- Race is front and center in French elections Méheut & Onishi, NY Times
- Japan’s new PM is libertarianish Scott Sumner, EconLog
- The values of democracy, and a vote Chris Freiman, 200-Proof Liberals
- Objective fouls and the rule of law Tyler Cowen, MR
Game theory in the wild
Game theory is an amazing way to simulate reality, and I strongly recommend any business leader to educate herself on underlying concepts. However, I have found that the way that it is constructed in economic and political science papers has limited connection to the real world–apart from nuclear weapons strategies, of course.
If you are not a mathematician or economist, you don’t really have time to assign exact payoffs to outcomes or calculate an optimal strategy. Instead, you can either guess, or you can use the framework of game theory–but none of the math–to make rapid decisions that cohere to its principles, and thus avoid being a sucker (at least some of the time).
As Yogi Berra didn’t say, “In theory, there is no difference between practice and theory. In practice, there is.” As a daily practitioner of game theory, here are some of its assumptions that I literally had to throw out to make it actually work:
- Established/certain boundaries on utility: Lots of games bound utility (often from 0 to 1, or -1 to 1, etc. for each individual). Throw away those games, as they preferenced easier math over representation of random, infinite realities, where the outcomes are always more uncertain and tend to be unbounded.
- Equating participants: Similar to the above, most games have the same utility boundaries for all participants, when in reality it literally always varies. I honestly think that game theorists would model out the benefits of technology based on the assumption that a Sumerian peasant in 3000 BC and an American member of the service economy in 2020 can have equivalent utility. That is dumb.
- Unchanging calculations: In part because of the uncertainty and asymmetries mentioned above, no exact representation of a game sticks around–instead, the equation constantly shifts as participants change, and utility boundaries move (up with new tech, down with new regs, etc). That is why the math is subordinate to structure: if you are right about the participants, the pathways, and have an OK gut estimate of the payoff magnitudes, you can decide rapidly and then shift your equation as the world changes.
- Minimal feedback/second order effects: Some games have signal-response, but it is hard to abstract the concept that all decisions enter a complex milieu of interacting causes and effects where the direction arrow is hard to map. Since you can’t model them, just try to guess–what with the response to the game outcome be? Focus on feedback loops–they hold secrets to unbounded long-term utilities.
- The game ends: Obviously, since games are abstractions, it makes sense to tie them up nicely in one set of inputs and then a final set of outputs. In reality, there is really only one game, and each little representation is a snapshot of life. That means that many games forget that the real goal of the game is to stay in it.
These examples–good rules of thumb to practitioners, certain to be subject to quibbling by any academic reader–remind me of how wrong even the history of game theory is. As with many oversights by historians of science, the attribution of game theory’s invention credits the first theoretician (John von Neumann, who was smart enough to both practice and theorize), not the first practitioner (probably lost to history–but certainly by the 1600’s, as Pascal’s Wager actually lines up better with “game theory in the wild” in that he used infinite payoffs and actually did become religious). Practitioners, I would ignore the conventional history, theory, actual math, and long papers. Focus on easily used principles and heuristics that capture uncertainty, unboundedness, and asymmetries. Some examples:
- Principle: Prediction is hard. Don’t do it if you can help it.
- Heuristic: Bounded vs. Unbounded. Magnitude is easier to measure (or at least cap) than likelihood is.
- Principle: Every variable introduces more complexity and uncertainty.
- Heuristic: Make decisions for one really good reason. If your best reason is not enough, don’t depend on accumulation.
- Principle: One-time experiments don’t optimize.
- Heuristic: If you actually want to find useful methods, iterate.
- Principle: Anything that matters (power, utility, etc.) tends to be unequally distributed.
- Heuristic: Ignore the middle. Either make one very rich person very happy (preferred) or make most people at least a little happier. Or pull a barbell strategy if you can.
- The Academic Certainty Principle: Mere observation of reality by academics inevitably means they don’t get it. (Actually a riff on observer effects, not Hiesenberg, but the name is catchier this way).
