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For most of human history, collective intelligence was confined to small tribal groups in which opinions were aggregated through real-time parallel interactions among members. To accommodate this shift in scale, collective intelligence in large-scale groups been dominated by serialized polling processes such as aggregating up-votes, likes, and ratings over time. While modern systems benefit from larger group size, the serialized process has been found to introduce substantial noise that distorts the collective output of the group.

To address the problems of serialized aggregation of input among large-scale groups, recent advancements collective intelligence have worked to replace serialized votes, polls, and markets, with parallel systems such as " human swarms " modeled after synchronous swarms in nature. The value of parallel collective intelligence was demonstrated in medical applications by researchers at Stanford University School of Medicine and Unanimous AI in a set of published studies wherein groups of human doctors were connected by real-time swarming algorithms and tasked with diagnosing chest x-rays for the presence of pneumonia.

In Woolley et al. Tasks were chosen from all four quadrants of the circumplex and included visual puzzles, brainstorming, making collective moral judgments, and negotiating over limited resources. The results in these tasks were taken to conduct a factor analysis. Afterwards, a more complex criterion task was absolved by each group measuring whether the extracted c factor had predictive power for performance outside the original task batteries. Criterion tasks were playing checkers draughts against a standardized computer in the first and a complex architectural design task in the second study.

In a regression analysis using both individual intelligence of group members and c to predict performance on the criterion tasks, c had a significant effect, but average and maximum individual intelligence had not. According to Woolley et al. Engel et al. Moreover, they found a similar result for groups working together online communicating only via text and confirmed the role of female proportion and social sensitivity in causing collective intelligence in both cases.

Similarly to Wolley et al. The online collaborating participants, however, did neither know nor see each other at all. The authors conclude that scores on the RME must be related to a broader set of abilities of social reasoning than only drawing inferences from other people's eye expressions. A collective intelligence factor c in the sense of Woolley et al. Note as well that the field of collective intelligence research is quite young and published empirical evidence is relatively rare yet.

However, various proposals and working papers are in progress or already completed but supposedly still in a scholarly peer reviewing publication process. Next to predicting a group's performance on more complex criterion tasks as shown in the original experiments, [8] the collective intelligence factor c was also found to predict group performance in diverse tasks in MBA classes lasting over several months.

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Moreover, highly collective intelligent teams improved performance over time suggesting that more collectively intelligent teams learn better. Individual intelligence can be used to predict plenty of life outcomes from school attainment [80] and career success [81] to health outcomes [82] and even mortality. Gladwell [83] showed that the relationship between individual IQ and success works only to a certain point and that additional IQ points over an estimate of IQ do not translate into real life advantages. If a similar border exists for Group-IQ or if advantages are linear and infinite, has still to be explored.

Similarly, demand for further research on possible connections of individual and collective intelligence exists within plenty of other potentially transferable logics of individual intelligence, such as, for instance, the development over time [84] or the question of improving intelligence. There are further more advanced concepts and factor models attempting to explain individual cognitive ability including the categorization of intelligence in fluid and crystallized intelligence [90] [91] or the hierarchical model of intelligence differences. Other scholars explain team performance by aggregating team members' general intelligence to the team level [95] [96] instead of building an own overall collective intelligence measure.

Devine and Philips [97] showed in a meta-analysis that mean cognitive ability predicts team performance in laboratory settings. Suggesting a strong dependence on the relevant tasks, other scholars showed that tasks requiring a high degree of communication and cooperation are found to be most influenced by the team member with the lowest cognitive ability. Since Woolley et al. Noteworthy is also that the involved researchers among the confirming findings widely overlap with each other and with the authors participating in the original first study around Anita Woolley.

It is assumed to be an unconscious, random, parallel, and distributed computational process, run in mathematical logic by the social structure. In this model, beings and information are modeled as abstract information molecules carrying expressions of mathematical logic. This theory allows simple formal definition of collective intelligence as the property of social structure and seems to be working well for a wide spectrum of beings, from bacterial colonies up to human social structures.

Collective intelligence considered as a specific computational process is providing a straightforward explanation of several social phenomena. For this model of collective intelligence, the formal definition of IQS IQ Social was proposed and was defined as "the probability function over the time and domain of N-element inferences which are reflecting inference activity of the social structure".

One measure sometimes applied, especially by more artificial intelligence focused theorists, is a "collective intelligence quotient" [] or "cooperation quotient" — which can be normalized from the "individual" intelligence quotient IQ [] — thus making it possible to determine the marginal intelligence added by each new individual participating in the collective action , thus using metrics to avoid the hazards of group think and stupidity. Here, the goal is to get an estimate in a single value of something.

For example, estimating the weight of an object, or the release date of a product or probability of success of a project etc. Essentially, we try to get the average value of the estimates provided by the members in the crowd. In this situation, opinions are gathered from the crowd regarding an idea, issue or product. In these problems, someone solicits ideas for projects, designs or solutions from the crowd. The objective is to gather the ideas and devise some selection criteria to choose the best ideas.

James Surowiecki divides the advantages of disorganized decision-making into three main categories, which are cognition, cooperation and coordination. Because of the Internet's ability to rapidly convey large amounts of information throughout the world, the use of collective intelligence to predict stock prices and stock price direction has become increasingly viable.

Fama cites research conducted by Michael Jensen [] in which 89 out of selected funds underperformed relative to the index during the period from to But after removing the loading charge up-front fee only 72 underperformed while after removing brokerage costs only 58 underperformed. On the basis of such evidence index funds became popular investment vehicles using the collective intelligence of the market, rather than the judgement of professional fund managers, as an investment strategy.

Political parties mobilize large numbers of people to form policy, select candidates and finance and run election campaigns. New media are often associated with the promotion and enhancement of collective intelligence. The ability of new media to easily store and retrieve information, predominantly through databases and the Internet, allows for it to be shared without difficulty. Thus, through interaction with new media, knowledge easily passes between sources Flew resulting in a form of collective intelligence. The use of interactive new media, particularly the internet, promotes online interaction and this distribution of knowledge between users.

Francis Heylighen , Valentin Turchin , and Gottfried Mayer-Kress are among those who view collective intelligence through the lens of computer science and cybernetics. In their view, the Internet enables collective intelligence at the widest, planetary scale, thus facilitating the emergence of a global brain.

The developer of the World Wide Web, Tim Berners-Lee , aimed to promote sharing and publishing of information globally. Later his employer opened up the technology for free use. Licklider , demanded more accessibility and utility. Henry Jenkins , a key theorist of new media and media convergence draws on the theory that collective intelligence can be attributed to media convergence and participatory culture Flew He criticizes contemporary education for failing to incorporate online trends of collective problem solving into the classroom, stating "whereas a collective intelligence community encourages ownership of work as a group, schools grade individuals".

