Game Theory, Risk and Reward

Sean Moffitt - Connector of Dots seanmoffitt.com

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Grey Swan Guild

41 min readOct 11, 2023

Grey Swan Guild presents a quick-paced discussion as part of our Craft Building Series — Episode #40

This was our Grey Swan Guild’s 40th Craft-building Series production on the weighing of probabilities and on the fascinating subject of “Game Theory, Risk and Reward” — a subject we dance with every single day of our lives, whether we recognize it or not.

Did you know fifteen game theorists have won the economics Nobel Prize? There may be a reason…

We explored:
- wide and fresh perspectives
- the topic in context of today’s and tomorrow’s worlds
- burning questions
- hindsight, insight and foresight
- top debates
- the under-observed, overlooked, or miscalculated
- best approaches and disciplines
- great examples
- some pop culture and fun thrown in for good measure
- leading resources to turn to
- a recap of what the key highlights and conclusions we arrived to

“In terms of the game theory, we might say the universe is so constituted as to maximize play. The best games are not those in which all goes smoothly and steadily toward a certain conclusion, but those in which the outcome is always in doubt. Similarly, the geometry of life is designed to keep us at the point of maximum tension between certainty and uncertainty, order and chaos. Every important call is a close one. We survive and evolve by the skin of our teeth. We really wouldn’t want it any other way.” — George Leonard

Poker players, Social scientists, Mathmaticians, Computer scientists, Gamers, Political scientists, Philosophers, Epidemiologists, Analysts, Statisticians, Project managers, Philosophers, Strategic Foresghters, Military, Marketers, Negotiators, Psychologists, Sociologists, Humanists, Legal Eagles, Risk Managers…. come explore, and let’s find our Game!

Video — Game Theory, Risk and Reward

Sean Moffitt: Today, we’re gonna talk about game theory, risk and reward, I readily admit I am a huge poker player, not to the point where it’s any kind of social condition mind you, but it occupies my mind. And I find humans to be amazing but flawed probability machines. What do you know about game theory, risk and reward?

A step backl — in our series of craft building experiences. our aim is to make people smarter about a range of different subjects. And as much as we’ve surfaced intelligence, new intelligence, new insights, new foresights, this craft building series format is more of a making of how do we get more talented in terms of some of our skill sets. This is our ongoing Guild mission.

We started doing these Craft-Building Series events from September, 2021 And so we’ve almost come to a full calendar, we’ve done 40 of these now. We climb the topics alphabetically. And so we’ve done the A’s and the B’s and the C’s and the D’s and the E’s. We did Hope, Courage and Faith last week. Remind oursleves- never go wrong with Ernest Hemingway inspiration “we’ve all become apprentices in a craft where no one ever becomes a master.”

SM: One of my favorite speakers, authors, I don’t know what to call her. She’s done a whole bunch of stuff is Jane McGonigal. I think she strips it down to its bare essence here.

When you look at game theory, and whether it’s a game game, or this real game of life, we really strip it down to four things: there’s a goal; there are rules involved. rhere’s a feedback system that says you’re doing bad, good or indifferent; and there’s voluntary participation.

And I know on that last one, sometimes the Russia Ukraine war, I think on one side it was voluntary. I think perhaps the other side might not have been as voluntary. So just trying to get a grounding. Are we more baked on the definition of what game theory is?

SM: My best pop culture example in Game Theory is The Good, the Bad and the Ugly. Anybody seen the movie? An absolute classic, right? For anybody that remembers the scene. There’s Lee Van Cleef — The Bad. There’s Eli Wallach — The Ugly -really amazing, kind of veteran character actor. And, and then there’s Clint Eastwood — The Good.

Clint Eastwood’s character puts the name on a stone where the reward or the big fortune is to be found. He puts the name of the gravestone that’s nearby. And so he puts it in the middle. And so now the two other players have to think, would he actually put the name on the stone in the middle for real or not? And so their game theory decision making was, well, I can’t really trust that he put the name of the grave (where i can find the reward) there. And if I kill him, now, he’s going to die — and then I’m never going to know where this grave is.

So obviously, Clint Eastwood The Good — being wise about this, and also throwing another factor into the decision making, which is he took the bullets out of one of the persons’ guns. And so obviously, what happens is (I hope, I don’t ruin it for anybody) … what happens then is both The Bad and The Ugly try to kill each other. One of them does kill the other person. And Clint Eastwood has the safe understanding that no one was ever going to shoot him because if by shooting him, they would have lost the chance to win the reward. So a great piece of kind of game theory and cinema.

SM: Well, I know the world’s Rock Paper Scissors champion from 2012. Rock Paper Scissors series is a game of game theory. I like to think the more you play with somebody Rock Paper Scissors, the more you know what they’re going to throw down.

SM: All right, there’s other games too. For those that know this is Rounders. This is my doppelganger Matt Damon (at least in a different life). And certainly poker is completely based on game theory, right?

Sometimes it has nothing to do what’s in your own hand. It has more to do with how are you reading the other player and some of the either strengths or insecurities that they might be playing with? So any poker players here?

Besir Wrayet: Not Poker play, but mind reading.

Nicoel Stark: Not games, but i’d like to put strategies together to build sh&&^.

SM: There’s been a lot of different strategic terms that have been associated with this (all key terms visualized below).

I think one of the biggest ones is Prisoner’s Dilemma, right? I think we’ve all heard about, you know whether or not you both go to jail, you both go free. Or you create some version of a scenario where either one’s getting more time or less time based on what the choices are in front of you.

