Patterns & Predictions Playing to win v playing not to lose PATRICK MCNUTT, FRSA FOLLOW ON @TUNCNUNC WEB: WWW.PATRICKMCNUTT.COM DECODING STRATEGY (2014) MCGRAW HILL
Patterns & PredictionsPlaying to win v playing not to lose
PATRICK MCNUTT, FRSAFOLLOW ON @TUNCNUNC
WEB: WWW.PATRICKMCNUTT.COMDECODING STRATEGY (2014) MCGRAW HILL
CREATING PATTERNS & DISCOVERING PATTERNS
• Information embedded in observed behaviour
• Information filtering and Individual memory is ‘outsourced’ stored in a computer or tablet
• Social life is stored in portable gadgets
• Behaviour is a ‘vibrational pattern’ in time and space
• What is your best friend’s mobile telephone number?
• We have become our ‘digital self’
• Find the pattern EXAMPLE: Daily Routine.
OBSERVED: KEEPING TO THIS PATTERN …..MONDAY, TUESDAY, WEDNESDAY, THURSDAY
ON FRIDAY ………….?WEEK1, WEEK 2, WEEK 3
…….WEEK 4 ……………………………… ?
WHY FOCUS ON PATTERNS?....• We live in an information age so filtering information from the patterns
• Understanding the pattern: is there order? Is there chaos?
• Discovering a pattern from a sequence of moves [everyday actions, everyday decisions].
• Observational learning: moves = signals = information.
• We live in a connected world: Less Independence v More interdependence
• Like the Oracle in The Matrix : ‘we cannot see beyond the choices we do not understand’
• EXAMPLE: Hegazy-McNutt Non-Linear Thinking
Hegazy-McNutt ‘Non-linear thinking’ image…time continuum
LEARNING VIA EXPERIENCE & BELIEF
In context’: meaning that in time you are observing a trade-off between departing from self-interest behaviour v empathetic behaviour & reasoning.
Like Samurai in a maku or the Roman castrum the players in a game are enveloped by the game dimension.
Cascade effect: meaning that at a point in time, observations and signals influence your belief system.
(i) ‘broken windows’ = signals disorder
(ii) queues for restaurant = belief system.
RULES OF OBSERVED PLAY
We learn how to play the game using information rather than evolution (playing curve or learning curve].
Defection, dishonesty and cheating are the norm.
Co-operation [even with highest cardinal payoff] is not the norm..why?.......
• Dominant strategy to betray in a PD game
• Regret is irrational in a game
• Fooling (emperor moth) behaviour
• Dark strategy and belief system
Playing ‘in context’; EXAMPLE: theatre tickets
DECISION A:You enter the theatre but you have lost your $10 ticket. Would you pay $10 for a new ticket?TOTAL COST $20
DECISION B:You enter a theatre to buy a ticket. But you have lost a $10 bill. Would you continue to buy a $10 ticket?TOTAL COST $20
LOSS AVERSION ‘IN CONTEXT’
IN E
XPERIM
ENTAL G
AMES
IT IS
NO IN
A A
ND YES IN
BPE
OPLE
DISLIK
E LO
SING M
ORE TH
AN THEY
LIKE
GAININ
G
Poker, Chess, Soccer, Business Decisions, Everyday life - ANY INTERACTION IS A GAME SITUATION
Playing a game without information
Playing a game with ‘good’ signals & a player’s type
What is the optimal move, given X?
How does the value of the signal vary with X under different actions?
Playing to win v Playing not to lose
Short term gain [compete] v long term benefit [co-operate]
Today’s decision depends on the one we shall make tomorrow. EXAMPLE Where to host the BBQ?
SUN RAIN
HOUSE Regrets
OKAY & YES
Disappointment
GARDEN Preference Disaster
AVOID & NO
GEMS AND T/3: OBSERVE SEQUENCE OF MOVES
1. Moves observed by rivals as a pattern, revealing your ‘type’ as a player…reveals insight into the company’s or organisation’s strategy
2. Can I trust you? Private information is not observable, only actions are.
EXAMPLE: US$ V RMB/Yuan
Economic & Financial Signals between US Fed (Bernanke [Yellen v Kohn or Yellen v Summers]) and China’s PBC (re-appointment of Mr Zhou)
EXAMPLE: Sony v Microsoft
Price Signals on entry of MS into video consoles/game.
SIGNAL GAME US$ V RMB/YUAN
Weak $ Strong $
Weak RMB NOFor ASLEEP: unable to export.
NoUS Congress: costing US jobs
Strong RMB YESSignals from PBC: when the period is right.
NONo QE: risk-off would impact.
26 Oct 0015 Nov 01
14 May 02
15 May 02
13 May 03
14 May 03
29 Mar 04
1 Nov 05
30 Oct 05
PS2 launched at $299
Microsoft Xbox launched at $299
PS2 at $199.99
Xbox at $149
22 million Xbox shipped
TIMELINE – Pre 2006
Xbox at $199
PS2 at $179.99
Xbox at $179
PS2 at $149.99
11 May 04
100 million PS2 shipped
Xbox 360 launched at $399
22 Nov 05
Xbox at $179
6 Feb 06
20 April 06
PS2 at $129.99
27 April 06
Revised production schedule for Xbox 360 to 5- 5.5 million units by 30th June 2006
8 May 06
Announcement PS3 production schedule to ship 6 million units by 31 Mar 07 at $499
LEARNING IS A ‘STRANGE LOOP’
Schelling move is to cooperate early in a sequence of moves and defect or cheat late.
Co-operation secures a win-win outcome
Turing Test: adapted for humans as homo ludens: ‘if a player convinces observers he might be rational, then it is fair to describe the player as rational’
People learn from (i) observing the decision of others, (ii) observing the behaviour of others and (iii) from private information + (i) and (ii).
Cascading towards a cartel…I think-you think-I think loop
High Price
Player A
Low Price
Player A
High Price
Player B
Cartel, cooperation
B’s loss
Low Price
Player B
A’s loss Competition
YOU M
AY B
E DECEIV
ED IF
YOU T
RUST TO
O MUCH, B
UT
YOU W
ILL LI
VE IN T
ORMENT
IF YO
U DO N
OT TR
UST
ENOUGH
FRANK C
RANE
Thank you for listening………
MARK TWAIN
‘IF YOU TELL THE TRUTH YOU DON’T HAVE TO REMEMBER ANYTHING’