Jenkins argues that interaction within a knowledge community builds vital skills for young people, and teamwork through collective intelligence communities contribute to the development of such skills. They suggest that these communications tools enable humans to interact and to share and collaborate with both ease and speed Flew With the development of the Internet and its widespread use, the opportunity to contribute to knowledge-building communities, such as Wikipedia , is greater than ever before.

These computer networks give participating users the opportunity to store and to retrieve knowledge through the collective access to these databases and allow them to "harness the hive" [] Researchers at the MIT Center for Collective Intelligence research and explore collective intelligence of groups of people and computers. In this context collective intelligence is often confused with shared knowledge.

The former is the sum total of information held individually by members of a community while the latter is information that is believed to be true and known by all members of the community. An art project using Web 2. The password is written in the profiles and the accounts named "Shared Galaxy" are open to be used by anyone. In this way many take part in being one. In social bookmarking also called collaborative tagging , [] users assign tags to resources shared with other users, which gives rise to a type of information organisation that emerges from this crowdsourcing process.

The resulting information structure can be seen as reflecting the collective knowledge or collective intelligence of a community of users and is commonly called a " Folksonomy ", and the process can be captured by models of collaborative tagging. Recent research using data from the social bookmarking website Delicious , has shown that collaborative tagging systems exhibit a form of complex systems or self-organizing dynamics. The Wall-it Project is also an example of social bookmarking.

Research performed by Tapscott and Williams has provided a few examples of the benefits of collective intelligence to business: [38]. Cultural theorist and online community developer, John Banks considered the contribution of online fan communities in the creation of the Trainz product. He argued that its commercial success was fundamentally dependent upon "the formation and growth of an active and vibrant online fan community that would both actively promote the product and create content- extensions and additions to the game software".

The increase in user created content and interactivity gives rise to issues of control over the game itself and ownership of the player-created content. This gives rise to fundamental legal issues, highlighted by Lessig [] and Bray and Konsynski, [] such as intellectual property and property ownership rights. Gosney extends this issue of Collective Intelligence in videogames one step further in his discussion of alternate reality gaming.

This genre, he describes as an "across-media game that deliberately blurs the line between the in-game and out-of-game experiences" [] as events that happen outside the game reality "reach out" into the player's lives in order to bring them together. Solving the game requires "the collective and collaborative efforts of multiple players"; thus the issue of collective and collaborative team play is essential to ARG.

Gosney argues that the Alternate Reality genre of gaming dictates an unprecedented level of collaboration and "collective intelligence" in order to solve the mystery of the game. Co-operation helps to solve most important and most interesting multi-science problems. In his book, James Surowiecki mentioned that most scientists think that benefits of co-operation have much more value when compared to potential costs.

Co-operation works also because at best it guarantees number of different viewpoints. Because of the possibilities of technology global co-operation is nowadays much easier and productive than before. It is clear that, when co-operation goes from university level to global it has significant benefits. For example, why do scientists co-operate?

Science has become more and more isolated and each science field has spread even more and it is impossible for one person to be aware of all developments.

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This is true especially in experimental research where highly advanced equipment requires special skills. With co-operation scientists can use information from different fields and use it effectively instead of gathering all the information just by reading by themselves. Military, trade unions, and corporations satisfy some definitions of CI — the most rigorous definition would require a capacity to respond to very arbitrary conditions without orders or guidance from "law" or "customers" to constrain actions.

Online advertising companies are using collective intelligence to bypass traditional marketing and creative agencies. The UNU open platform for "human swarming" or "social swarming" establishes real-time closed-loop systems around groups of networked users molded after biological swarms, enabling human participants to behave as a unified collective intelligence. Specialized information sites such as Digital Photography Review [] or Camera Labs [] is an example of collective intelligence. Anyone who has an access to the internet can contribute to distributing their knowledge over the world through the specialized information sites.

In learner-generated context a group of users marshal resources to create an ecology that meets their needs often but not only in relation to the co-configuration, co-creation and co-design of a particular learning space that allows learners to create their own context. An example of learner-generated context is found on the Internet when collaborative users pool knowledge in a " shared intelligence space".

As the Internet has developed so has the concept of CI as a shared public forum. The global accessibility and availability of the Internet has allowed more people than ever to contribute and access ideas. Flew Games such as The Sims Series, and Second Life are designed to be non-linear and to depend on collective intelligence for expansion. This way of sharing is gradually evolving and influencing the mindset of the current and future generations. Henry Jenkins proposes that the participatory cultures emerging between games producers, media companies, and the end-users mark a fundamental shift in the nature of media production and consumption.

Jenkins argues that this new participatory culture arises at the intersection of three broad new media trends. Secondly, the rise of subcultures promoting such creations, and lastly, the growth of value adding media conglomerates, which foster image, idea and narrative flow. Improvisational actors also experience a type of collective intelligence which they term "group mind", as theatrical improvisation relies on mutual cooperation and agreement, [] leading to the unity of "group mind".

Growth of the Internet and mobile telecom has also produced "swarming" or "rendezvous" events that enable meetings or even dates on demand. A further application of collective intelligence is found in the "Community Engineering for Innovations". Collective actions or tasks require different amounts of coordination depending on the complexity of the task. Tasks vary from being highly independent simple tasks that require very little coordination to complex interdependent tasks that are built by many individuals and require a lot of coordination.

In the article written by Kittur, Lee and Kraut the writers introduce a problem in cooperation: "When tasks require high coordination because the work is highly interdependent, having more contributors can increase process losses, reducing the effectiveness of the group below what individual members could optimally accomplish".

Having a team too large the overall effectiveness may suffer even when the extra contributors increase the resources. In the end the overall costs from coordination might overwhelm other costs. Group collective intelligence is a property that emerges through coordination from both bottom-up and top-down processes. In a bottom-up process the different characteristics of each member are involved in contributing and enhancing coordination.

Top-down processes are more strict and fixed with norms, group structures and routines that in their own way enhance the group's collective work. Tom Atlee reflects that, although humans have an innate ability to gather and analyze data, they are affected by culture, education and social institutions. Therefore, without collective intelligence, humans may drive themselves into extinction based on their selfish needs. Phillip Brown and Hugh Lauder quotes Bowles and Gintis that in order to truly define collective intelligence, it is crucial to separate 'intelligence' from IQism.

This is because the elites fear that the collective intelligence would convince the people to rebel. This reflects how powerful collective intelligence can be if left to develop. Skeptics, especially those critical of artificial intelligence and more inclined to believe that risk of bodily harm and bodily action are the basis of all unity between people, are more likely to emphasize the capacity of a group to take action and withstand harm as one fluid mass mobilization , shrugging off harms the way a body shrugs off the loss of a few cells.