There are things like Zero Sum Game science of strategy, Nash’s Equilibrium, and Acceptable Game and a whole bunch of different things involved in game theory. When I say game theory of a seer, what comes to mind?

Besir Wrayet: Calculations. Iceman. I guess, completely concealing, and being in kind of a stealth mode of your emotions. But most importantly, I guess, cognitive superiority, decision superiority, because I’ve trained my trained insurance executives in thinking skills.

Now, a lot of the time, you could imagine the political, economic business risks associated with Turkey. And especially, you’re given a lot of variables and so forth. So just novel disruptive stuff, so that they could be a few steps ahead, almost.

Bud Taylor: Well, really, to me, it’s just some kind of calculus for decision making. Right? Like I’ve been away from this for 20-30 years, but used to be involved with a lot of actuaries. I love numbers in business. So I’m here to listen, really.

SM: All right. I think you saw on one of the things, the science of strategy, I think, oftentimes, you know, there’s a lot of uncertainty out there that can’t be navigated, but there is quite a bit of certainty that can be navigated, or at least be modelled and looked at. So I think, how people make decisions is kind of fundamental to what game theory is all about?

From a context standpoint, it factors into so many different parts of how we how we operate in our world, I can think of about at least 15 different industries that have a huge, chunk of their decision making calculus based on game theory. Military is a great one.

Now it’s playing out in terms of Ukraine and Russia, can one withstand the other? Is it a war of attrition? Or is it something that I think in the early days, Russia said, as long as we could take the capital, they’ll fall in three days, and then we’ll install a puppet government? Well, it didn’t really happen that way. And so game theory was at work there.

Certainly I’ve been in worlds where, you’re looking at the whistleblower. Who is going to be the whistleblower. And sometimes the whistleblower has so much of a penalty (associated with their confession) that ends up being thrown at them that everybody stays mum on something.

If you look back at the financial crisis of 2008, generally a lot of people knew what was coming, they just didn’t want to holler that the sky is falling, because it would have inflicted on them more personally than others.

So when I think about other things in the world, we’ve got evolutionary biology, where it’s which kind of species may go extinct versus other ones that can adapt. What are some other kind of areas of the world where game theory may play a role?

Besir Wrayet: I would say infinity games. In military, there’s a concept of infinity games that even though there are certain wars, they carry on, continue on being fought. And, you know, competition. So you could think, I’m thinking of Cold War. Itt ended with the collapse of the Soviet Union. However, they were just disarmed. And they were shocked at gradually, they just pulled it back together, realized that perhaps capitalism is not the best choice for them, because there’s always that Soros culture, haves and have nots.

And same thing with China. I mean, in the 1970s, there were so many people riding bicycles and so forth. But then once they got their economic independence, maturity and competitiveness, they just hold everything on to military. So I guess chronologically, we may be in 2020s. But I mean, there’s still the 1950s. In Korean War. So that’s the kind of infinity game I’m talking about.

SM: Very cool. Pivoting, I guess where most of our Guild (Grey Swan Guild) spends their time in business, you can look at pricing decisions and game theory.

We’re looking at one right now, can I fundamentally pass along all these increased supply chain costs to my customer? Do I swallow them myself? Or do I pass them along to somebody else in the rest of the food chain?

Certainly one area for me, which is really interesting is the environment. How are you going to get a world that, if there isn’t enough of a penalty, there’s too much of a reward for cheating. Game theory plays out here too in terms of well, I’m going to keep performing badly as a player here, because the penalties aren’t so high that it’s going to change the way that I do business. Nicoel, any kind of thinking in terms of where where game theory may play a role in your world?

Nikoel Stark: Well, no, that wasn’t where I was gonna go. But I mean, my question is that what’s the actual difference between just normal strategy and game theory. Are we replacing game theory with strategy as a kind of strategy or I am curious about what the distinction is here. And I like the examples of of game theory. But I think I have a few ideas of what those distinction would be.

But I think it’s worth it to actually articulate the definitin because I don’t think that just any strategy is the same as Game Theory. And the things that I like about game theory, are a little bit different than just typical strategies, as well as the things that I don’t like about game theory.

So I’m asking, What are what’s the difference? Because everyone’s just kind of describing strategic decision making, which I don’t think that’s really what game theory is about, but maybe I’m wrong?

SM: Well, I think it’s certainly a subset of strategy or at least to how people make decisions, right? And I guess it could be for games, it could be for experiences. So it’s not exclusive to the strategy domain, I. But, I think you you’ve advanced forward two slides. Sometimes people like context before they get the definition.

Here’s a definition that is generally agreed to. It’s a framework, right? For understanding choice between different players, they could be competing against each other, they could be cooperating, depending on on how they see the game that they’re playing. Game theory helps players make optimal decision making, when certainly done in an environment where it’s actually rational. And it’s confronted by independent and competing actors and a strategic setting.

BT: Hey, Sean, yeah. How much of this includes modelling and numbers? How much of that is it ? Because that that’s where my mind goes with Game Theory? Yeah, I like thatit stems from mathematical science.

SM: A lot of the basis to this was mathematics. Right? Right guy named John von Neumann. And then as you know, actually, I’ll pivot to another guiy (I think there’s somewhere in here). Who’s this guy?

BT: Yeah, you love your movies? Don’t check. Anyway. The Gladiator Russell Crowe, Russell Crowe, well, yes the guy. Hmmm Mind … The Beautiful Mind!

The name of the guy who invented this machine that that actually solved the code, the German ode, what was his name?!

