The prisoner's dilemma, MARGINGAME and the second invisible hand of the market

MARGINGAME

STRATEGY GAME

Ph.D. Igor P. Ponomarev

Moscow, Economic faculty of Moscow state University

Course of “Decision-Making“

© Ponomarev I. P. 2000-2017 (c) Ponomarev I.P., 2017

In 1950 Melvin Dresher and Merrill M. Flood opened

the “Prisoner's dilemma".

Here is its essence: two suspects arrested before entering

the Bank and imprisoned in solitary confinement.

In order to encourage them to confess to the robbery,

the police makes them an offer...

Stays silent or betrays? Stays silent or betrays?

(c) Ponomarev I.P., 2017

Obviously, if they agree to both remain silent, they will

receive a minimum of and will be out in a year!

But the main question is not the understanding and

trust!!Experiments show that even with bargaining, the

parties do not agree, and pass each other and both

sit for 5 years!

ДИЛЕММА

ЗАКЛЮЧЕННОГО


To betray

To remain

To betray To remain

5\5

10\0

0\10

1\1

Prisoner's dilemma: (1950) The police every offer: "surrender or else be silent"?

If both remain silent, that evidence will not be enough

and everyone will get only one year.

If both confess, each will receive five years!

And if one will pass the other, and the other will be silent,

the one who cooperates with the investigation will be

released, and second, who will sit silent for 10 years.

1. To betray or to remain silent?

2. And what are you gonna do partner?

3. If he talks, then I get 10 years! (c) Ponomarev I.P., 2017

?


What if the prisoners are not two, but twenty !?

And they are not prisoners, and investors in the market !?

And offers not two, but four!?

MARGINGAME Investors (25 pep.)

Инвесторы

To invest in one of the 4 markets

How to beat the market? Cooperation in the competition.

The second invisible hand of the market.

BANK (Deposit)

NANO (shares)

TELECOM (shares)

GAZ (stock)

The prisoner's dilemma Prisoners (2 pep.)

Two options: "to betray" or "to be silent“

Cooperation with supervisor and minimization of losses in a situation of danger is more important than trust

20

To betray To silent

Participants

Offer

The result

In MARGINGAME participants face the choice of which of

multiple segments of the market to invest?

Obviously, if everything goes in one segment, then there

will be high competition and profitability will fall and may

even become negative.

Problem: how to preserve and increase capital.

MARGINGAME


Where to invest?

BANK (deposit)

NANO (shares)

TELECOM (shares)

GAZ (stock)

How will others?

How to beat the market?

Where the greatest return?

How to gain an advantage?

?

?

?

?

?

?

If all goes in our most profitable segment,

its profitability to decline and they will lose some money, instead of earn

TELECOM [5] (shares)

GAZ [8] (stock)

×Dт = 5/4 = 1,2 ×Dг = 8/10 = 0,8 (c) Ponomarev I.P., 2017

Return on investment in the Telecom Return on investment in the Gazprom

And so you start to think the majority of the participants

and they choose investing in a smaller segment

where competition is growing, and their income falls

TELECOM [5] (shares)

GAZ [8] (stock)

×Dт = 5/10 = 0,5 ×Dг = 8/4 = 2,0 (c) Ponomarev I.P., 2017

Return on investment in the Telecom Return on investment in the Gazprom

Unlike prisoner's Dilemma, the game is not over

but it's only the beginning! Importantly, what conclusions do

the participants and how they will proceed. While all have

the same initial capital, and equal access to information

about the state of the market.

The Prisoner's dilemma M. Drescher and M. Flood,

1950 year

Participants: two persons Location: prison Choice of two alternatives One decision

MARGINGAME I. Ponomarev

2000 year Participants: a few people Place: the market/exchange Choice of several alternatives The sequence of solutions

2 1


What happens? After receiving the results of each of the investors not only

think about why it happened and what to do next but also

experiencing a certain emotional state, such as the joy of

investment growth or disappointment from the reduction of

capital. And he thinks, as others do?

Investor [+] (capital growth +20%)

Investor [-] (the fall of the capital -20%)

Yay! I'm right!

The strategy works! Hold position!

Ou-u-u-u! Something went wrong?

