium, comparable to those in physics when forces balance one another. In this case, players sought the optimum way to reach their goals. The equilibrium point was reached when the players adopted a set of strategies that created no incentive for any individual player to change strategy so long as the others stayed unchanged.5 Nash’s contribution came to be celebrated within economics as “one of the outstanding intellectual advances of the twentieth century.”6 But its value to strategy was limited.

It was first used in an experimental setting during the early 1960s in order to explore bargaining behavior. From the start, and to the frustration of the experimenters, the games showed individuals making apparently suboptimal choices. A person (the proposer) was given a sum of money and then chose what proportion another (the responder) should get. The responder could accept or refuse the offer. If the offer was refused, both got nothing. A Nash equilibrium based on rational self-interest would suggest that the proposer should make a small offer, which the responder should accept. In practice, notions of fairness intervened. Responders regularly refused to accept anything less than a third, while most proposers were inclined to offer something close to half, anticipating that the other party would expect fairness.17 Faced with this unexpected finding, researchers at first wondered if there was something wrong with the experiments, such as whether there had been insufficient time to think through the options.

The term Cyborg only came into use in the 1960s to refer to humans with artificial, technological enhancements. 2. Duncan Luce and Howard Raiffa, Games and Decisions: Introduction and Critical Survey (New York: John Wiley & Sons, 1957), 10. 3. Ibid., 18. 4. Sylvia Nasar, A Beautiful Mind (New York: Simon & Schuster, 1988). 5. John F. Nash, Jr., Essays on Game Theory, with an introduction by K. Binmore (Cheltenham, UK: Edward Elgar, 1996). 6. Roger B. Myerson, “Nash Equilibrium and the History of Economic Theory,” Journal of Economic Literature 37 (1999): 1067. 7. Mirowski, Machine Dreams, 369. 8. Richard Zeckhauser, “Distinguished Fellow: Reflections on Thomas Schelling,” The Journal of Economic Perspectives 3, no. 2 (Spring 1989): 159. 9. Milton Friedman, Price Theory: A Provisional Text, revised edn. (Chicago: Aldine, 1966), 37. (cited by Mirowski) 10. Cited in Rakesh Khurana, From Higher Aims to Higher Hands: The Social Transformation of American Business Schools and the Unfulfilled Promise of Management as a Profession (Princeton, NJ: Princeton University Press, 2007), 239–240. 11.


pages: 252 words: 73,131

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

"Robert Solow", Airbnb, airport security, Al Roth, Alvin Roth, Andrei Shleifer, attribution theory, autonomous vehicles, barriers to entry, Brownian motion, business cycle, buy and hold, centralized clearinghouse, Chuck Templeton: OpenTable:, clean water, conceptual framework, constrained optimization, continuous double auction, creative destruction, deferred acceptance, Donald Trump, 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, Pareto efficiency, Paul Samuelson, Peter Thiel, pets.com, pez dispenser, pre–internet, price mechanism, price stability, prisoner's dilemma, profit motive, proxy bid, RAND corporation, ride hailing / ride sharing, Robert Shiller, Robert Shiller, Ronald Coase, school choice, school vouchers, sealed-bid auction, second-price auction, second-price sealed-bid, sharing economy, Silicon Valley, spectrum auction, Steve Jobs, Tacoma Narrows Bridge, technoutopianism, telemarketer, The Market for Lemons, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade route, transaction costs, two-sided market, uber lyft, uranium enrichment, Vickrey auction, Vilfredo Pareto, winner-take-all economy

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


pages: 348 words: 83,490

More Than You Know: Finding Financial Wisdom in Unconventional Places (Updated and Expanded) by Michael J. Mauboussin

Albert Einstein, Andrei Shleifer, Atul Gawande, availability heuristic, beat the dealer, Benoit Mandelbrot, Black Swan, Brownian motion, butter production in bangladesh, buy and hold, capital asset pricing model, Clayton Christensen, clockwork universe, complexity theory, corporate governance, creative destruction, Daniel Kahneman / Amos Tversky, deliberate practice, demographic transition, discounted cash flows, disruptive innovation, diversification, diversified portfolio, dogs of the Dow, Drosophila, Edward Thorp, en.wikipedia.org, equity premium, Eugene Fama: efficient market hypothesis, fixed income, framing effect, functional fixedness, hindsight bias, hiring and firing, Howard Rheingold, index fund, information asymmetry, intangible asset, invisible hand, Isaac Newton, Jeff Bezos, Kenneth Arrow, Laplace demon, Long Term Capital Management, loss aversion, mandelbrot fractal, margin call, market bubble, Menlo Park, mental accounting, Milgram experiment, Murray Gell-Mann, Nash equilibrium, new economy, Paul Samuelson, Pierre-Simon Laplace, quantitative trading / quantitative finance, random walk, Richard Florida, Richard Thaler, Robert Shiller, Robert Shiller, shareholder value, statistical model, Steven Pinker, stocks for the long run, survivorship bias, The Wisdom of Crowds, transaction costs, traveling salesman, value at risk, wealth creators, women in the workforce, zero-sum game