SM: Awesome Bud. So the guy’s name was John Nash. So if you read anything on game theory, John Nash, his name shows up, right, left and center and certainly on fundamentals in mathematics, for sure.

But I think, you know, it’s probably disingenuous, just to call it a mathematical art or discipline, because if you think about some of the best mathematicians ever, they are such conceptual geniuses that it’s not just a mathematical game. Ii’s almost — can you kind of rise above the game that you’re playing and see it from from something from above — and see how it’s really being played?

BW: I came across, I came across such a flag officer, that fits right into the description. US Air Force Academy graduate, but majored in mathematics. You’re really the strategist, somebody who comes up with novel ideas, the pilot, but most important of all, you’re really adept to novel situations.

SM: For sure, right. And I think there are some assumptions that people make about game theory that probably need to be in place for them to actually make some judgments on it. And typically, there’s about six of them.

One, the actions and choices of, of all the participants affect the outcome of each other.
And so they are interdependent in this game, they will usually at least have two or more choices. If you only have one choice at the start. You’re certainly a dummy in the game, you don’t really affect either your own kind of fate, or the fate of others.
Players within the game are rational. I think we’ve seen a little bit in the US political scene maybe over the last two decades that maybe it’s not entirely rational. So it’s tough to apply game theory to the US political scene, a little bit of a personal commentary there.
Players know the rules of the game, or at least they think they know the rules, and then
Players are rational and will try to strive to maximize their payoffs. And so whether that means both of you when somebody wins and somebody loses, or it’s a race to see which person doesn’t lose as much as the other person.

All of those different types of games apply. Does this make sense to you in terms of just a definition or some boundaries into what game theory is?

BW: And I’ve been pretty bad that I didn’t use any visuals on a recent lecture I gave! mea kulpa mea kulpa. But yes, so players within the game are rational players basically want to win. So they can also be irrational, ambitious, passionate.

So I guess it’s kind of like the economy being rational that when you leave it to its own devices, that it’s going to pick up and find the equilibrium and so forth.

It’s just basically doggy dog world, or just outright cannibalism. I mean, going back to 2008, and the people basically churning toxic assets and so forth. And so it’s kind of like WMDs (weapons of mass desrruction). And it surely turned out that way.

NS: I like it that you brought this episode up, because I think this is the problem with game theory is that depends on what the game that’s being played, and how it’s rigged, and the rules that are designed in order to rig the system in a particular way.

And so I think that the worst of capitalism, and greed happens in game theory, and even marketing and pretty much any industry, because you’re working with data that you know, to be true, even if that is, and you’re trying to manipulate that data to the advantage, you know, to whatever your outcome is, which is usually just increase the profits.

It’s not actually increasing, you know, the health of society and doing more complex system, you know, meaning human systems and how that’s integrating with commerce systems, and how that’s integrating with, you know, the planetary, earth systems, you know what I mean? And so, I think this is where it could go wrong.

And I think it mostly goes wrong when it’s applied in, in context of business. So I wonder if there’s any examples of people who’ve really done a great job with game theory, and really made it not about greed, or just only profits?

SM: I mean, you mentioned natural systems, right? I think natural systems also played by the world of game theory, right? We’ve seen different species go extinct, beyond anything related to capitalism, or any kind of political strata.

I oftentimes think about those ….I can’t remember what they’re called, but I’m going to call them tick fish, like those ones that clean like the skin of the apex predators that they’re hanging onto. At some point, some brave fish had to go, I think I’m going to do this, it’s going to help this bigger fish here — and he’s not going to eat me in return.

Now, I don’t know who that brave fish was hundreds of millennia ago. But man, oh, man, those fish have cleaned up now. Because essentially for the tick fish — that’s that’s their entire food system. And if the sharks or the rays that they feed off of go extinct, they probably would go extinct as well.

BT: When you’re watching election night returns, are they gaming? Because a lot of times they can really predict where things are going until something they can’t predict, and then they get into the irrational. Well, someone in this crowd reacted this way.

SM: Well, I mean, I think in some respects, the polls themselves play a role in the game that’s being played, isn’t it Bud? I mean, if it’s been well known that if you know that somebody is either gonna win or lose, and it’s categorical, you might be less inclined to vote, or you might be more inclined to vote against your your best interest because you want to vote the other person out. Right, and a range of different things.

Certainly, when you looked at Trump versus Clinton back how many years ago was announced six years ago, probably in 2016. If you put $2 in Vegas at eight o’clock at night, the night before the election, you could have gotten five to one odds on Trump losing it. Right. I don’t know if that’s not rational, but certainly there’s surprises in the games of politics or economics or whatever.

I think if you ask somebody 10 years ago, what would be the value of this thing called Bitcoin? I think it got up to about $80,000 and dropped to $22,000 today. But I think there’s almost a mutual destruction there amongst people that own Bitcoin, right? If I don’t believe in that anymore, then we all fail, right? With currency, it’s about the trust that you put into it.

And I know oftentimes when you think about game theory and some of the bad stuff that Nicoel had just mentioned, there’s this acronym that gets used IBGYPG, which is me means that I’ll be gone, you’ll be gone, right?

I don’t want to ruin the Breaking Bad finale, but there was a excellent … of sorry the Better Call Saul finale there was an excellent example of shared mutual destruction. If I’m going to jail, you’re all going to jail. And so I won’t ruin it for anybody. Anyituations where you go, I’ve been in one of those situations before, we didn’t want to rat out somebody because if we did, we’d all be fired. Any thoughts in terms of an IVGYBG?

BW: Actually, that’s not something I’m very proud of. But in middle school, a group of students, students created acabal that were stealing exam questions by bribing the Xerox guy in our schools.

