Perhaps try this: http://churchandstate.org.uk/2011/04/george-soros-theory-of-reflexivity-mit-speech/ " http://en.wikipedia.org/wiki/Reflexivity_(social_theory) Reflexivity refers to circular relationships between cause and effect. A reflexive relationship is bidirectional with both the cause and the effect affecting one another in a situation that does not render both functions causes and effects. In sociology, reflexivity therefore comes to mean an act of self-reference where examination or action "bends back on", refers to, and affects the entity instigating the action or examination. .... In economics Economic philosopher, George Soros, influenced by ideas put forward by his tutor, Karl Popper (1957), has been an active promoter of the relevance of reflexivity to economics first propounding it publicly in his 1987 book.[1] He regards his insights into market behaviour from applying the principle as a major factor in the success of his financial career. Reflexivity is discordant with equilibrium theory, which stipulates that markets move towards equilibrium and that non-equilibrium fluctuations are merely random noise that will soon be corrected. In equilibrium theory, prices in the long run at equilibrium reflect the underlying fundamentals, which are unaffected by prices. Reflexivity asserts that prices do in fact influence the fundamentals and that these newly-influenced set of fundamentals then proceed to change expectations, thus influencing prices; the process continues in a self-reinforcing pattern. Because the pattern is self-reinforcing, markets tend towards disequilibrium. Sooner or later they reach a point where the sentiment is reversed and negative expectations become self-reinforcing in the downward direction, thereby explaining the familiar pattern of boom and bust cycles [2] An example Soros cites is the procyclical nature of lending, that is, the willingness of banks to ease lending standards for real estate loans when prices are rising, then raising standards when real estate prices are falling, reinforcing the boom and bust cycle. "
Game theory is interesting and extremely complex. Looking back in history one can see how countries reacted to each other. It is much the same for companies and people. There are various states of dis-equilibrium between total war and perfect peace. Are you having a "cold war" with some of your neighbours ? Will your actions push the guy into submission or violent reaction ? You figure it for yourself
Prospect theory http://en.wikipedia.org/wiki/Prospect_theory http://en.wikipedia.org/wiki/Behavioral_finance " Prospect theory In 1979, Kahneman and Tversky wrote Prospect theory: An Analysis of Decision Under Risk, an important paper that used cognitive psychology to explain various divergences of economic decision making from neo-classical theory.[34] Prospect theory has two stages, an editing stage and an evaluation stage. In the editing stage, risky situations are simplified using various heuristics of choice. In the evaluation phase, risky alternatives are evaluated using various psychological principles that include the following: (1) Reference dependence: When evaluating outcomes, the decision maker has in mind a "reference level". Outcomes are then compared to the reference point and classified as "gains" if greater than the reference point and "losses" if less than the reference point. (2) Loss aversion: Losses bite more than equivalent gains. In their 1979 paper in Econometrica, Kahneman and Tversky found the median coefficient of loss aversion to be about 2.25, i.e., losses bite about 2.25 time more than equivalent gains. (3) Non-Linear probability weighting: Evidence indicates that decision makers overweight small probabilities and underweight large probabilities â this gives rise to the inverse-S shaped "probability weighting function". (4) Diminishing sensitivity to gains and losses: As the size of the gains and losses relative to the reference point increase in absolute value, the marginal effect on the decision maker's utility or satisfaction falls. Prospect theory is able to explain everything that the two main existing decision theories â expected utility theory and rank dependent utility â can explain. However, the converse is false. Prospect theory has been used to explain a range of phenomena that existing decision theories have great difficulty in explaining. These include backward bending labour supply curves, asymmetric price elasticities, tax evasion, co-movement of stock prices and consumption etc. In 1992, in the Journal of Risk and Uncertainty, Kahneman and Tversky gave their revised account of prospect theory that they called cumulative prospect theory. The new theory eliminated the editing phase in prospect theory and focused just on the evaluation phase. Its main feature was that it allowed for non-linear probability weighting in a cumulative manner, which was originally suggested in John Quiggin's rank dependent utility theory. Psychological traits such as overconfidence, projection bias, and the effects of limited attention are now part of the theory. Other developments include a conference at the University of Chicago,[35] a special behavioral economics edition of the Quarterly Journal of Economics ('In Memory of Amos Tversky') and Kahneman's 2002 Nobel for having "integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty".[36] "
I would have thought you would recommend: http://www.amazon.com/Prisoners-Dil...1376230871&sr=8-5&keywords=william+poundstone
Game theory is surely more one against one other or one country against another country. In the Cold War it was USA v. Soviet Union If I do this what will be his response ? If I do that will his reaction be different ? Maybe look another step ahead or two ? etc. Try it on your boss or neighbour. Is it applicable to the markets that haven't a clue and won't react to anything on the average scale.?
I've always been meaning to read that. William Poundstone is one of my favorite authors, especially this book: http://www.amazon.com/Fortunes-Form...=1376234678&sr=8-1&keywords=fortune's+formula Thank you for the link nitro.
try Strategy: An Introduction to Game Theory - by Joel Watson. It's expensive at like $80 new. I didn't read the whole thing but it was good.
A Course in Game Theory is old (about 20 years now) but still has some good info in there. It's also dirt cheap and can be had at like $10 used