Harsh critics of artificial intelligence on ethical grounds are likely to promote collective wisdom-building methods, such as the new tribalists and the Gaians. Some, e. Bill Joy , simply wish to avoid any form of autonomous artificial intelligence and seem willing to work on rigorous collective intelligence in order to remove any possible niche for AI. In contrast to these views, Artificial Intelligence companies such as Amazon Mechanical Turk and CrowdFlower are using collective intelligence and crowdsourcing or consensus-based assessment to collect the enormous amounts of data for machine learning algorithms such as Keras and IBM Watson.

Global collective intelligence is seen as the key in solving the challenges humankind faces now and in the future. Climate change is an example of a global issue which collective intelligence is currently trying to tackle. With the help of collective intelligence applications such as online crowdsourcing , people across the globe are collaborating in developing solutions to climate change.

From Wikipedia, the free encyclopedia. Types of collective intelligence. Retrieved 11 June Chapter 5, State of the Future. Oxford University Press, , p. Bibcode : Sci Educational Psychology Review. The g factor: The science of mental ability. Westport, CT: Praeger.

Princeton: Princeton University Press. Political Theory. Democracy and Knowledge. Princeton, N. Ants: their structure, development and behavior Vol. Columbia University Press. Foundation for Conscious Evolution. Retrieved 4 December Princeton University Press. Kearns, S. Solla, D. Cohn, MIT Press. Bibcode : cs Journal of Artficial Intelligence Research : — Collectives and the design of complex systems. Handbook of Dynamic Game Theory. Authenticity, Autonomy and Multiculturalism. Panpsychism in the West 1 ed.

The MIT Press. Community Intelligence. Retrieved 11 December Current Directions in Psychological Science. Oakton, Va. American Journal of Psychology. Theory of Mind predicts collective intelligence equally well online and face-to-face". Bibcode : PLoSO June More women".

Harvard Business Review. A history of intelligence test interpretation. Flanagan and P. Harrison Eds. New York, NY: Guilford. Psychological Review. Journal of Personality and Social Psychology. Retrieved 26 April Psychological Bulletin. European Journal of Human Genetics. Journal of Child Psychology and Psychiatry. I look at Milwaukee. And I no longer recognize us. Its only strength in theory is our communal determination to infuse it with meaning through our embrace of not only its explicit rules, but also and more crucially its unwritten rules of small-l liberal values like tolerance, liberty, and equality under the law.

No way. And yeah, I understand the argument on the Supreme Court. A lot bigger. But I am saying that Hayek was a really smart guy who believed with all his heart in small-l liberal virtues and keenly observed the politics of the world the last time we got into such a global mess. I am saying that history rhymes. Hayek believed that the inevitable result of those elections is Cartoon 10 — the coming to power of the strong man. Yeah, Ben, or the strong woman. I know how to resist Clinton. Imagine that. On episode six of the Epsilon Theory podcast, host Dr.

Clinton election. Pressure and time. When suitably crystallized, an investment hope takes on a different form. It becomes an investment theme. Or so the Narrative goes. A Narrative theme is a theme of hope, pure and simple. In exactly the same way that you can invest alongside central bank efforts to prop up markets and drive asset prices higher without believing in your heart-of-hearts that anything these bankers say is even remotely true, so can you invest alongside a Narrative theme without believing a single word of the Narrative itself.

Yes, LaGuardia is a miserable airport. So stipulated. But there are infinitely greater productivity gains to be had from changing our insane TSA regulations and reducing security lines than by building a new Terminal B. If you want a massive Keynesian deficit spending program on top of our massive current debt … fine, make the argument. That will be the dinner portion of this Narrative theme, and it will be an unpleasant meal.

So even though I think this U. Common Knowledge is information that everyone believes everyone has heard. Common Knowledge is the game theoretic concept behind the irresistible power of the crowd watching the crowd, and as a result Common Knowledge construction by governments, corporations, and yes, central bankers is one of the most potent instruments of social control on Earth. Is it an easy game to play?

Red and Andy survived more than 20 years in Shawshank prison because they never lost hope. But they were smart about the concept of hope. Hope is a good thing. Hope is a human thing. But hope is also a social construct that is used intentionally by others to shape our behaviors, in markets as in life. In episode one of the Epsilon Theory podcast, hosts Dr. Hunt came aboard Salient in , and why game theory can be used to more skillfully understand markets and politics.

In , Europe had arrived at a point in which every country except Germany was afraid of the present, and Germany was afraid of the future. We are, I think, likely embarked on the death spiral phase of a game of Chicken, just as in the summer of The stakes are, for now at least, not nearly as cataclysmic today as they were a century ago, but the social and political dynamics are eerily alike.

I held a council at to declare war with Germany. It is a terrible catastrophe but it is not our fault.

An enormous crowd collected outside the palace; we went on the balcony both before and after dinner. When they learned that war had been declared, the excitement increased and May and I with David went on to the balcony; the cheering was terrific. In this most serious moment I appeal to you to help me. An ignoble war has been declared to a weak country. The indignation in Russia shared fully by me is enormous. I foresee that very soon I shall be overwhelmed by the pressure brought upon me and be forced to take extreme measures which will lead to war.

To try and avoid such a calamity as a European war, I beg you in the name of our old friendship to do what you can to stop your allies from going too far. Now Tsarism has attacked Germany, now we have no choice , now there is no looking back. The few neutral states are not sympathetic toward us. Germany has not a friend in the world, she stands utterly alone and has only herself to depend on. And how much we shall have to pay for all that is being destroyed! In this war it is a question … of German civilization against barbarous Slavdom.

The year in America seemed the crest of a wave of passionate idealism among young people, and of passionate selfishness among middle-aged people. July 25 : Unbelievably large crowds are waiting outside the newspaper offices. News arrives in the evening that Serbia is rejecting the ultimatum. General excitement and enthusiasm, and all eyes turn towards Russia — is she going to support Serbia?

The days pass from 25 to 31 July. Incredibly exciting; the whole world is agog to see whether Germany is now going to mobilize. Is it all real, or just a dream? Man in Black: All right. Where is the poison? The battle of wits has begun. It ends when you decide and we both drink, and find out who is right … and who is dead. Whoever cannot seek the unforeseen sees nothing, for the known way is an impasse. That is a sad decision for Greece because it has closed the door on further talks, where the door was still open in my mind.

The judge smiled. Men are born for games. Nothing else. Every child knows that play is nobler than work. He knows too that the worth or merit of a game is not inherent in the game itself but rather in the value of that which is put at hazard. Games of chance require a wager to have meaning at all. Games of sport involve the skill and strength of the opponents and the humiliation of defeat and the pride of victory are in themselves sufficient stake because they inhere in the worth of the principals and define them.