How will others do? To change the position?


We need to act and make decisions in conditions of

uncertainty, constantly asking the question of how

the market will behave? It is logical to calculate the

probability and expected return on these fundamental

data to build strategy. Some of them do.

To act in the condition of uncertainty and to ask

the question: How the market will behave next time?

To find the fundamental factors to calculate

the probability and build a strategy regardless of market conditions.

OR

?

? х

0,2

х

0,8


The ability to negotiate with other parties leads to nothing,

as all participants pursue the same goal.

Max, it turns out, is to coordinate their decisions so

as not to compete with the immediate environment.

NO! collusion in the market It is impossible

to agree because of the same interests

YES! joint coordination with the immediate

environment


First, market changes or increases the capacity of one of

the segments of the markets, or comes a decrease in

capacity of the other segment. Investors in such a situation,

react and act the same. Turns out the disturbance wave,

which is more the changes that happened.

It WAS

BECAME

STOCK 5

STOCK 10

STOCK 3

BANK 10%

STOCK 5

STOCK(+2) 12

STOCK 3

BANK 10%


Then the market is another change: either a new segment

or changing the old segment to the new one.

Most in such a situation nothing remains but to begin

to think and act as well as on the first move, and if you try

to do "not all" will turn out like all the others.

It WAS

BECAME

STOCK 5

STOCK 10

STOCK 3

BANK 10%

STARTUP

х10

STOCK 10

STOCK 3

BANK 10%


In the end, the winner is the one who thought and acted

differently than the other participants.

Wins the original people who managed to implement a

strategy to show discipline and not be like most, where

everyone thinks the same, "I'm not like everyone else".

STOCK [5] 5/1=5

capital growth х5 раз!

STOCK [12] 12/12=1


MARGINGAME allows you to simulate and observe

the number of economic laws from the invisible hand

of the market impact of information on behavior of agents,

to influence emotions and formalization on

decision-making, and you can also see the effect

of the second invisible hand of the market.

BECAME

АКЦИИ 5

АКЦИИ 10

АКЦИИ 3

БАНК 10%

STARTUP

х10

STOCK 10

STOCK 3

BANK 10%

To act in the condition information about change

of the market: How the market will be have if you add a new segment?


The game may be played in team format, where

participants are arranged into groups and dispose of

several assets. In this case, you can work out different

models of decision-making in a group:

from a monarchical, ... , up to the individual.


You can practice a group decision-making, when not only

is it important to have a good (competitive) solution, but

also to influence the decision of other group members,

otherwise the winner is the banal majority and obviousness.


DEMOCRACY

Lead changes and decisions are discussed

Controlled democracy

The leader does not change, decisions are made by voting

More than 15 years of holding the games in different

formats and under different scenarios revealed a number of

interesting market phenomena and to test several

hypotheses. But most importantly, this opening of the

second invisible hand of the market.


INVISIBLE HAND OF THE MARKET Adam Smith

SECOND INVISIBLE HAND OF THE MARKET

* Also found interesting the paradox of market efficiency:

despite the presence in the game is a winner who knows

how to beat the market, its rules and advice will not help

other members, as the situation and conditions will not be

the same. The winner plays with the other participants due

to the action of the second invisible hand of the market,

not the rules.

< < Compliance

with the rules The detection

of patterns Uncertainty

and randomness


TECHNOCRACY EXPERTS ANARCHY

Experiments have shown that it is not negotiating between

the parties of their solutions lead different segments of the

market in equilibrium, and their yield lines (the so-called

invisible hand of the market). The results of the experiments

show that there are always participants who replayed the

chaos of the market, and attempts to regulate the market

lead to a conflict of interests and enrichment of the

participant - regulator of the market. The game allows you

to observe the action of the second invisible hand of the

market that moves capital into the market.

MARGINGAME

PhD Ponomarev Igor Panteleevich www.ArtProLab.com [email protected] the Economic faculty

of Moscow state University. M. V. Lomonosov (c) Ponomarev I.P., 2017

mailto:[email protected]

The prisoner's dilemma, MARGINGAME and the second invisible hand of the market

Economy & Finance

Transcript of The prisoner's dilemma, MARGINGAME and the second invisible hand of the market