Now, when they were keeping it a secret, they lived the happy forever, however, once that it leaked, to several classes, and so forth. So there were nine classes that the third year of middle school, everyone started pitching in money. But as the money was flowing in, nobody knew whether that money was going to or who was pocketing it.

Of course, everybody kept it a secret. But supposedly, there was going to be three, four people going and meeting the Xerox guy at the train station. But because nobody trusted each other, there were like 30 students went in. And because of the large number there, I mean, I’m a Gen X, I was born in 77 (scerets could not be spread digitally) . So the train station was ambushed by the teachers, they entered from both the north and the south of the train station. And as the one train came in, as it was, as it was leaving 25, I managed to jump into the train and the other five stayed.

SM: Something they should make a mini series out of or something Besir. This is the stuff of legend here.

BW: This is being recorded. Oh, you are recording this? I hope it’s gets deleted :).

SM: Just going a little bit further into it. You know, what’s the value of game? I mean, we’ve talked about some of its bad applications. And certainly I agree with Nicoel, in the context of either business or politics are a few different things.

People, we say people can game the system where essentially, they’re trying to be really good game theorists. And actually, you know, do something to the detriment of others. Why is it important to know all this stuff, though? Because I mean, whether it’s it’s badly practiced or not, there’s certainly motivations behind what we do that can be modelled, and can be looked at, and can be seen ahead of time before things happen. So what’s the value?

BT: It provides an illusion of certainty. I think managers love this kind of stuff. Managers love data, no matter how suspect the data is. They all believe their left brains, they love this stuff.

SM: There’s some editorial in that Bud.

BT: There is!

SM: I agree, different faces coming up in your mind in terms of who those people were right?

BT: Lots.

NS: You’re likely speaking to this, but probability isn’t game theory, it’s probably more about using data as a basis of certainty so that they can, you know, employ rules and structures that make them feel better or suit their own interests.

But game theory is more complex, which I love, like Game Theory is much more about understanding all the variables, how the variables interact with different situations, how these potential outcomes could create other results, how you know, how all the different outcomes could create different things. And then it’s predictive in that way.

So I love game theory in the sense of it actually being complex strategy, which I think is brilliant, and I don’t think is actually what any managers are doing, because it has a very complicated system structure. And the more we were thinking, like game theorists do, I think that we’d actually be more intelligent, and then it’s just how it’s applied. Right?

And I find that it seems to be rarely applied well, in terms of the benefit of humanity. But unless it’s like strictly a game, then it’s quite fun, you know, if it doesn’t have any real world costs. But yeah, I think that the complexity of it is, is valuable. And the mathematics of it are valuable because they’re more complex calculations that I think are real in terms of direction that we’re actually kind of seeking to understand and predict and work with.

BT: I think has game theory receded. Because like, 20-30 years ago, I worked in the military. I’m not a military guy, they did actual game theory. I’ve said before, I’ve worked with actuaries, and they really get into this stuff. But does anybody talk about game theory anymore? Because I think our whole world has just become more, you know, Oprah’s — well, it’s my truth, right?

It’s a valid question is it doesn’t seem to be a discipline. I never hear it. I never go to a client and they say, you know, we got a game theory this or we got to bring in a game theorist, is it? Does it have any use today other than maybe military examples or something?

SM: Yeah, I mean, if you look at some of the fundamentals, I think it got a good kick in the pants when John Nash came around. And so certainly if you can go back to Sun Tzu, in terms of using some of these principles. 2000-3000 years ago, Nash kind of brought it into the modern world.

I think, to your point, we live in such glorious amounts of data. With things, you can look at things, you can model things. data and game theory had its heyday.

But the problem is, you have to understand all this data. And so how many people in the world really understand some of the data and behavior science behind stuff that they’re looking at? It’sif you jump on LinkedIn right now and look up people that know game theory, most of them will have some kind of academic or PhD or whatever expertise.

So it hasn’t democratized itself to to the point of some of the other things like design thinking where design thinking has been so well packaged for the university, quite frankly, anybody an innovator is probably a design thinker. Right?

NS: I also think that it’s very hidden. I think game theory is, is not prevailing. It’s just hidden. It’s not talked about as much because it’s too complex. And then a lot of it is in the algorithms and in the behind the scenes of the tech that’s being built.

So it’s not, like, you know, Sean said, that can actually understand it. So it isn’t as popular because it’s too complicated to actually discuss. And I think it’s probably more powerful. If it is hidden, particularly if you’re designing a system and a game for your particular industry. That’s that becomes secret sauce. So yeah, it’s just not something most of us care about, because we haven’t stopped to see its hidden power and how it actuially works.

BT: That’s a good point. Making the secret sauce, right. Yep. It’s got to be secret. Okay.

BW: I guess it’s a wonderful way of how ideas come together. Because in modeling simulation, or in tabletop exercises, it is in a way a game theory. So it depends sometimes. Most of the designers put in a lot of hours, do the quantitative work, as you put it, operations research, but then it has to have a user-friendly interface to get the result of target audience.

And numbers are the secret sauce, then I’ve seen a lot of operations, research students, PhDs and so forth.over, 22 years talking about game thoery. I thought, Wow, that must be something really easy. And they said, no, on the contrary. iut’s all numbers. It’s all mathematics and so forth.

And then after seeing them in very, certain miserable days, . I said, you know, I could never do that stuff. But I guess, democratizing it is key to both for the concepts to survive, but also perhaps become more novel and then evolve.