Eventually, the British, French, and German high commands undermined the live-and-let-live system by forcing raids, undermining the stability necessary to support the tacit agreements. 6 “Stern Stewart EVA Roundtable,” Journal of Applied Corporate Finance 7, no. 2 (Summer 1994): 46-70. 7 For an excellent discussion, see William Poundstone, Prisoner’s Dilemma (New York: Anchor Books, 1992). 8 The choice to add capacity gets both companies to the Nash equilibrium. 9 Axelrod, The Evolution of Cooperation, 27-54. 10 David Besanko, David Dranove, and Mark Shanley, Economics of Strategy, 2nd ed. (New York: John Wiley & Sons, 2000), 289-90. 11 Ibid., 293-302. 12 Adam M. Brandenburger and Barry J. Nalebuff, Co-opetition (New York: Currency, 1996), 120-22. 27. Great (Growth) Expectations 1 Warren Buffett and Charlie Munger, “It’s Stupid the Way People Extrapolate the Past—and Not Slightly Stupid, But Massively Stupid,” Outstanding Investor Digest, December 24, 2001. 2 Chris Zook with James Allen, Profit from the Core (Boston: Harvard Business School Press, 2001), 11-13. 3 I mention this because voluminous evidence suggests that mergers and acquisitions are a value negative or, at best, a value neutral activity.


pages: 472 words: 80,835

Life as a Passenger: How Driverless Cars Will Change the World by David Kerrigan

3D printing, Airbnb, airport security, Albert Einstein, autonomous vehicles, big-box store, butterfly effect, call centre, car-free, Cesare Marchetti: Marchetti’s constant, Chris Urmson, commoditize, computer vision, congestion charging, connected car, DARPA: Urban Challenge, deskilling, disruptive innovation, edge city, Elon Musk, en.wikipedia.org, future of work, invention of the wheel, Just-in-time delivery, loss aversion, Lyft, Marchetti’s constant, Mars Rover, megacity, Menlo Park, Metcalfe’s law, Minecraft, Nash equilibrium, New Urbanism, QWERTY keyboard, Ralph Nader, RAND corporation, Ray Kurzweil, ride hailing / ride sharing, Rodney Brooks, Sam Peltzman, self-driving car, sensor fusion, Silicon Valley, Simon Kuznets, smart cities, Snapchat, Stanford marshmallow experiment, Steve Jobs, technoutopianism, the built environment, Thorstein Veblen, traffic fines, transit-oriented development, Travis Kalanick, Uber and Lyft, Uber for X, uber lyft, Unsafe at Any Speed, urban planning, urban sprawl, Yogi Berra, young professional, zero-sum game, Zipcar

The presence of just a few autonomous vehicles can eliminate the stop-and-go driving of the human drivers in traffic, along with the accident risk and fuel inefficiency it causes, according to research from the University of Illinois.[39] Their experiments show that with as few as 5 percent of vehicles being automated and carefully controlled, it can eliminate stop-and-go waves caused by human driving behavior. Many people think that they can outwit others and improve their lot in a congested environment by making changes to their route. However, applying the Nash Equilibrium from Game Theory, (no one player can make himself better off by his own action alone), one person cannot solve congestion. In fact, individual attempts to circumvent congestion can have the opposite to the intended outcome - this is known as Selfish Routing - each person is moving through the network in the way that seems best to them, but everyone’s total behaviour may be the least efficient for the traffic network.


The Golden Ratio: The Story of Phi, the World's Most Astonishing Number by Mario Livio

Albert Einstein, Albert Michelson, Alfred Russel Wallace, Benoit Mandelbrot, Brownian motion, Buckminster Fuller, cosmological constant, Elliott wave, Eratosthenes, Gödel, Escher, Bach, Isaac Newton, Johann Wolfgang von Goethe, Johannes Kepler, mandelbrot fractal, music of the spheres, Nash equilibrium, Ralph Nelson Elliott, Ralph Waldo Emerson, random walk, Richard Feynman, Ronald Reagan, Thales of Miletus, the scientific method