But trial of chance or trial of worth all games aspire to the condition of war for here that which is wagered swallows up game, player, all. I have always thought that in revolutions, especially democratic revolutions, madmen, not those so called by courtesy, but genuine madmen, have played a very considerable political part. One thing is certain, and that is that a condition of semi-madness is not unbecoming at such times, and often even leads to success.

Children and lunatics cut the Gordian knot which the poet spends his life patiently trying to untie. The vote will happen on Sunday, July 5th, but Greece will default on its IMF debt this Wednesday, and as a result the slow motion run on Greek banks is about to get a lot more fast motion unless capital controls are imposed. Look, I have no idea whether or not Tsipras will be successful with this gambit. But I admire it. The referendum is worded and timed in a way that allows very little room for Antonio Samaras and other Syriza opponents to turn the vote into a referendum on the Euro itself, which has proven to be a successful approach in the past.

If Greece votes to accept the Eurogroup reform proposal after all, then the game of Chicken resolves itself within the stable Nash equilibrium of a shamed Greece and a triumphant Euro status quo. I would expect an enormous risk-on rally in equities and credit, particularly in Euro-area financials.

But reduction of systemic risk is a negative for any flight-to-safety trade, so this outcome is probably not good for Bunds in the long term, or US Treasuries over any term. That latter course is the far more likely path, I think, given how the various Euro Powers That Be are already positioning themselves. Good luck walking that back. If we go down the death spiral path and some form of Greek exit from the Euro-system, I expect the dominant market Narrative to be that Greece committed economic suicide and that the rest of Europe will be just fine, thank you very much.

That should prevent a big risk-off market move down, or at least keep it short-lived although you should expect Bunds and USTs to do their risk-off thing here. Over time, however, I expect that dominant Narrative to be flipped on its head. Greece will quickly do some sort of deal with Russia hard currency for port access? I suspect it will be a slow motion contagion, all taking place in the Narrative and expressed in Italian, Spanish, and French politics over the next 12 months or so.

The Red King will start to wake. Insecurity is the worst sense that lovers feel; sometimes the most humdrum desireless marriage seems better. Insecurity twists meanings and poisons trust. If freedom is short of weapons, we must compensate with willpower. One constant among the elements of — as of any era — was the disposition of everyone on all sides not to prepare for the harder alternative, not to act upon what they suspected to be true. In a significant move to deter possible Russian aggression in Europe, the Pentagon is poised to store battle tanks, infantry fighting vehicles and other heavy weapons for as many as 5, American troops in several Baltic and Eastern European countries, American and allied officials say.

Be careful who you call your friends. We are all impaled on the crook of conditioning. It was, in fact, a pretty useless question, the functional equivalent of asking a botanist how big a tree can grow in the absence of storms, droughts, fires, blights, lightning, insects, or whatever. Answer: pretty darn big. Better answer: who cares? But where we could all use some help is with an investment strategy for the Real World in-between paradise and doomsday.

What we all need is a good perspective or vantage point for differentiating between this potential shock and that potential shock, for evaluating what signals to press and what signals to fade. Greece vs. Western sanctions on Russia over the Ukraine? OPEC vs.

US energy producers? ECB vs. Fed monetary policy communications to markets? US policy towards China? ISIS vs. Below is the standard way of depicting a game between two players — in this case you and Al Capone — with each player having two behavioral choices — in this case Silence or Rat — and with the game payoffs in red for you and green for Al. Ditto for Al Capone. More interestingly, the Rat-Rat outcome is a highly predictable Nash equilibrium because no matter what quadrant or combination of behaviors you and Al start with, the game always ends up in the bottom right quadrant.

Because this is a non-cooperative game. Of course, you are thinking about Al Capone in exactly the same way, and both of you know that both of you are thinking in this manner. Will Greece leave the Euro and default on its debt? Will Germany blink? You seem to know a lot of the facts here, or at least you talk a good game about domestic Greek politics and multi-level game-playing. Game theory is useful precisely because it tells me that there is no fundamentals-based or structural methodology to handicap the odds of a Greek default!

Sometimes the answer to a mathematical question is the same as the answer to a prayer or the answer to a Magic 8 Ball: NO. There is no greater understanding possible here through the use of science and mathematics. To paraphrase Von Neumann again, get used to it. In a decision under risk, you know the possible outcomes of a decision and you have a rough sense of the probabilities to associate with those outcomes. All of modern portfolio theory and all of mainstream macroeconomic theory and all of econometric modeling — ALL of it — is based on the assumption that everyone in the world is making decisions under risk.

Game theory provides a perspective and a toolkit to distinguish between decisions under risk and decisions under uncertainty. So what does determine the outcome of a game of Chicken? The game of Chicken is not a test of power and capabilities. It is a test of will. It is governed by constructed signals of resolve, control, and — occasionally — lack of control.

It is governed by Narratives, particularly by political Narratives when the game is played on an international stage. Play the game enough times and it will break you. The first two are methods for gauging which equilibrium the game of Chicken is moving towards by evaluating the relative strength of the competing player Narratives.

The third is a more general observation about gameplay and timing. First, watch for acceleration and deceleration in behaviors, not absolute levels of speed. Three quick examples of the primacy of change and change of change in determining market outcomes in Chicken environments:. What was the Fed Narrative that brought markets back from the abyss in the spring and summer of ? Now fast forward to today and ask yourself why we are NOT seeing a similar sell-off in global markets as the Fed very publicly goes about its business of preparing to raise short rates.

Answer: because from a second derivative perspective putting on the brakes is the same thing as taking your foot off the accelerator. Second, watch for self-binding behaviors, particularly suicidal self-binding behaviors. These are very powerful Narratives for signaling intentions, and they are variations of the classic Chicken-winning strategies of ripping your brakes or steering wheel out of the car, or acting so crazy that your opponent believes that you prefer death to defeat.

Now the press articles emphasized all the tanks and equipment that would be pre-positioned there, making it seem as if this would be a very potent fighting force, ready to take on a new Evil Empire if one materialized from Moscow. These soldiers would be in Eastern Europe for exactly the same reason we stationed US soldiers in West Berlin during the Cold War: they are there to die. In the event of a Russian attack, their job is to be killed so that the resulting hue and cry would guarantee an all-out NATO military response.

Color me nervous. Third, there is one redeeming quality about the game of Chicken — it takes a long time to play. Chicken is a game played through a glass, darkly. Take your time in dis-engaging from the game. Yes, a game of Chicken is inherently unpredictable and hence inherently un-investable, but you have plenty of time to exit.