- Heuristic: In game theory as in all academic ideas, if you think an academic stumbled upon a good practice, try it–but assume you will need trial and error to get it right.
- Principle: Since any action has costs, ‘infinite’ payoffs, in reality, come from dividing by zero.
- The via negativa: Your base assumption should be inaction, followed by action to eliminate cost. Be very skeptical of “why not” arguments.
So, in summary, most specific game theories are broken because they preference math (finite, tidy, linear) over practice (interconnected, guess-based, asymmetric). That does not mean you can’t use game theory in the wild, it just means that you should focus on structure over math, unbounded/infinite payoffs over solvable games, feedback loops over causal arrows, inaction over action, extremes over moderates, and rules of thumb over quibbles.
Good luck!
Nightcap
- How David Graeber changed the way we see money Matthew Zeitlin, New Republic
- What’s wrong with “cancel culture,” again? Irfan Khawaja, Policy of Truth
- Why socialists should care about about American federalism Chris Maisano, Jacobin
- In loving memory of David Graeber Andrej Grubačić, PM Press
Nightcap
- The iron wall versus the villa in the jungle Michael Koplow, Ottomans & Zionists
- The pragmatic case for a unitary executive John McGinnis, Law & Liberty
- Catholic Social Teaching in the West today Bernard Prusak, Commonweal
- Ayn Rand’s philosophy might be questionable – but what about her prose? Sam Leith, TLS
Nightcap
- William T. Sherman’s reputation precedes him Susan-Mary Grant, History Today
- The urgency of racial disparities Arnold Kling, askblog
- On Marxist Tories Chris Dillow, Stumbling & Mumbling
- The theological roots of the secular world order Nathaniel Peters, Law & Liberty
Nightcap
- Adele and the local nature of social norms Lauren Hall, RCL
- The evolution of a legal rule (pdf) Niblett, et al, Journal of Legal Studies
- Covid and the counterfactual, and the longer term Eric Crampton, Offsetting Behaviour
- The last great theorist of history Stefan-Ludwig Hoffmann, Aeon
Why the US is behind in FinTech, in two charts
The US is frankly terrible at innovation in banking. When Kenya (and its neighbors) has faster adoption of mobile banking–as they have since at least 2012–it is time to reconsider our approach.
Here is the problem: we made new ideas in banking de facto illegal. Especially since the 2008 financial crisis, regulatory bodies (especially the CFPB) has piled on a huge amount of potential liability that scares away any new entrant. Don’t believe me? Let’s look at the data:

Notice anything about new bank creation in the US after 2008?
A possible explanation, in a “helpful resource” provided to banking regulators and lawyers for banks:

This shows: 8 federal agencies reporting to the FSOC, plus another independent regulatory body for fintech (OFAC/FinCEN). Also, the “helpful” chart notes state regulations just as an addendum in a circle…probably because it would take 50 more, possibly complex and contradictory charts.
So, my fellow citizens, don’t innovate in banking. No one else is, but they are probably right.
Nightcap
- On cancel culture Irfan Khawaja, Policy of Truth
- Why I lean libertarian Arnold Kling, askblog
- Colonialism and economic development Lipton Matthews, Mises Wire
- Speculation about Greece and Turkey Koert Debeuf, EUObserver
Nightcap
- New York’s second “Drop Dead” moment is here Yves Smith, Naked Capitalism
- Modi takes another step towards a ‘Hindu India’ Mohamed Zeeshan, Haaretz
- Prospects for an independent Kurdistan Mohammad Kareem, LSE
- No sex please, this is Korea Colin Marshall, Los Angeles Review of Books
The Revolt of the Baristas
For several weeks, nearly every night, I have a déjà vu experience.
First, I watch Fox News where I see crowds of younger people in dark clothing breaking things, setting buildings on fire, and assaulting police. (I infer they are younger people because of the suppleness of their movements.)