And the most astonishing of all: Why are the laws of physics themselves expressible as mathematical equations in the first place? But this is not all. Mathematician John Forbes Nash (now world famous as the subject of the book and film biography A Beautiful Mind), for example, shared the 1994 Nobel Prize in economics because his mathematical dissertation (written at age twenty-one!) outlining his “Nash Equilibrium” for strategic noncooperative games inaugurated a revolution in fields as diverse as economics, evolutionary biology, and political science. What is it that makes mathematics work so well? The recognition of the extraordinary “effectiveness” of mathematics even made it into a hysterically funny passage in Samuel Beckett's novel Molloy, about which I have a personal story. In 1980, two colleagues from the University of Florida and I wrote a paper about neutron stars, which are extremely compact and dense astronomical objects that result from the gravitational collapse of the cores of massive stars.


pages: 317 words: 100,414

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

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

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


pages: 417 words: 97,577

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

Affordable Care Act / Obamacare, air freight, Airbnb, airline deregulation, bank run, barriers to entry, Berlin Wall, Bernie Sanders, big-box store, Bob Noyce, business cycle, Capital in the Twenty-First Century by Thomas Piketty, citizen journalism, Clayton Christensen, collapse of Lehman Brothers, collective bargaining, computer age, corporate raider, creative destruction, Credit Default Swap, crony capitalism, diversification, don't be evil, Donald Trump, Double Irish / Dutch Sandwich, Edward Snowden, Elon Musk, en.wikipedia.org, eurozone crisis, Fall of the Berlin Wall, family office, financial innovation, full employment, German hyperinflation, gig economy, Gini coefficient, Goldman Sachs: Vampire Squid, Google bus, Google Chrome, Gordon Gekko, income inequality, index fund, Innovator's Dilemma, intangible asset, invisible hand, Jeff Bezos, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Rogoff, late capitalism, London Interbank Offered Rate, low skilled workers, Mark Zuckerberg, Martin Wolf, 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, passive investing, patent troll, Peter Thiel, plutocrats, Plutocrats, prediction markets, prisoner's dilemma, race to the bottom, rent-seeking, road to serfdom, Robert Bork, Ronald Reagan, Sam Peltzman, secular stagnation, shareholder value, Silicon Valley, Skype, Snapchat, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, 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, very high income, wikimedia commons, William Shockley: the traitorous eight, zero-sum game

She would feel pressured and then the others would be offended that they were the second choice. The optimal strategy is for the group to cooperate—no one talks to the blonde and they all talk to the less attractive friends. Nash's key idea was that among different players, they might all choose tacit cooperation rather than face competition. The solution to the problem of competition is called “Nash Equilibrium.” Nash didn't create game theory, but he developed it. His idea was a direct descendant of John von Neumann's Minimax theory. The idea is that players of a game won't seek to achieve the highest payout but will try to minimize their maximum loss. The easiest way to understand this is the example of a mother who allows her two children to divide a cake. The most equal division will happen if one cuts the cake and the other chooses the first piece.


pages: 463 words: 118,936

Darwin Among the Machines by George Dyson

Ada Lovelace, Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, Albert Einstein, anti-communist, British Empire, carbon-based life, cellular automata, Claude Shannon: information theory, combinatorial explosion, computer age, Danny Hillis, Donald Davies, fault tolerance, Fellow of the Royal Society, finite state, IFF: identification friend or foe, invention of the telescope, invisible hand, Isaac Newton, Jacquard loom, James Watt: steam engine, John Nash: game theory, John von Neumann, low earth orbit, 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, the scientific method, The Wealth of Nations by Adam Smith, Turing machine, Von Neumann architecture, zero-sum game

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


pages: 589 words: 147,053

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

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

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


pages: 513 words: 152,381

The Precipice: Existential Risk and the Future of Humanity by Toby Ord

3D printing, agricultural Revolution, Albert Einstein, artificial general intelligence, Asilomar, Asilomar Conference on Recombinant DNA, availability heuristic, Columbian Exchange, computer vision, cosmological constant, cuban missile crisis, decarbonisation, defense in depth, delayed gratification, demographic transition, Doomsday Clock, Drosophila, effective altruism, Elon Musk, Ernest Rutherford, global pandemic, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, James Watt: steam engine, Mark Zuckerberg, mass immigration, meta analysis, meta-analysis, Mikhail Gorbachev, mutually assured destruction, Nash equilibrium, Norbert Wiener, nuclear winter, p-value, Peter Singer: altruism, planetary scale, race to the bottom, RAND corporation, Ronald Reagan, self-driving car, Stanislav Petrov, Stephen Hawking, Steven Pinker, Stewart Brand, supervolcano, survivorship bias, the scientific method, uranium enrichment