Moreover, the passage of time can often make the ultimate car crash much less painful. In other words, it is virtually impossible for a single signal to push the outcome into either Nash equilibrium. When does time run out in a game of Chicken? The Golden Age of the Central Banker is a time for investment survivors, not investment heroes, and the ubiquity of inherently unstable games of Chicken is a big reason for that advice. Time for a new set of lenses, one that takes seriously the patterns of strategic interaction and behavioral dynamics that rocked the world in the s, the s, the s, and … I suspect … the years immediately ahead of us.

Neurosis is the inability to tolerate ambiguity. To learn which questions are unanswerable, and not to answer them : this skill is most useful in times of stress and darkness. Is everything connected, so that events create resonances like ripples across a net? Or do things merely co-occur and we give meaning to these co-occurrences based on our belief system? I remember when I was a very little girl, our house caught on fire.

I stood there shivering in my pajamas and watched the whole world go up in flames. And when it was all over I said to myself. I call our world Flatland, not because we call it so, but to make its nature clearer to you, my happy readers, who are privileged to live in Space.

How is it possible that the deepest and most important securities in the world are currently displaying all the trading stability of a biotech stock? As with all market questions of singular importance and vast attention, these are questions of meaning. We are — all of us — convinced that this market behavior must mean something profound. Surely this insane quivering within the bond market means that we are on the cusp of a quantum shift in the market landscape.

Surely this is the rumbling of a deep tectonic plate that presages a massive earthquake. Surely, as more than one Master of the Universe proclaimed at SALT the other week, the long-awaited bear market in government debt is nigh. Or maybe all those Masters of the Universe are just talking their book. I know … shocking. This is the most hated bull market in history, precisely because we all believe that it is a creature of policy and Narrative, and when the Voices are silent or they say conflicting things, we start to freak out.

We run from pillar to post, getting whipsawed at every turn. Or more precisely, a system can be volatile or unstable in a local sense but highly stable in a global sense. Or Deckard, who sure seems like a replicant to me. From a local perspective these bond market gyrations make it seem as if we are totally unmoored and markets are on the brink of some life-altering change. From a global perspective, however, this is a tempest in a teacup.

Or to paraphrase the late, great Peggy Lee, is that all there is to a bond market fire? Translation, please? Information Theory is, in fact, the beating heart of Epsilon Theory. That said, one of the beautiful things about releasing content into the wild is that readers can do with it what they will. As a corollary, the more confident you are in a certain view of the world, the more new information is required to make you have the opposite view of the world and the less information is required to confirm your initial view.

Information is neither true nor false. As a result, the informational strength of any signal is relative. The same signal may make a big difference in my assessment of the future but a tiny difference in yours. In that case, we are hearing the same message, but it has a lot of information to me and very little to you. So you do nothing. But you start reading analyst reports about Apple or you build a cash-flow model … whatever it is that you typically do to gather information about a potential investment decision. Of course, your assessment of Apple is not a single event and does not take place at a single point in time.

As an investor you are constantly updating your opinion about every potential investment decision, and you are constantly taking in new signals. Each new update becomes the starting point for the next, ad infinitum, and as a result all of your prior assessments become part of the current assessment and influence the informational impact of any new signal. The graph below shows how Information Theory represents the amount of information required to change your mind from here. The higher the wall, the more information required in any given signal to get you to change your mind in a big way about Apple.

What does an information surface look like for strategic decision-making, where your estimations of the future state of the world are contingent on the decisions you think others will make, and where everyone knows that everyone is being strategic? Two criminals are placed in separate rooms for questioning by the police, and while they are both better off if they both keep silent, each is individually much better off if he rats his partner out while the partner remains silent.

Because both players know that this pay-off structure exists and are always told that it exists by the police , the logical behavior for each player is to rat out his buddy for fear of being the sucker. Both the Row player and the Column player have only two decision choices — Rat and Silence — with the joint pay-off structures shown as Row , Column and the equilibrium outcome Rat , Rat shaded in light blue.

The same equilibrium outcome is shown below on the right as an informational surface, where both the Row and the Column player face an expected utility hurdle of 5 units to move from a decision of Rat to a decision of Silence. Below, new information of 2 units changes the perceived utility of the current Rat decision for the Row player from -5 to Maybe he hears from his lawyer that the Mob intends to break his legs if he stays a Rat.

This new Silence , Rat outcome is an equilibrium because neither the Row player nor the Column player perceives a higher expected utility outcome by changing decisions. It is still a weak equilibrium because the informational hurdle to return to Rat , Rat is only 1 informational unit, but all the same it generates a new behavior by the Row player: instead of ratting out his partner, he now keeps his mouth shut. This change in utility pay-offs over time can be mapped as:. But only if the new signal is sufficiently large whatever that means in the context of a specific game will the decision outcome move to a new equilibrium and result in stable behavioral change.

In the first structure, there is enough informational strength to the signal to overcome the upside informational wall and push the market to a higher and stable price equilibrium. In the second structure, while the signal moves the market price higher briefly, there is not enough strength to the signal to change the minds of market participants to a degree that a new stable equilibrium behavior emerges.

Following this negative event, however, the market then receives a set of public media signals — a Narrative — asserting that in response to this bad ISM number the Fed is more likely to launch additional easing measures. This Narrative signal is repeated widely enough and credibly enough that it changes Common Knowledge about future Fed policy and moves the market to a new, higher, and stable level. Well, it looks something like this:.

The market equilibrium today is like a marble sitting on a glass table. It is an extremely unstable equilibrium because the informational barriers that keep the marble from rolling a long way in either direction are as low as they have been in the past five years. Even a very weak signal is enough to push the marble a long way in one direction, only to have another weak signal push it right back. Why are the informational barriers to equilibrium shifts so low today? Because levels of Common Knowledge regarding future central bank policy decisions are so low today.

The Narratives on both sides of the collective decision to buy or sell this market are extremely weak. What does everyone know that everyone knows about Abenomics? Very little. What does everyone know that everyone knows about Fed tapering? What does everyone know that everyone knows about the current state of global growth?

Everything I wrote about the informational surface of the equity market in early summer is exactly applicable to the informational surface of the bond market in early summer The bond market today is like a marble sitting on a glass table. There are very few informational structures or barriers to keep the price of US bonds from skittering this way or that, within a price range as expressed in yield terms of, say, 2.

Maybe the locally unstable price range of the US year as expressed in yield terms goes to 2. Among market participants today there is almost unanimity of belief that central bankers Will. But at the same time there is also almost unanimity of belief that central bankers Can.