SM: You have less of a chance to be bamboozled in a game if you understand the rules that are played against it. Right? So I think there’s a couple of different books I’m going to share at the end that, in my mind, are really good examples of just If people only read these three books, you’d probably understand a lot of the reason why we do some of the the crazy irrational things that we do at times. For example, in politics generally I find people vote against their best interest without them even knowing? Right? And a lot of that’s all about game theory too.

BT: What’s wrong with Kansas? :)

SM: And certainly, if you look at, I’ll call it postmodern game theory, they really struggled for decades on two different things in business. And the two things were, how do you deal with imperfect competition? Where you’re you really don’t two rational equal sides. I think the point Nicoel was making earlier, you’ve got a stacked deck on one side, and it’s really tough for these other people over here to ever succeed because it’s imperfect.

And the second thing they had to deal with was entrepreneurship, right? Entrepreneurs take such huge risks, you know. If I told you, here’s a business that you’re going to invest your entire time, energy, perhaps money, and a lot of risk and reputation. And oh, by the way, there’s an 85% chance that it won’t exist within five years from now, would you take that risk?

BT: Not much.

SM: Well, guess what a lot of people would and so they had to really account for, you know, this, this crazy thing called entrepreneurship.

BT: Yep.

SM: Just continuing on. We’ve talked about The Beautiful Game. Here’s John Nash’s equilibrium. I don’t know if anybody knows the Nash’s Equilibrium is? Something that game theorists espouse a lot.

And essentially, it’s one of two things I like to call it, it’s the no regrets rule. Right? It’s some at some point, you’re playing a game that whatever decision you’ve made, don’t deviate from it, because any deviation from your strategy will end up being a suboptimal result. So whether it’s it’s non deviation or no regrets, that’s, there’s a term called Nash Equilibrium. That’s what it means within this space.

You probably heard of Prisoner’s Dilemma, right? You’ve got a different world situation here, you’ve probably seen on Law and Order where they have two partners in the crime, and they put them in two different rooms and go — look, , you’ve got these two by two scenarios where if you both stay silent, you could serve a year, if you both betray the other one, you could both get two years. And if you betray the other guy and say it was all him, well, he’ll get three years and you’ll go free. So which do you do? Maybe I’m looking at the criminal mind that Nicoel Stark is here? Which, which would you do with me, if we got caught in a crime together here Stark? Which, which one would you do?

NS: Um, well, I’d have to think about it. But the thing is, I would think about it, I probably do game theory, Sean. I would probably talk to you first before and I’d say, Okay, if this scenario happened, this is what I’m going to do, I’m going to make this choice.

So I would back it up. And I’d get agreements beforehand. If I’m in the situation, I get this choice. And I’m going to, then we together would actually game theory it out. Like if I’m the one that gets caught, versus you’re the one that’s got how can we help each other? Or how can we both help ourselves? And then I’d make it more complex than this.

SM: And you have introduced a new notion into our game just by saying that the notion of trust. Can I trust you as an actor in this game, that you’re going to do what you say you’re going to do? Because if I can’t, then I know, I could get three more years than I’ll ever get in any other scenario.

NS: Yeah, on the surface that might be if we make an agreement e.g. if we both serve one year, then that’s an agreement and at risk if we’re not trustworthy. Or it’s like all like one of us goes free, the other serves three years, and then we make a deal based on that, like, okay, then you’re gonna give me $3 million for that, or whatever.

I mean, there’s factoring in the potential of agreements and collaboration? Or, , you’d have to predict like, yeah, if it wasn’t trustworthy, then what? Well, then if it wasn’t trustworthy, I would probably do do both serve one year. I mean, that’s the that’s the most fair and reasonable. That has the least consequences.

Because here’s the other thing, if I choose one where I’m going free and you’re serving three years, there’s consequences to that decision into my future, depending on how much power you have.

If you have no power then you may not be able to do anything but what if you gain power after the fact that I think you don’t have any power? Well, once you gain power, you might wield that against me. So I’m also having to factor in you know, the the, the not just the cost as I see it now, but potential cost that I can’t see. So I would definitely do both serve one year, unless there was like a prior agreement.

SM: And I mean, I know we’re bringing this up as a prison situation, my hope is whenever possible, it’s very plausible. But I think a lot of times in business, it happens there too right? For examplke, you’re gonna go in partnership together. And you said you were going to do this, but you wanted to get all the benefits without any of the commitment or dollars or whatever you’re putting into this partnership. This happens all the time in terms of business life where somebody tries to get the free ride up the other person, right, so.,,

NS: The other thing is, if I felt you weren’t trustworthy, then I would betray you. And then if you didn’t betray me, then I’d have to figure out a way to make up for that. That’d be better, both serving two years would be better. Like I would take the risk, definitely that you’d be trusting because either way that’s better for me because I have the power to fix it. So I can say, Okay, oh, you were loyal. Oh, that was unexpected. Okay, now I better figure out how to make it up to you because you’re loyal unexpectedly.

SM: I was gonna say if you’ve ever seen the movie The Social Network, I know I’m back on a movies again, but if you’ve ever seenit, I think Zuckerberg has taken the exact approach you’ve just defined here Nic. Well, it’s like, I’m gonna screw those twins over because it’s better for me. Sure, we’ll give them a little bit of stuff, but more of it was gonna go to me. Besir, you’re going to add something?

BW: Also we have to take into account that there are detectives who are interrogating them, and what are the interests of the detectives? I mean, do they want to throw both of those guys into prison? Or do they want to just give them a fair shot of one year and even the district attorney or the public prosecutor?