These are all dynamics that push humanity toward a new equilibrium, where these forces are finally in balance. But there is no guarantee this equilibrium will be good. For example, consider the tension between what is best for each and what is best for all. This is studied in the field of game theory through “games” like the prisoner’s dilemma and the tragedy of the commons, where each individual’s incentives push them toward producing a collectively terrible outcome. The Nash equilibrium (the outcome we reach if we follow individual incentives) may be much worse for everyone than some other outcome we could have achieved if we had overcome these local incentives. The most famous example is environmental degradation, such as pollution. Because most of the costs of pollution aren’t borne by the person who causes it, we can end up in a situation where it is in the self-interest of each person to keep engaging in such activities, despite this making us all worse off.


pages: 807 words: 154,435

Radical Uncertainty: Decision-Making for an Unknowable Future by Mervyn King, John Kay

"Robert Solow", Airbus A320, Albert Einstein, Albert Michelson, algorithmic trading, Antoine Gombaud: Chevalier de Méré, Arthur Eddington, autonomous vehicles, availability heuristic, banking crisis, Barry Marshall: ulcers, battle of ideas, Benoit Mandelbrot, bitcoin, Black Swan, Bonfire of the Vanities, Brownian motion, business cycle, business process, capital asset pricing model, central bank independence, collapse of Lehman Brothers, correlation does not imply causation, credit crunch, cryptocurrency, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, demographic transition, discounted cash flows, disruptive innovation, diversification, diversified portfolio, Donald Trump, easy for humans, difficult for computers, Edmond Halley, Edward Lloyd's coffeehouse, Edward Thorp, Elon Musk, Ethereum, Eugene Fama: efficient market hypothesis, experimental economics, experimental subject, fear of failure, feminist movement, financial deregulation, George Akerlof, germ theory of disease, Hans Rosling, Ignaz Semmelweis: hand washing, income per capita, incomplete markets, inflation targeting, information asymmetry, invention of the wheel, invisible hand, Jeff Bezos, Johannes Kepler, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Snow's cholera map, John von Neumann, Kenneth Arrow, Long Term Capital Management, loss aversion, Louis Pasteur, mandelbrot fractal, market bubble, market fundamentalism, Moneyball by Michael Lewis explains big data, Nash equilibrium, Nate Silver, new economy, Nick Leeson, Northern Rock, oil shock, Paul Samuelson, peak oil, Peter Thiel, Philip Mirowski, Pierre-Simon Laplace, popular electronics, price mechanism, probability theory / Blaise Pascal / Pierre de Fermat, quantitative trading / quantitative finance, railway mania, RAND corporation, rent-seeking, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Coase, sealed-bid auction, shareholder value, Silicon Valley, Simon Kuznets, Socratic dialogue, South Sea Bubble, spectrum auction, Steve Ballmer, Steve Jobs, Steve Wozniak, Tacoma Narrows Bridge, Thales and the olive presses, Thales of Miletus, The Chicago School, the map is not the territory, The Market for Lemons, The Nature of the Firm, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Davenport, Thomas Malthus, Toyota Production System, transaction costs, ultimatum game, urban planning, value at risk, World Values Survey, Yom Kippur War, zero-sum game

As Herbert Simon had envisaged in the 1950s (when he greatly underestimated the time it would take to build a machine which could defeat a grandmaster), these machines satisfice. They find not the best move, but a move that is good enough. There is, in principle, a ‘best’ way of playing chess – a perfect game in which no move by either white or black could be improved on. This would be the ‘solution’ to the game of chess (which economists in characteristic style describe as the subgame perfect Nash equilibrium). But we do not have, and perhaps never will have, computers powerful enough to find that game. 41 If neither Magnus Carlsen (in 2019 the world champion) nor Deep Blue can play a perfect game of chess, it stretches the imagination to suppose that ordinary people and businesses could optimise the game of economic life. Kahneman argues that in understanding human behaviour, noise – randomness – is even more important than ‘biases’.


pages: 574 words: 164,509

Superintelligence: Paths, Dangers, Strategies by Nick Bostrom

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

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


pages: 632 words: 166,729

Addiction by Design: Machine Gambling in Las Vegas by Natasha Dow Schüll

airport security, Albert Einstein, Build a better mousetrap, business intelligence, capital controls, cashless society, commoditize, corporate social responsibility, deindustrialization, dematerialisation, deskilling, game design, impulse control, information asymmetry, inventory management, iterative process, jitney, large denomination, late capitalism, late fees, longitudinal study, means of production, meta analysis, meta-analysis, Nash equilibrium, Panopticon Jeremy Bentham, post-industrial society, postindustrial economy, profit motive, RFID, Silicon Valley, Slavoj Žižek, statistical model, the built environment, yield curve, zero-sum game

