Yesterday we looked at the concept of the “game” and that each game has a “winner” and “loser” and the fact is binary because the game is only viewed with the context of that specific transaction. So if we look at my example in yesterday’s post of the iPad purchase, the notation was I lost and Apple won, however is that correct? The answer is “yes”, however today will look at another aspect as in the “game” there typical isn’t a single game being played.
As in the case of Apple ™ in building the iPad it had to play a number of “losing” games in order to position itself in line to play (in context) a winning game as in the sale of the iPad to myself. In this the goal was to shift the distribution of wealth as remember there is only so much money in circulation so any money which comes from one place will be at the cost of another, and so on. Thus the distribution is more important than the game itself as the more favorable the distribution is on the “losing” transaction the fewer winning transactions will be required for an overall positive distribution.
Now this might sound as simple as buy at the cheapest price and sell at the highest is what it just took me a paragraph to say and in short that is the nut of it. However there is a deeper point here as in Nash Equilibrium one can summarize that the first to give in loses no matter the cost. In fact, I personally have used this and while not a true scientific study per-say, do consider it a valid test. As if two parties are at a stale mate, the first to give will lose, now one may argue “compromise” is the right answer and you will lose as compromise is simply a way of saying “negative distribution” and our goal is the most favored distribution.
Ok, you ask if this is the case the first which “gives” loses (from a distribution perspective) than the world will be full of stale mates as no one will be inclined to “give” first. In a perfect world you would be right and empirically it would be a beautiful one as then there would be no games and therefore no losses however this is waxing to far afield rhetorically for a practical discussion. Because as a human animal we have competing agendas which affect our game play therefore like the imperfections in a champagne glass will create bubbles so will the same in people.
How does this work you ask, well let’s look at Bob a sales person for Acme Inc, and he has a quota which he has not been doing well to meet, therefore he is now sitting across from you at your desk and you want some of his widgets. Well Bob has to make a judgment call as you’re not willing to pay his price and if he doesn’t make the sale then he’s standing in the unemployment line come Monday morning. So he makes the deal, and Bob, wins, his company loses and from a distribution perspective you win. Get the idea now, Bob sold out Acme Inc, for his imperfections. Also worth noting is there where really 4 of you in this transaction (typically) being Bob and Acme Inc. then You and XYZ Inc (your firm).
Also for discussion it is hard for the academic aspects to overrule personal imperfections and thus it’s highly unlikely a unilateral stalemate could occur especially as it’s not our nature. However that is the key, as in buying stocks, the herd mentality wants to buy on the way up and not down. As there are far better deals averaging down then there on the up side where you want to take profits and sell. The same holds for game theory too in the real world. As if it feels right, do the opposite and yes it might be hard sometimes and you will be called contrarian along with some other names (some potentially nasty), however at the end of the day who cares because it’s all in the distribution…