So I guess somewhere in the future, it will be interesting to actually invite a law enforcement perspective and also a prosecutor’s perspective (into our conversation) because obviously they wouldn’t want to spill the beans but then as far as decision making goes, getting their perspective, will also provide us some seriously good depth.

NS: Well, that would be a different game. But this game right here is fixed. For what comes previous so that’s I was identifying. Well, what comes previous to this game I can control but as long as I’m in this game, it’s fixed. We already know the outcomes, so we’d have to create another game for that scenario. It looks interesting.

SM: And perhaps even dependent on the first game right sometimes these game theories are perfromed sequentially or coincident to each other right? I gotta throw us into a different…

BT: All I know is my sister ratted on me. And she got off and I got punished. :)

NS: This is really interesting in terms of game theory, because I often game theoryin terms of situations with siblings or with like speeding because I’m like a super speeder. So I game theory it out.

Like, I’ll probably get caught speeding this many times a year, but that’s only a fraction of how much I’m speeding. So then I realized, okay, so I’m only getting caught X, I’m actually speeding far more. So my violation is much higher than what I’m actually getting caught for. And so I can just pay that price because it’s worth it, then that gives me license to speed this much time because I know I’m only gonna get caught this amount of time.

And I think it’s similar with a sibling. It’s like, okay, I’m falsely being accused of my sibling this time. But how many times was I falsely accusing? So then game theory it out and be like, — well, I’m still winning, even though this one was bad. No, I’m still winning or losing. And I need to change my strategy, because it’s adding up to not be. It’s not adding up in my favor. So I need to fix my strategy.

BT: Got it. Yeah.

SM: I think there’s a bit of Scottish in me and in the first three years of me working full time I worked at Procter and Gamble in Canada, and I parked at the side of the building because I thought the rates for parking underground were so egregious that as long as it didn’t get more than six parking tickets a month I was okay.

And it worked great for the first three years and it continued to use the rule ad nauseum and I worked there for seven years. The unfortunate part is like the penalty started going up to all of us that were gaming the system. It git expensive.

NS: And then they change the system. I hate that!

SM: I’m going to throw one more game at you. That’s a very popular one in game theory space. But yeah, let’s put it in this these terms. And I’ve got some stats to back me up here. I’ve given you $1,000 bucks. You can take it all yourself. You can share it equally amongst us or do whatever you want with it, but I’ve just given you $1,000 bucks as being part of our discussion today, what are you going to do?

BT: I don’t understand why I would do anything. You know, you’ve given me $1,000.

SM: I’ve said it’s, it’s for for this webcast, you can share it with everybody that was part of it, or you can not, it’s totally up to you,

NS: Meaning share, or you like what to do with the money itself? Or what actions as a result of the money?

SM: What to do with the money itself? It’s a decision that you got to make right now. It’s like, you know, maybe there’s a fair thing where it’s like, you know, we were all part of this webcast, maybe we deserve the money too? Or you say, no, you know what, I need it all for myself. Or you say, well, I’d like a little bit more money for myself and distributed to, to this year…

NS: I really take it and invest it and then share dividends.

BT: But this seems to be this seems to me, we’re sitting at a table, and Sean’s got $1,000. And there’s nothing else.

NS: Okay, I would do this, I would say okay, I’m going to take half, you’re going to take half let’s both invest it and then share the dividends and in a way of like creating another game, like you create another game and see who can actually make more money would then be other,

SM: it’s getting complicated with you!

BT: If it’s it’s purely zero sum sitting there at the table, and we’re not, we’re not making other games out of this. The question is, do I in any way share it? Or do I use it for myself? And why would I share it?

NS: So this is the other complicated variables. If it was you, Sean, and me, and then one other person, and they say this person I knew was in need, then I would not share anything with you. But I would share with the other person because that’s a different circumstance, a different calculation.

And so generosity changes in terms of, you know, circumstantial need, or what is the information available? So, and then I probably say Well, I’m going to take it, I’m going to do something with it. I’m going to give some to this person, and I don’t know, maybe I’ll buy you a drink or something. And let’s see.

SM: Wow the permutations. Let’s go really elementary. Do all of you have siblings? I know I have one, two in fact. Nicoel, I know you’re a family. You’re from Kansas City - you’re likely got it like a family of 12 :)

SM: Th scenario — you’ve got one sibling. Remember that moment? Remember that moment where your parents go, Look, here’s $10. Just get out of my face for a while and take your sister or your brother. Right? So let’s put it in that scenario where there’s a variety store and your parents have just given you $10… but you’re going in to the variety store with your sibling, how are you meting that money out?

BT: Well, I probably being me, I would probably shared as equally as I can. Just for home peace.

SM: Very good.

BW: I had, yeah, I had sibling rivalry. So I would have purchased the cheap ice cream and then kept that the expensive ice cream. And then the remaining money would have just pocketed it.

And yeah, so I’ll also make sure that my sibling is happy that she had ice cream. So and then when she tells mom, she won’t be able to tell that it’s whether it’s a cheap one and so forth.

SM: I’m reading into your personality here. It’s the henceforward called the Haagen. Dazs versus Breyers rule, right? Yeah, no, I got it. Nicoel, well, what are you doing with your savings?

NS: It’s always more complicated for me. Because if it’s somebody I know versus somebody, I don’t know, I mean, and then you have the age thing. You didn’t have the complex system development.