That unanimity of belief establishes a global informational equilibrium of unparalleled strength and stability , or at least unparalleled in my experience. And that leads me to my other main point: a highly stable equilibrium cuts both ways, for good and for bad. Yes, there are HUGE informational barriers to prevent economic behaviors that would create a recession in the US or horribly crush any major market or asset class.

Could happen. My money is on the long grey slog of the Entropic Ending. But myopically focused on what we are told to focus on is exactly how we humans and replicants, too, I suppose tend to live out our lives. The human animal is a social animal. We are biologically evolved over millions of years to infer meaning from social signals. We swim in a sea of socially constructed signals, and we can no more ignore the words of Yellen or CNBC or a Master of the Universe than an ant can ignore the pheromones of her queen.

But we can recognize them for what they are. These are unanswerable, entirely over-determined-in-retrospect questions, and the worst possible thing you can do with an unanswerable, entirely over-determined-in-retrospect question is to try to answer it in deterministic fashion! Trying to predict what that signal is going to be or when that signal is going to come is a losing proposition. And neither should you.

My god, we need more pundit predictions about the Fed or oil prices like we need an asteroid to crash into the Earth. Take another look at this informational surface. This graph says nothing about when and what the Fed will do. It says everything about how to THINK about the bond market in a dynamic, non-myopic way, about how to prepare for probabilistic waves of new signals and how to react once they hit.

I submit, however, that our mental health and financial health are best served by taking a strategic view of markets, a view that engages with the game without succumbing blindly to it. That and a regular dose of Epsilon Theory. The message in a nutshell: financial advisors of all stripes and sizes would be well-served to do more than serve up old-school diversification platitudes in this Brave New World of a bull market that everyone hates, and the behavioral insights of regret minimization are an effective framework for making that adaptation.

I think the reason this message strikes a chord is that it not only puts into words what a lot of people are feeling in an inchoate fashion, but also suggests a toolkit for improving the strained dialog between advisors and investors. The goal here is to move the original portfolio the gold ball up and to the left into the green triangle that marries both the traditional meaning of diversification maximization of reward per unit of risk and the behavioral meaning of de-risking in a bull market minimization of the risk of underperformance. There ARE strategies that accomplish this goal, but the trick is finding the strategies that do this for the actual portfolio you have today, not some hypothetical portfolio or index.

Thanks again to my partners and colleagues here at Salient for their commitment to releasing useful intellectual property into the wild. Consultants continue to preach the faith of diversification, and their clients continue to genuflect in its general direction. Fortunately, behavioral economics offers a fresh perspective on portfolio construction, one that lends itself to what we call Adaptive Investing.

Investors only ask for diversification after the fire, as a door-closing exercise when the horse has already left the burning barn. Why is this the most mistrusted bull market in recorded history? This is a big problem for the Federal Reserve, as its efforts to force greater risk-taking in markets through large-scale asset purchases and quantitative easing have failed to take hold in investor hearts and minds.

How so? Because de-risking a bull market is a very different animal than de-risking a bear market. As seen through the lens of behavioral economics, de-risking is based on regret minimization not risk—reward maximization like diversification , and the simple fact is that regret minimization is driven by peer comparisons in a bull market. In a bear market your primary regret — the thing you must avoid at all costs — is ruin, and that provokes a very direct physical reaction. Go to cash. In a bull market, your primary regret is looking or feeling stupid, and that provokes a very conflicted, very psychological reaction.

You avoid making a decision, which means you also avoid the consultant-client conversation. Ultimately everyone — advisor and investor alike — looks to blame someone else for their own feelings of unease. Is it possible to both de-risk a portfolio and satisfy the regret minimization calculus of a bull market? In fact, our old friend diversification is the answer, but not in its traditional presentation as a cure-all bromide. What we need are diversification strategies that can react quickly. That brings me back to adaptive investing, which has two relevant points for de-risking in a bull market.

First, your portfolio should include allocations to strategies that can go short. Losing less money pays off over the long haul, but the path can be bumpy. Do, or do not. There is no try. I see it all perfectly; there are two possible situations — one can either do this or that. My honest opinion and my friendly advice is this: do it or do not do it — you will regret both. The only victories which leave no regret are those which are gained over ignorance.

Maybe all one can do is hope to end up with the right regrets. It never has been. Alright, alright. You start to blame your husband. Celine: Let me get my bag. For it falls out That what we have we prize not to the worth Whiles we enjoy it, but being lacked and lost, Why, then we rack the value, then we find The virtue that possession would not show us While it was ours. The wariness and weariness associated with this conversation runs in both directions, by the way. Advisors continue to preach the faith of diversification, and investors continue to genuflect in its general direction.

Investors continue to express their nervousness with the market and dissatisfaction with their portfolio performance, and advisors continue to nod their heads and say they understand. Yes, the advisor is listening. But most find it impossible to get past what they believe is the obvious answer to the obvious problem. Got a headache? Take the nail out of your head. Nervous about the market? Diversify your portfolio. But there are headaches and then there are headaches. There is nervousness and then there is nervousness. Investors never ask for diversification after 6 years of a bull market.

They only ask for it after the Fall, as a door-closing exercise when the horse has already left the burning barn. Investors are asking for de-risking because this is the most mistrusted bull market in recorded history, a market that seemingly everyone wants to fade rather than press. Because no one thinks this market is real. This is a big problem for the Fed, as their efforts to force greater risk-taking in markets through LSAP and QE and thus more productive risk-taking, or at least inflation, in the real economy have failed to take hold in investor hearts and minds.

De-risking a bull market is a very different animal than de-risking a bear market. And neither is the same as diversification. If an investor is thinking predominantly in terms of risk and reward, then greater diversification is the slam-dunk portfolio recommendation. The human animal holds two very different meanings for risk in its brain simultaneously. One notion of risk, as part and parcel of expected investment returns and the path those returns are likely to take, is captured well by the concept of volatility and the toolkit of modern economic theory.

Because the political consequences of that deleveraging create investment uncertainty in the technical, game theoretic sense, an uncertainty which is reflected in reduced investor confidence in the efficacy of fundamental market and macroeconomic factors to drive market outcomes. In other words, the rules of the investment game change when politicians attempt to maintain the status quo — i.

We all feel it. On the other hand, the concept of de-risking has a lot of meaning within the context of regret minimization, which makes it a good framework for exploring a more psychologically satisfactory set of portfolio allocation recommendations.

Game Theory and Mutual Misunderstanding: Scientific Dialogues in Five Acts

But to develop that framework, we need to ask what drives investment regret. And just as we talk about different notions of volatility-based portfolio constructions under different market regimes, so do we need to talk about different notions of regret-based portfolio constructions under different market regimes. Okay, that last paragraph was a bit of a mouthful. Let me skip the academic-ese and get straight to the point.