Then, I switch to French news on “Vingt-trois heures.” There, I see young people in large French cities, breaking shop windows, damaging and burning cars, and assaulting police.
The supposed reason for the continuing rioting in several major American cities is police brutality toward Blacks and racial injustice in general.
The rioting on wealthy business arteries of French cities was, as of recently, occasioned by the victory of a favorite soccer club in an important tournament. A week later, the defeat of the same soccer club occasioned the same kind of behavior except worse, by what I am sure were the same people.
No common cause to these similar conducts, you might think. That seems true but the behaviors are so strikingly similar, I am not satisfied with this observation. I have to ask, what do the rioters have in common on the two sides of the Atlantic. Your answer may be as good as mine – probably better – but here is my take:
Two things.
First, both youngish Americans and youngish French people are counting on a high degree of impunity. Both American society and French society have gone wobbly on punishment in the past thirty years (the years of the “participation prize” for school children). Used to be, in France (where I grew up) that you did not set cars afire because there was the off-chance it would earn you several years of your beautiful youth in prison. No more. The police makes little effort to catch the perpetrators anyway. The charging authorities let them go with an admonition, maybe even a severe warning. In the US, the civil authorities often order the police to do nothing, to “stand down” in the face of looting and arson. And they refuse legitimate help. Here, the elected authorities are part- time rioters in their hearts – for whatever reason. The local DAs in Demo strongholds routinely release rioters on their own recognizance. It’s almost a custom.
It seems to me that in any group, from pre-kindergarten on, there are some who will not regulate themselves unless they feel threatened by powerful and likely punishment. Perhaps, it’s a constant proportion of any society. Remove the fear of punishment, it’s 100% certain someone will do something extreme, destructive, or violent. I don’t like this comment but I am pretty sure it’s right.
The second thing the rioting in France and in the US have in common is that they seem to involve people who don’t feel they have a stake in the current social arrangements. In the French case, it’s easy to guess who they are (a strong guess, actually). Bear with me. In the sixties and seventies, various French governments built massive, decent housing projects outside Paris and other big cities (again: “decent”). I was there myself, working as a minor government city planner. The above-board objective was to move people out of slums. It’s too easy to forget that the plan worked fine in this respect. With rising prosperity, inevitably, the new towns and cities became largely occupied by new immigrants.
Those who burn private cars on the Champs Elysees in Paris recently are their children and grandchildren. The immigrants themselves, like immigrants everywhere, tend to work hard to save, and to retain the strict mores of their mostly rural origins. Their children go haywire because the same mores can’t be applied in an urban, developed society. (“Daughter: You may go to the cinema once a month accompanied by your two cousins; no boys.” “Dad: You are kidding right?”) Misery is rarely or never an issue. In the French welfare state, it’s difficult to go hungry or cold. I have often observed that the French rioters are amazingly well dressed by American college standards, for example. Incidentally, the same children of immigrants frequently have several college degrees, sometimes advanced degrees. But, fact is, ordinary French universities are pretty bad. Further fact is that in a slow growing or immobile economy like France’s, few college degrees matter to the chance of employment anyway. The rioters feel that they don’t have a stake in French society, perhaps because they don’t.
Seen from TV and given their agility and sturdiness, American rioters seem to be in their twenties to early thirties; they are “millenials.” I don’t know what really animates them because I don’t believe their slogans. It’s not only that they are badly under-informed. (For example they seem to believe that policemen killing African Americans is common practice. It’s not. See my recent article on “Systemic Racism” for figures.) It’s also that they have not specified what remedies they want to the ills they denounce. An “end to capitalism” does not sound to me like a genuine demand. Neither does the eradication of a kind of racism that, I think, hardly exists in America any more. The impression is made stronger by the fact that they don’t have a replacement program for what they seem bent on destroying. (“Socialization of the means of production” anyone?) Their destructiveness inspires fear and it may be its only objective.
