| Taffeta, Darling Posted: 04 Oct 2011 05:25 PM PDT [Dr. Frankenstein leans in for a kiss] Elizabeth: Taffeta, darling. Dr. Frederick Frankenstein: Taffeta, sweetheart. Elizabeth: [pulling away] No, the dress is taffeta. It wrinkles so easily.
via Young Frankenstein (1974) – Memorable quotes. 
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| Why Game Theory Blows Up in Financial Markets Posted: 04 Oct 2011 01:06 PM PDT New paper on why game theory falls down in the real world of complicated games, like financial markets: Complex dynamics in learning complicated games Tobias Galla, J. Doyne Farmer Game theory is the standard tool used to model strategic interactions in evolutionary biology and social science. Traditional game theory studies the equilibria of simple games. But is traditional game theory applicable if the game is complicated, and if not, what is? We investigate this question here, defining a complicated game as one with many possible moves, and therefore many possible payoffs conditional on those moves. We investigate two-person games in which the players learn based on experience. By generating games at random we show that under some circumstances the strategies of the two players converge to fixed points, but under others they follow limit cycles or chaotic attractors. The dimension of the chaotic attractors can be very high, implying that the dynamics of the strategies are effectively random. In the chaotic regime the payoffs fluctuate intermittently, showing bursts of rapid change punctuated by periods of quiescence, similar to what is observed in fluid turbulence and financial markets. Our results suggest that such intermittency is a highly generic phenomenon, and that there is a large parameter regime for which complicated strategic interactions generate inherently unpredictable behavior that is best described in the language of dynamical systems theory.
via [1109.4250] Complex dynamics in learning complicated games. 
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| Naturally Occurring Experiment: The Jeopardy Tournament of Champions Posted: 04 Oct 2011 11:55 AM PDT Interesting new paper: The Liability of Leading: Battling Aspiration and Survival Goals in the Jeopardy! Tournament of Champions We extend the variable risk preferences model of decision making to a competitive context in order to develop theoryabout how competition affects both focus of attention and risk taking. We hypothesize and find support for leader–follower differences in the channeling of attention to an aspiration or survival point. Our results indicate that leaders focuson their aspiration point, whereas followers' focus of attention shifts between their aspiration and survival points. By identifying and elaborating on the different cognitive loads and social expectations related to the positions of leader and follower, we show that leaders are prone to take excessive risks to maintain their leadership position. We refer to this phenomenon as the liability of leading. Our study context is a naturally occurring experiment in strategic decision making, the Jeopardy! Tournament of Champions. 
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| Twitter Digest: 2011-10-03 Posted: 04 Oct 2011 04:00 AM PDT |
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