Now as an adult having that same situation, I would invest it in a different way. Because I want to maintain the strengths of those relationships because their resources mean for the future that blah, blah, blah, at 10 years old, that brain capacity. I actually just shared because it was someone I love, because I’m super tight with my brothers. And there was not enough incentive for me not to share. But I can imagine myself in a different scenario where I wasn’t close to my brothers and the relationship wasn’t there and I was a different personality. I might and this is the whole point of game theory, right? The variables matters. The variables matter.

SM: I know in whatever game theory, there’s a lot of branches in Starks’ tree where it’s just like but then it depends on this and then it depends on this right?

BT: I wouldn’t get there — my current situation is that my older sister and I would get 50% each.

SM: All right, well, a rare part of the population because they did this study with university students. And they found that 5% of them would share it gladly. 45% of them would share it a little, but by no means equally, and 50% of them would take the entire money themselves.

And so I know university students, kind of a different economic strata, and depending on what kind of different kind of caveats that you put on it if there’s any kind of future relationship involved, but for the most part, if there was no future relationship involved, a lot of people are taking the money themselves. So it’s an interesting comment on human nature perhaps.

So I wanted to touch on one last thing before we close on the topic. I just read an article today. And I think it was New York Times on abundance versus scarcity? And how the comment on the article, I think the actual title of the article was something like we’re reaching the end of abundance and the startup scarcity.

And so depending on if you see the pie as being ever expanding, or if it’s contracting and contracting, doesn’t it affect your ability to play this game? And how you see it? Any thoughts, Nic?

NS: Well, I’m kind of predictable in my responses. I think that both mindsets are delusional. So abundance isn’t real. And neither is scarcity. I mean, there is,, of course, not always going to be more. And then it’s also there’s always something present when we feel like there’s nothing so I don’t agree with either of these mindsets.

But I understand that most humans do and I think that is probably changing to more scarcity mindset, but I don’t know, what was the question? Did you ask a specific question or just my thoughts on it?

SM: Well, when you you think even a better Dictator Game, right? And you look at a pie that has more to it, right? So a rising tide lifts all ships, of course, I’m going to share more versus Wow, we’re dropping into ourselves and I’m going to be a little bit more suspect in terms of who …

NS: I just think it’s contextual. And I think I don’t like how we always make these simple binary, you know, frameworks so that we can pick one or the other. It’s like certain circumstances a tide rises, a high tide raises all ships, others, that’s not true. And so I think the circumstances, it’s very dependent on the context and the circumstance, so But generally, I absolutely believe in generosity, which is, which is different than an abundance mindset. Because my generosity would say, even though there’s not much, there’s still enough to share.

SM: So any, any other prevailing thoughts on this, I know, there’s the belief, and then maybe how the world operates, too, right? Because \I certainly am a Canadian, so I can speak to a little bit to our political spectrum, where if somebody is on the right hand side of our spectrum in Canada, they’re probably more likely to believe in not taking too many risks. And the fact that, we probably don’t have a rapidly expanding pie. And so being a little bit more conservative, the party’s actually called Progressive Conservative, which seems like an anachcronism of terms but and then there’s Liberal, which is like, Well, no, the pie is always going to expand. And so let’s spend a little bit more liberally and freely and perhaps share more across things. So it’s interesting even how this plays out in political beliefs.

BW: Yeah, I think this has to do with the abundance part, I would think of innovator, designer, creator, that really describes those characteristics. And scarcity is the free rider or the person or the lazy person who doesn’t want to have the incentive to create and because

I’ve had experiences where there were there was collaboration and then my mindset was abundance and then obviously, the other person, because they are not creators, innovators, disruptors, they were not able to replicate or do what I do , move into the same rhythm. So in that regard, they would just rather cash it out and run away.

SM: Yeah, it’s good, very good vernacular on those I buy. Bud you got any thoughts on abundance or scarcity?

BT: I know I struggle with this all the time. My behaviors are in the red side, but I firmly believe that a lot of situations, resources are infinite. Right, like, so my behaviors are red, but my belief is kind of things are infinite.

SM: Yeah, there’s a real dichotomy there, right. Sometimes I finally I feel like some of the practices of my most environmentally friendly friends. They will they certainly believe it (their cuase). I don’t think they don’t believe it in terms of scarcity of the planet’s resources — there’s a pie here that we need to be really cognizant of and make sure that we, we take care of it for for future generations — that they do believe.

The problem is in a modern world, I don’t know how you square that and jumping on three flights in a row to get to either a vacation or business talk or whatever, right? It feels like sometimes the behavior versus the belief might be in a different state of affairs on a game theory basis.

BT: I don’t understand the purpose of you showing that slide, is that is that a game?

SM: Well, I think just if you if I told you look, we’re going to split a pie that’s 110 versus splitting a pie that’s 90. You can certainly game theory that in terms of okay, well, I want 60 For myself, so I’m going to keep 60–50 with 110 Pie but that doesn’t seem so fair 60–30 with a 90 pie? Well, you’re now you’re getting double what the other person is getting. Right. So there’s an unfairness aspect to it.

And I think if you look at tax systems and different structures, you may get to some of that game theory, unfairness as well.

BW: Just one sentence, the scarcity mindset in the end, will lose because a lot of the people who jacked up by ideas. In the long run, it has costed more. I mean, yes, like short term, win versus long term, sustainable. And then, it’s obviously for short term for reality, or just to keep on or cling on to what you have. The one on the right is good, but as a perspective, and collaboration for future, the one on the left is a good idea.

SM: Iy’s interesting, we’ve defined this as people but at certain times, it’s eras, right? There’s certain eras where we go through pretty much societally differences of game theory backdrops, the Depression would have been a pie is getting smaller, gotta look after it for myself versus the roaring 20s would have been a little bit different as well.