Along similar lines, Frederic Jameson has written of America that “no society has ever been quite so addictive, quite so inseparable from the condition of addictiveness as this one, which did not invent gambling, to be sure, but which did invent compulsive consumption” (2004, 52). 9. The concept of equilibrium as Rocky uses it here evokes a diverse set of expert meanings, from thermodynamics in physics, to economic concepts like the Nash equilibrium, to cybernetic theories of control and regulation, to ecological notions of systemic balance, to psychoanalytic understandings of how the pleasure principle and the death drive work to extinguish excitation and restore a state of rest (Freud 1961 [1920]; Bateson 1972). Although the state of equilibrium would seem at first glance to be contrary to the condition of addiction (which is associated with excess), in fact it plays a critical role in the addictive process (see chapter 4). 10.


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, call centre, cellular automata, Cesare Marchetti: Marchetti’s constant, cognitive dissonance, computer vision, congestion charging, Daniel Kahneman / Amos Tversky, DARPA: Urban Challenge, endowment effect, extreme commuting, fundamental attribution error, Google Earth, hedonic treadmill, hindsight bias, hive mind, 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, Sam Peltzman, Silicon Valley, statistical model, the built environment, The Death and Life of Great American Cities, traffic fines, ultimatum game, urban planning, urban sprawl, women in the workforce, working poor

Since most people feel lucky, they get on Take a Chance Highway—and end up spending an hour. From the point of view of the individual driver, this behavior makes sense. 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.


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

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

Nevertheless, it is the responsibility of the profession to create an environment that will attract unconventional individuals with a broad educational base and the mental approach which can generate innovative ideas. The playing of games is dependent on abilities that game theory does not capture well, such as memory, the ability to process information and the quality of associations. The assimilation of these concepts constitutes one of the main challenges for the future. Will we see a new concept added to those of competitive equilibrium and Nash equilibrium as an additional pillar of economic thought? Finally, I can not help noticing that the book was written during the Second World War and published in 1944, a year of loss and tragedy. This coincidence and the role later played by certain institutions (which had been involved in security matters) in the development of game theory led some people to the ridiculous conclusion that “game theory is a plot.”


pages: 1,737 words: 491,616

Rationality: From AI to Zombies by Eliezer Yudkowsky

Albert Einstein, Alfred Russel Wallace, anthropic principle, anti-pattern, anti-work, Arthur Eddington, artificial general intelligence, availability heuristic, Bayesian statistics, Berlin Wall, Build a better mousetrap, Cass Sunstein, cellular automata, cognitive bias, cognitive dissonance, correlation does not imply causation, cosmological constant, creative destruction, Daniel Kahneman / Amos Tversky, dematerialisation, different worldview, discovery of DNA, Douglas Hofstadter, Drosophila, effective altruism, experimental subject, Extropian, friendly AI, fundamental attribution error, Gödel, Escher, Bach, hindsight bias, index card, index fund, Isaac Newton, John Conway, John von Neumann, Long Term Capital Management, Louis Pasteur, mental accounting, meta analysis, meta-analysis, money market fund, Nash equilibrium, Necker cube, NP-complete, P = NP, pattern recognition, Paul Graham, Peter Thiel, Pierre-Simon Laplace, placebo effect, planetary scale, prediction markets, random walk, Ray Kurzweil, reversible computing, Richard Feynman, risk tolerance, Rubik’s Cube, Saturday Night Live, Schrödinger's Cat, scientific mainstream, scientific worldview, sensible shoes, Silicon Valley, Silicon Valley startup, Singularitarianism, Solar eclipse in 1919, speech recognition, statistical model, Steven Pinker, strong AI, technological singularity, The Bell Curve by Richard Herrnstein and Charles Murray, the map is not the territory, the scientific method, Turing complete, Turing machine, ultimatum game, X Prize, Y Combinator, zero-sum game

Even considering that we ourselves might be selected in the lottery. Because in advance of the lottery, this is the general policy that gives us the highest expectation of survival. . . . like I said: Real wars = not fun, losing wars = less fun. Let’s be clear, by the way, that I’m not endorsing the draft as practiced nowadays. Those drafts are not collective attempts by a populace to move from a Nash equilibrium to a Pareto optimum. Drafts are a tool of kings playing games in need of toy soldiers. The Vietnam draftees who fled to Canada, I hold to have been in the right. But a society that considers itself too smart for kings does not have to be too smart to survive. Even if the Barbarian hordes are invading, and the Barbarians do practice the draft. Will rational soldiers obey orders? What if the commanding officer makes a mistake?