In a bear market, regret minimization is driven by existential concerns. In a bull market, regret minimization is driven by peer comparisons. In a bear market your primary regret — the thing you must avoid at all costs — is ruin, and that provokes a very direct, very physical reaction. De-risking means moving your portfolio to the left, i. The question is how much reward you are forced to sacrifice for that move to the left. Perfect De-Risking sacrifices zero performance.

Good luck with that if you are reducing your gross exposure. In a bull market, on the other hand, your primary regret is looking or feeling stupid, and that provokes a very conflicted, very psychological reaction. And so you do nothing. You avoid making a decision, which means you also avoid the advisor-investor conversation. Ultimately everyone, advisor and investor alike, looks to blame someone else for their own feelings of unease. There are diversification outcomes that overlap with the bull market Good De-Risking outcomes, as shown in the graph below.

The trick to satisfying investors in a bull market is to increase reward AND reduce volatility. I never said this was easy. The question is … what diversification strategies can move your portfolio into this promised land? What we need are diversification strategies that can act quickly. Losing less money pays off over the long haul, but the long haul is problematic from a regret-based perspective, which tends to be quite path-sensitive.

As the old saying goes, risk happens fast. Well … so does regret. If you see the world through the lens of behavioral economics, however, you come to a very different conclusion. Something IS blocking the effectiveness of QE, but that something is human nature. Behavioral economics suggests that a little QE can change human behavior at the margins, but no amount of QE is enough to change human nature at its core. And if that assumption holds true, then QE works. You will indeed force productive risk-taking in the real world economy more loans to small businesses, more growth-oriented investments in people and equipment, etc.

Yes, we are maximizers of reward. But we are also minimizers of regret. Our investment portfolios are a means to an end, not an end in themselves. Regret minimization is not just for financial investors. It holds true for investors of all sorts, from a CEO deciding how to allocate cash flows to a general deciding how to allocate troops to a farmer deciding how to allocate land. As the name implies, the goal of Minimax Regret is to minimize the maximum regret you might experience from a decision choice.

Are you listening, Mr. Draghi nor the other High Priests of monetary policy are listening at all. In the emerging world of ethnic conflict and civilizational clash, Western belief in the universality of Western culture suffers three problems: it is false; it is immoral; and it is dangerous. The West won the world not by the superiority of its ideas or values or religion … but rather by its superiority in applying organized violence. Westerners often forget this fact; non-Westerners never do. The argument now that the spread of pop culture and consumer goods around the world represents the triumph of Western civilization trivializes Western culture.

The fact that non-Westerners may bite into the latter has no implications for their accepting the former. The fundamental problem for the West is not Islamic fundamentalism. It is Islam, a different civilization whose people are convinced of the superiority of their culture and are obsessed with the inferiority of their power.

Handbook of game theory with economic applications in SearchWorks catalog

If not … well, he had a successful life. The most fundamental problem of politics is not the control of wickedness but the limitation of righteousness. Order should not have priority over freedom. But the affirmation of freedom should be elevated from a mood to a strategy. Lots of quotes this week, particularly from my two favorite war criminals — Sam Huntington and Henry Kissinger.

Everyone has heard of Kissinger, fewer of Huntington, who may have been even more of a hawk and law-and-order fetishist than Kissinger but never sufficiently escaped the ivory towers of Harvard to make a difference in Washington. Like me, Kissinger bolted academia at his first real opportunity for a better gig and never looked back, which is probably why I always found him to be so personally engaging and fun to be around. Sam Huntington … not so much. Huntington and Kissinger were both realists in the Thucydides and Bismarck sense of the word , as opposed to liberals in the John Stuart Mill and Woodrow Wilson sense of the word , which basically just means that they saw human political history as essentially cyclical and the human experience as essentially constant.

Marxism and liberalism are inherently optimistic visions of human society. Things are always getting better … or they will be better just as soon as people wake up and recognize their enlightened self-interest … as ideas of proletariat empowerment Marxism or individual rights as instantiated by free markets and free elections liberalism inexorably spread throughout the world.

For realists like Huntington and Kissinger, on the other hand, this is nonsense. A brief aside here on the distinction between personal beliefs and useful models. On the contrary, I personally believe that everyone in the non-Western world would be better off … MUCH better off … if their governing regimes gave a damn about individual rights and liberties in the same way that ANY governing regime in the West does. And you know what?

On a personal level, Sam Huntington and Henry Kissinger believed exactly the same thing. Kissinger fought in the Battle of the Bulge. Does that sound like a moral relativist? Talk about personal sacrifices …. Is a realist satisfied to shrug his shoulders and retreat into some isolationist shell? No, of course not. Some problems are intractable because they have been around for hundreds or thousands of years and are part and parcel of the Clash of Civilizations.

The problem, of course, is that Door 1 is awfully expensive. Is nation-building in Afghanistan on the list? I think the crucial issue here as it is with so many things in life is to call things by their proper name. The Clash of Civilizations is not going to get better in Because for the past five years we have had a US government that was willing to pay the high price of empire to extend its monetary policy hegemony over the entire world to save the infrastructure of modern Western civilization: the US banking system and its collateral assets.

Five trillion dollars later, the Fed has now declared victory and is demobilizing the QE troops. Is it a lasting victory? The better question is: what now? What happens in the rest of the world now that the peace-keeping and price-raising and prosperity-bringing delivered by five trillion dollars in asset purchases … stops?

Part of the answer — a small part of the answer — is that other central banks with printing presses will try to take up some of the slack. Or that North Korea attacks Sony. Or that the price of oil drops by half as OPEC faces its greatest existential threat. Of course not. This is what happens when you have a global debt crisis and politicians respond to maintain the status quo by any means necessary — the political center does not hold. For example, to the degree that Ukraine-related sanctions on Russia damage German growth rates, the market believes that this forces still greater ECB market accommodation and direct propping-up of financial asset prices in the Eurozone.

Turkey, Iran, and Egypt are all the same basic story — ancient civilizations that had their day in the sun many centuries ago and are now being consumed by the Borg-like entity that is Islam. Persia, the most potent of the three cultures, is completely lost. So … am I terrified by the Clash of Civilizations? Am I getting out of the market and running for the hills?

Not yet, anyway. Side by side with the limitless possibilities opened up by the new technologies, reflection about international order must include the internal dangers of societies driven by mass consensus, deprived of the context and foresight needed on terms compatible with their historical character. As diplomacy is transformed into gestures geared toward passions, the search for equilibrium risks giving way to a testing of limits.