I’ve provided three resources here. I’ve read two of these. I’ve heard from colleagues that the first one The Art of Strategy is a really good game theory guide to success in business in life. So I can’t account for that personally, certainly, Taleb who obviously wrote Black Swan (which grey swan is a cousin to) has a really good one with Skin in the Game and just some of the hidden and assymetries in daily life and just know some some really good examples of where, you think you’re making a fair decision, but you really aren’t. And I really didn’t know any of my poker player friends could read a book, or all of them could, bur Maria Kournika and The Condidence Game.

NS: Mine looks different. Oh, my God, The Skin in the Game, but it looks it’s like a totally different cover than that one.

BT: Yeah. You maybe got the hardcover.

SM: Maybe you got the signed version, maybe.

BT: I find it interesting that the one on the left talks about a game theorist, and then we get into its Nick’s point, they talk about strategy.

NS: Game theory is the ultimate strategy is super complex. But I think that that strategy isn’t always Game Theory. Game theory is always strategy. That was my point.

BT: And they converge on the front page there. Yeah, I know. I know. But they put them in the same level there. I’m just saying we’ve had that discussion upfront, as to strategy and game theory. But here, they flow together. So if there’s confusion, it’s not just me.

SM: Yeah, like anything, any framework, it can be used for anything and nothing depending on how you interpreted it, right?

BT: Like the word strategy. It has no definition.

SM: I would, I would implore people though, try poker first of all, but if you don’t, at least Maria Konnikova sounds like a tennis player, right? But she was a world ranked poker player. Really good at it. And so she’s taking some of the principles she’s learned there, turn it into a book about The Confidence Game, which, you know, I’ve certainly improved my poker game by actually reading it. The unfortunate thing is everybody else at the same time also read the book. :)

— -=-

Yeah, we got a whole bunch of different ventures going on in our guild. We’ve got a survey coming out on a pandemic, in terms of where it all settles out. We just had a discussion this morning on producing a book together, and we have an ongoing piece into I’m sort of doing some masterclasses toward the end of this year and early next year.

And we’ve got our next one, number 43. It’s interesting, we jump we did number 41, and 42. We’ve done 40 here, and we’ll jump to 43. So there’s no rhyme or reason to our numbers system, I suppose here, but we’re going to talk about heuristics, probabilities, and mental shortcuts next. And so that’ll be an interesting one, and somewhat related to this topic.

And just announcement here today, we haven’t mentioned the date, we said, we’re going to do this, but come October 20, we are going to do a book festival. So we’re going to find eight authors that talk about different elements that the guilds interested in. And we’re going to interview them. So. So yeah, put that in your calendars for October 20. And we got we did something on hindsight, and retrospection number 41. Here, it’s all on medium. So have a read of it as well. Just, you know, just because we’ve, we’ve gone over the hour. But what we learned today, here, guys, I know Nick will loves as part of our discussion together. But what do you learn today?

BT: Well, I just joined in, I’ve not ever joined in on these things. And I think it’s great. I hope my participation didn’t drag it down. I think a lot of you are more into into the formality of game theory than than I am.

So I learned a lot I learned the layering, I learned the complexity, I learned its strategies, a subset of this. So I love the discussion. And I’ll try to join more. And Sean, I’ve never understand — is this just what you do with your life is host all of your questions. Oh my god, how do you do this?

SM: Let that one sink in for a second. I don’t know if I should answer or cower away in a corner right now.

BT: Give up your whole day in life, to talking to people like us just to make us smarter?

SM: But in your case, yes, I do. Because with you it’s so valuable. So okay. Besir, what did we learn today?

BW: Obviously, how little I know about game theory. I will definitely have to watch and write down a lot of things. And Nicoel and yourself have been wonderful teachers.

Most importantly, you don’t have to have to have effective game theories and strategies and so forth, you have to have quantitive skills. But nonetheless, you could always find a buddy of yours, who is a math genius. So in that regards, it opens the the more skill sets you have the better. And most important of all, the element of deceptions and false signals, weak signals. And those signals also come into play. So you have to take that into account. It’s that perfectly rational and honest world out there thing over?

SM: That’s a great sum up. Thank you for that. Appreciate it. And Miss Stark — what did we learn today?

NS: I’m protesting this question. But I learned that you have one, maybe two siblings, and that we have a similar rock paper scissors game.

SM: I know, man, that’s scary. How similar was that game I’m sure if we do the math, we’ll go well, our brains have had mitosis of each other when we’ve come from the same stem maybe do. Ewwww Maybe not?

Well. Just one quote, I guess to leave us in terms of just, you know, as you’re looking at any kind of strategy, or innovation or sensemaking, or partnership or anything in in either business or in your personal life, you know, it comes down to understanding the interests of other people as well.

I think there’s a basic point here about what game theory is trying to get across that sometimes be they rational or not, they have their own kind of impetus in terms of what makes for a good decision. And so hopefully, you can avoid it just being a one way decision. And I’ll also add Warren Buffett’s quote, “you can’t make a good deal with a bad person.”

Which if you go back to a prisoner’s dilemma, that’s what he might have been talking about.

NS: Yeah, I like that.

SM: Thanks, everybody. That was number 40. Appreciate it. Thanks for rocking it out. Good night.

SPEAKERS

Sean Moffitt, Ni’coel Stark, Bud Taylor, Besir Wrayet.

SUMMARY KEYWORDS

theory, game, people, strategy, terms, play, world, talk, good, called, situation, system, years, pie, point, siblings, guesses, players, nick, theorists

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