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Applying Game Theory to Finance “ I can calculate the motions of heavenly bodies, but not the madness of people” - Isaac Newton, upon losing £20,000 in the South Sea Bubble in 1720
Game Plan ,[object Object],[object Object]
Hostile Takeovers “ Robert Campeau  is considered by many as the best example of a fool.” - Dale Oesterle, Cato Review of Business & Government, 1996 “ The biggest, looniest deal ever."  - Fortune Magazine, July 1988, on Campeau’s  acquisition of Federated Stores.
Hostile Takeover Plan ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Macy’s vs. Campeau ,[object Object],[object Object],[object Object]
Macy’s vs. Campeau ,[object Object],[object Object],[object Object],[object Object],[object Object]
Macy’s vs. Campeau ,[object Object],[object Object],[object Object],[object Object]
Qwest Bond Swap ,[object Object],[object Object]
Qwest Bond Swap ,[object Object],[object Object]
Qwest Coercive Bond Swap ,[object Object],[object Object]
Qwest: Some Simple Cases ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Qwest: Less Simple Cases ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Qwest Continued: When All Bonds aren’t Created Equal ,[object Object],[object Object],[object Object],[object Object]
Zwest Game ,[object Object],[object Object],[object Object],[object Object]
Zwest Game ,[object Object],[object Object],[object Object]
Zwest Game #1 (A first) ,[object Object]
Zwest Game #2 (C first) ,[object Object]
Play Zwest Games! ,[object Object],[object Object],[object Object],[object Object]
Play Zwest Games! ,[object Object],[object Object]
Commitment “ The Power to Constrain an Adversary Depends Upon the Power to Bind Oneself.” - Thomas Schelling
Commitment in the Examples We’ve Seen ,[object Object],[object Object],[object Object]
Game within a Game ,[object Object],[object Object],[object Object]
Bitter Pills ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Saturday Night Specials ,[object Object],[object Object]
Game within a Game within a Game (within a Game) ,[object Object],[object Object],[object Object]
Role of Regulation ,[object Object],[object Object],[object Object]
Bubbles “ We thought it was the 8 th  inning, and it was the 9 th ” - Stanley Druckenmiller, former manager of Soros’ Quantum Fund, April 2000. “ Julian said, ‘This is irrational and I won’t play”, and they carried him out feet first.  Druckenmiller said, ‘This is irrational and I’ll play’, and they carried him out feet first.” -  NYTimes April 29, 2000: “Another Technology Victim; Soros Fund Manager Says He ‘Overplayed’ Hand”. (Julian Roberts managed Tiger Hedge Fund, dissolved in 1999.)
Bubbles: Game Plan ,[object Object],[object Object],[object Object],[object Object]
Newspapers, academics, and crystal balls … ,[object Object],[object Object]
Spotting trends ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Spotting Trends Mark Twain, in Pudd’nhead Wilson: “ October. This is one of the peculiarly dangerous months to speculate in stocks in… “ The others are July, January, September, April, November, May, March, June, December, August, and February.”
Spotting trends ,[object Object],[object Object],[object Object],[object Object],[object Object]
January Effect ,[object Object],[object Object]
Sampling of Research  (USA data up to 80s) ,[object Object],[object Object],[object Object],[object Object],[object Object]
Sampling of Research  (non-USA data up to 80s) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
What Should  You  Do? ,[object Object],[object Object]
January Defect? ,[object Object],[object Object]
Most Recent Research ,[object Object]
Bubbles ,[object Object],[object Object],[object Object],[object Object]
A Simple Model of Bubbles ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
A Simple Model of Bubbles ,[object Object],[object Object],[object Object],[object Object]
How Do Bubbles Start? ,[object Object],[object Object],[object Object],[object Object]
Bubble Game: Rules ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Bubble Game: Rules ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Sell Immediately Upon Learning: Nash Equilibrium? ,[object Object],[object Object]
How Do Bubbles Persist and Burst? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
News and “Overreaction” ,[object Object],[object Object],[object Object],[object Object],[object Object]

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SIM_GameTheory_to_Finance

  • 1. Applying Game Theory to Finance “ I can calculate the motions of heavenly bodies, but not the madness of people” - Isaac Newton, upon losing £20,000 in the South Sea Bubble in 1720
  • 2.
  • 3. Hostile Takeovers “ Robert Campeau is considered by many as the best example of a fool.” - Dale Oesterle, Cato Review of Business & Government, 1996 “ The biggest, looniest deal ever." - Fortune Magazine, July 1988, on Campeau’s acquisition of Federated Stores.
  • 4.
  • 5.
  • 6.
  • 7.
  • 8.
  • 9.
  • 10.
  • 11.
  • 12.
  • 13.
  • 14.
  • 15.
  • 16.
  • 17.
  • 18.
  • 19.
  • 20. Commitment “ The Power to Constrain an Adversary Depends Upon the Power to Bind Oneself.” - Thomas Schelling
  • 21.
  • 22.
  • 23.
  • 24.
  • 25.
  • 26.
  • 27. Bubbles “ We thought it was the 8 th inning, and it was the 9 th ” - Stanley Druckenmiller, former manager of Soros’ Quantum Fund, April 2000. “ Julian said, ‘This is irrational and I won’t play”, and they carried him out feet first. Druckenmiller said, ‘This is irrational and I’ll play’, and they carried him out feet first.” - NYTimes April 29, 2000: “Another Technology Victim; Soros Fund Manager Says He ‘Overplayed’ Hand”. (Julian Roberts managed Tiger Hedge Fund, dissolved in 1999.)
  • 28.
  • 29.
  • 30.
  • 31. Spotting Trends Mark Twain, in Pudd’nhead Wilson: “ October. This is one of the peculiarly dangerous months to speculate in stocks in… “ The others are July, January, September, April, November, May, March, June, December, August, and February.”
  • 32.
  • 33.
  • 34.
  • 35.
  • 36.
  • 37.
  • 38.
  • 39.
  • 40.
  • 41.
  • 42.
  • 43.
  • 44.
  • 45.
  • 46.
  • 47.