Even a fair trading game ruins a finite player against unlimited resources
Evidence
Regnault argued that short-term price movements were like coin-tossing: upward and downward movements will tend to have equal probabilities (of 1/2), and subsequent movements will be statistically independent of previous movements (Regnault 1863, pp. 34-38). That was a fair game, but even in a fair game a player with finite resources playing an opponent with unlimited resources will eventually lose the entirety of those resources, and if that happens in a financial market the game is over from the player’s viewpoint. — Donald MacKenzie, An Engine, Not a Camera, 259
Categorization
- SEED: The gambler’s-ruin argument applied to securities markets is a nice angle for a piece on why short-term speculation systematically destroys traders.
- XREF: connects to: One-shot trade games yield cheating as the unique equilibrium. — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 46; One-shot strategic games can lock rational players into collectively worse outcomes.; Backward induction argues rational players defect from the first move of any finite game. — Russell Hardin, Trust and Trustworthiness, 135 (+2 more)
Broader Connections
- One-shot trade games yield cheating as the unique equilibrium.
#expands(0.85) — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 46 - One-shot strategic games can lock rational players into collectively worse outcomes.
#expands(0.80) - Backward induction argues rational players defect from the first move of any finite game.
#complicates(0.78) — Russell Hardin, Trust and Trustworthiness, 135 - Sequential-game solutions collapse into iterative elimination of dominated strategies.
#expands(0.72) — Thomas C. Schelling, The Strategy of Conflict, 355