Because information is so accessible and communication instantaneous, there is a diminution of focus on its significance, or even on the definition of what is significant. This dynamic may encourage policymakers to wait for an issue to arise rather than anticipate it, and to regard moments of decision as a series of isolated events rather than part of a historical continuum. When this happens, manipulation of information replaces reflection as the principal policy tool.

First, the proliferation of the most dangerous game of all — Chicken. Chicken is such a dangerous game because it has no equilibrium, no outcome where all parties prefer where they are to where they might be. Second, the dumbing-down of all political games into their most unstable form — the single-play game.

Most games seem really daunting at first glance. Cooperation and mutually advantageous equilibria are far easier to achieve within a repeated-play game because reputation matters. Imagine if you sat down at a poker table, were dealt one hand, and were then informed that everyone would have to get up and find another table with new players, at which point only one hand would be dealt there, too.

And not just in the US, but also Russia and China and everywhere in between. Unfortunately, I think it was just an introductory chapter in a much longer book. Young nanny: Look at me, Damien! When one has little faith, one must survive from day to day signs. Criminals are a superstitious cowardly lot, so my disguise must be able to strike terror into their hearts. When great leaves fall, the winter is at hand; When the sun sets, who doth not look for night? Like the criminals that Bruce Wayne fought as Batman, we investors are a superstitious, cowardly lot.

We are constantly ascribing way too much import to this sign or that sign, constantly freaking out over the meaning and significance of this market event or that market event. And yet sometimes a little freaking out over the signs and portents is clearly the right thing to do. Are we acting as Shakespeare says any wise person would in a knowable and deterministic world, by putting on our cloaks as clouds appear and looking for the night as the sun sets?

Or are we mistaking our play-acting market world for the real world, putting on our cloaks as the projectionist shows us a picture of clouds and looking for the night as the stage lights dim? Signals are malleable. And unless you are focused on how and why signals are constructed and shaped, you will be whipsawed. You will be shaken out. You will be roped in. You will catch a falling knife.

Pick your own analogy or metaphor … there are a million to choose from and anyone who has spent any time at all in the market has experienced most of them. Case in point: why are many investors puking energy sector stocks today? Will lower oil prices over a long period of time hurt earnings and crimp growth for the entire sector? Well, sure. But neither earnings risk nor balance sheet risk explains why you see a spasm of energy sector selling today or back in October.

No, the selling is because the dominant Common Knowledge regarding energy sector stocks is that they move up and down with the price of oil. Everyone knows that everyone knows energy stocks are tied to oil prices, we just took another sharp leg down in oil prices, and so energy stocks must be sold. The reality not that it matters is that energy stocks are barely correlated with the price of oil, and their correlation with each other is barely driven by oil prices. Ed and his team do stellar econometric analysis of equity market derivative contracts, which means that their papers typically need some translation into plain English.

Not true. When a trade is crowded on the long side, everyone has an itchy trigger finger to sell. So what does matter? How can we improve our investing around energy sector stocks by thinking about oil prices as a malleable signal that drives sentiment dynamics at least in the short and medium term rather than as a deterministic and inexorable sign of things to come? I think what happens from here depends on the strategic interaction of four factors:. My goal is not to be a hero and make bold predictions in the Golden Age of the Central Banker. My goal is to be a survivor.

My goal is to play the game a bit better than the crowd by paying attention to the construction and shaping of market signals, all the while keeping my attention focused on how politicians and bankers wrestle with a global debt crisis. Call it being reactive if you like. Everyone has a plan until they get hit in the mouth. My long-term strategy turned into a hour strategy.

Ben, there is no such thing as a good redouble. Yes, I just played the fascist card. No matter what his opponents did, no matter how tall they were, no matter how quick they were … Kareem could always get this shot off. He might miss the shot, but that was totally on him; a miss had nothing to do with his opponents. Maybe I should have taken that into consideration. For five and a half years the BOJ has had a clear field to take whatever actions they wished without fear of some other, stronger central bank smacking them in the mouth. Bretton Woods?

Like you and me and market participants everywhere, the BOJ Governors have been very well trained to expect that the Fed has got their back, that they can act according to their own narrow and immediate self-interests without concern or fear that their actions will result in someone smacking them in the mouth. I think that they have redoubled this particular contract as if they were playing bridge with doting grandparents rather than chain-smoking, penny-pinching old crones.

I have no idea whether the response will be to use the political science terminology symmetric or asymmetric in scale and delivery. That is, the response could be larger or smaller than the perceived provocation, and it may or may not be a response delivered through monetary policy. I have no idea exactly when the response will occur. But I have zero doubt that a forceful response is coming. I have zero doubt that Japan is about to get smacked in the mouth.

And when that happens the monetary policy calculus in Japan … and the UK … and even the EU will take on a very different shape. The domestic political dictates may still overwhelm the international economic consequences of extraordinary monetary policy easing. But they will no longer be making these decisions within a strategic vacuum. Here is the most fundamental idea behind game theory, the one concept you MUST understand to be an effective game player.

You are not a super genius, and we are not idiots. The people you are playing with and against are just as smart as you are. Not smarter. But just as smart. If you think that you are seeing more deeply into a repeated-play strategic interaction a game! And ultimately it will cost you dearly. Not by some heavy-handed pronouncement as you might find in North Korea or some Soviet-era Ministry, but in the kinder gentler modern way, by a Wise Man or Woman of Science who delivers words carefully chosen for their effect in constructing social expectations and behaviors. The words are not lies.

All good and noble ends. This is what very smart people do when they are, as the Brits would say, too clever by half. This is why very smart people are, as often as not, poor game players. Republican thing. Europe thing. Am I personally worried about an Ebola outbreak in the US? On balance … no, not at all. Gupta and the White House and all the rest of the super genius, supercilious, remain-calm crew. I am calm. I understand that a victim must be symptomatic to be contagious. I understand that Presbyterian Hospital in Dallas is not just one of the best health care facilities in Texas, but one of the best hospitals in the world.

The mistake made by our modern leaders — in every public sphere! The fact that we go along with a game — that we act AS IF we believe in the Common Knowledge of an announced consensus — does NOT mean that we have accepted the party line in our heart of hearts.


  1. Game Theory and Mutual Misunderstanding.
  2. River Road (Sentinels of New Orleans, Book 2).
  3. Risperdal retail price.

But I am angry, too. And yet here we are. On the precipice of that breakdown in confidence. A cold wind of change is starting to blow. Can you feel it? These are people who have never been proven wrong about anything in their professional lives. He has no idea why his world is crumbling. No problem. As Yul Brynner would have put it in Cecil B. So let it be done. Collective solipsism is what overwhelming Common Knowledge looks like.

When does collective solipsism fail? When does the story break? When it comes into conflict with a larger external social structure, with a larger strategic interaction. They all care about the larger issue of domestic violence.