I don’t know well where the American rioters come from, sociologically and intellectually. They are the cohort that marries late or not at all. It is said that many never hope to become home owners, that they see themselves as renters for life. Few buy cars (possibly a healthy choice in every way eliminating a normal American drain on one’s finances). I think that they firmly believe that the Social Security programs to which they contribute through their paychecks will be long gone by their retirement age. (I hear this all the time, in progressive Santa Cruz, California.) I hypothesize that many of those young people have had the worst higher education experience possible. Let me say right away that I don’t blame much so-called “indoctrination” by leftist teachers; leftists are just not very good at what they do. Most students don’t pay attention, in general anyway. Why would they pay attention to Leftie propaganda? Rather it seems to me that many spend years in college studying next to nothing and in vain.
Roughly, there are two main kinds of courses study in American higher education. The first, covering engineers and accountants, and indirectly, medical doctors and vets, for example have a fairly straightforward payoff: Get your degree, win a fairly well paying job quickly. Graduates of these fields seldom have a sense of futility about their schooling though they may be scantily educated (by my exalted standards). The second kind of course of studies was first modeled in the 19th century to serve the children of the moneyed elites. I mean “Liberal Arts” in the broadest sense. Its purpose was first to help young people form judgment and second, to impart to them a language common to the elites of several Western countries. For obvious reasons, degrees in such areas were not linked to jobs (although they may have been a pre-requisite to political careers). Many, most of the majors following this pattern are pretty worthless to most of their graduates. A social critic – whose name escapes me unfortunately – once stated that American universities and colleges graduate each year 10,000 times more journalism majors that there are journalism openings.
As a rule, the Liberal Arts only lead to jobs through much flexibility of both graduates and employers. Thus, in good times, big banks readily hire History and Political Science majors into their lower management ranks on the assumption that they are reasonably articulate and also trainable. Then there are the graduates in Women’s Studies and Environmental Studies who may end up less educated than they were on graduating from high school. It’s not that one could not, in principle acquire habits of intellectual rigor though endeavors focusing on women or on the environments. The problem is that the spirit of inquiry in such fields (and many more) was strangled from the start by an ideological hold. (One women’s studies program, at UC Santa Cruz , is even called “Feminist Studies,” touching candidness!) It seems to me that more and more Liberal Arts disciplines are falling into the same pit, beginning with Modern Languages. There, majors who are Anglos regularly graduate totally unable to read a newspaper in Spanish but well versed in the injustices perpetrated on Hispanic immigrants since the mid 19th century.
Those LA graduates who have trouble finding good employment probably don’t know that they are pretty useless. After all, most never got bad grades. They received at least Bs all along. And why should instructors, especially the growing proportion on fragile, renewable contracts look for trouble by producing non-conforming grade curves? The grading standard is pretty much the same almost (almost) everywhere: You do the work more or less: A; you don’t do the work: B. But nothing will induce disaffection more surely than going unrewarded when one has the sentiment of having done what’s required by the situation. That’s the situation on ten of thousands of new graduates produced each year. And many of those come out burdened by lifetime debts. (Another rich topic, obviously.)
Incidentally, I am in no way opining that higher education studies should always lead to gainful employment. I am arguing instead that many, most, possible almost all LA students shouldn’t be in colleges or universities at all, at least in the manner of the conventional four-year degree (now five or six years).
The college graduates I have in mind, people in their twenties, tend to make work choices that correspond to their life experience devoid of effort. In my town, one hundred will compete for a job as a barista in one of the of several thriving coffee shops while five miles away, jobs picking vegetables that pay 50% or twice more go begging. I suspect the preference is partly because you can’t dress well in the fields and because they, the fields, don’t provide much by way of casual human warmth the way Starbucks routinely does.
Go ahead, feel free to like this analysis. I don’t like it much myself. It’s too anecdotal; it’s too ad hoc. It’s lacking in structural depth. It barely nicks the surface. It’s sociologically poor. At best, it’s unfinished. Why don’t you give it a try?
A last comment: a part of my old brain is temped by the paradoxical thought that the determinedly democratic revolt in Belorussia belongs on the same page as the mindless destructiveness in France and the neo-Bolshevik rioting in large American cities.
Nightcap
- The state of African literature Saint & Shringarpure, Africa is a Country
- Du passé faisons table rase Branko Milanovic, globalinequality
- Roger Taney’s statue (Dred Scott) Damon Root, Reason
- The Ottoman Empire and its Arab nationalists Christopher Clark, New Statesman
The Blind Invisible Hand
Kevin recently wrote a post that really tickled my brain. It touches on the computational aspect of entrepreneurship. There are a couple points I’d like to follow up on.
First I’d argue that the uncertain entrepreneur is not the analog of the blind watchmaker. This is a minor quibble, but I think it’s good to keep our language tidy and that includes clarifying our metaphors. The Blind Watchmaker is a perfect metaphor for the emergent order in markets. But the watch is the market as a whole. Any one entrepreneur is just a tiny component of the system–potentially an ingenious component, but always dwarfed by the genius of the system as a whole. The watch maker in biology is the process of evolution. In markets, the closest idea we have is the invisible hand–also an evolutionary process.
Second and more importantly, I’d like to poke at the genetic component of the metaphor to show how much harder social evolution is than biological evolution.
Evolution is a process that acts on the substrate of “replicators”. DNA replicates (in genes) and so do ideas/jokes/norms/etc. (in memes). I guess we could just say “a business model is a type of meme!” and be done with it. But even thinking about what Internet jokes spread means stepping away from the abstract genetic alphabet of strings of A’s, T’s, C’s, and G’s.
The replicators of entrepreneurial evolution occur at more than one level (as I understand it, the idea of multi-level selection is controversial in biology, but inevitable here): little patterns of behavior make up larger patterns. A burger restaurant is sort of like a buffalo. And the business model (e.g. McDonald’s franchise) is sort of like the species as a whole or perhaps something even broader. All the various ways to market burgers compete across a range of niches, but we don’t have a literal genetic code to analyze. We might, hypothetically, be able to isolate the appropriate atomic unit of economic life, but I’m skeptical it would be terribly useful (at least for human understanding).
Still, what entrepreneurial and biological evolution have in common is that they are, fundamentally, complex sets of computations (in out-of-equilbrium systems) on a non-silicon medium. Entrepreneurs indeed face a different situation than genes, but that’s only because they’re dealing with multiple (tangled) layers of evolution spanning large scale things like:
- human culture,
- legal systems,
- economic patterns and business models,
through medium-scale things like the particular landscape of a particular market at a given time and place, down to micro things like the particular ISO specifications of some particular size of bolt.
It’s true that “unlike evolution, you…are trying to achieve something beyond replication…” as an entrepreneur. But at the end of the day a) your apparently high minded goals are really just their own evolving and replicating memes, and b) your apparently high minded goals are really just setting the stage for the atomic unit of evolution that really matters: the proper size and shape of a paperclip. It’s like Dawkins wrote in The Selfish Gene: It’s not really the organism (entrepreneur) that matters, it’s the gene (atomic unit of whatever sort of evolution).
Nightcap
- Accumulation and its discontents (“stuff”) Astrid Van Oyen, Aeon
- How the U.S. won the war against Japan? Mark Perry, NY Times
- On right-wing populism and democracy John Lloyd, Quillette
- Has self-awareness gone too far in fiction? Katy Waldman, New Yorker
Nightcap
- Black, blank squares Megan Ward, Los Angeles Review of Books
- Why retired generals can’t avoid the parties Luke Schumacher, WOTR
- Forgive and be free Nathaniel Wade, Aeon
- The Left’s anti-constitutionalism John McGinnis, Law & Liberty
Nightcap
- The politics of life and death Chris Dillow, Stumbling & Mumbling
- Race in America: a cunning invention Bruno Maçães, Noema
- The conditions of responsible citizenship JP Messina, RCL
- Pompeo and circumstances Irfan Khawaja, Policy of Truth