4 ms·

It's not a straw man to call this a prisoner's dilemma. The bank went from well respected institution to receivership in approximately 24 hours. 42 billion doll

by pg_bot 4y ago

It's not a straw man to call this a prisoner's dilemma. The bank went from well respected institution to receivership in approximately 24 hours. 42 billion dollars worth of deposits was taken out of the bank. In the amount of time it would take to coordinate everyone (assuming they would even cooperate), someone else would've beaten you to the punch and removed their money. Every additional person that has made that decision puts you at risk of holding the bag. I do not fault any of the VCs who requested that their portfolio companies pull their money out. They saw the writing on the wall and were trying to protect themselves, the companies they invested in, and their LPs.

pcarolan 4y ago
It was a mismanaged crisis, I think on that point we agree.
- pg_bot 4y ago
  In theory a restaurant that is over capacity and catches on fire should be able to have everyone exit without death or injury. In practice, people panic and act in their own self interest leading to disaster.
  - wahern 4y ago
    Except often enough in such a situation everyone does exit orderly. People are generally predisposed to cooperate; it's what makes us human. The situations where panic prevails are the exception. What's the saying... success has many fathers, but failure is an orphan?
    - chii 4y ago
      > everyone does exit orderly. this only happens when there's leadership present to which the rest get directed, and the crowd trusts the leadership to act with their interest in mind. E.g., a uniform wearing fire-warden, is often enough. If there's no such leadership, or they are acting (clearly) not in the interest of the "crowd", you will see panic and a failure to cooperate. This, not cooperation, is what makes humans truly humans.
  - pcarolan 4y ago
    You also can't yell fire in a crowded theater when there isn't one. You could make the argument that someone did.
    - pg_bot 4y ago
      You totally can do that, it's not illegal! Schenck v. United States is a pretty odious court case I wouldn't want to be on the censor's side in that one. https://www.theatlantic.com/national/archive/2012/11/its-time-to-stop-using-the-fire-in-a-crowded-theater-quote/264449/ https://www.theatlantic.com/national/archive/2012/11/its-tim...
    - pixl97 4y ago
      No you could not. LegalEagle did a video on this in the last week talking about that ruling that was overturned and doesn't apply to the vast majority of case law anyway.
expazl 4y ago
It was a modified prisoners dilemma where 100 prisoners are faced with steal or share, and have every possible chance to communicate but just can change their choice after making it. And if just 20 had shared, then everyone wins, even those who chose steal. But the panic and the irresponsible VCs lack of communication with the bank and each other meant that in a heartbeat 85 prisoners had chosen steal, before even looking up at each other or listening to the rules being fully explained, and the remaining 15 where left perplexed that there wasn't even 5 amongst the panicked bunch left to help resolve the situation calmly to everyones benefit.
- stickfigure 4y ago
  You can allow as many phone calls as you want but with thousands of players, you're going to get defect every single time you run the experiment. There's no "steal" here. It's your money, at a bank, and if you're late on the defect button you might not get it back. The rational action is always to defect.
  - expazl 4y ago
    > The rational action is always to defect. If that was true, then every bank every day would see runs on their holdings. Obviously that doesn't happen, because most traditional banks have larger institutional customers who understand that the market-to-market value on bonds might dip a bit, but that as long as the bank is able to negotiation loans or raise capital to provide needed liquidity then it's not a big issue. You don't see runs on traditional banks like this, because in the traditional banking sector people pick up the phone and talk to each other instead of taking to twitter and screaming doom and destruction because they read a blog post that they didn't understand but which said something about market-to-market insolvent and sounded scary.
    - stickfigure 4y ago
      Oh, you sweet summer child. You don't see runs on banks because people believe their money is safe. Full stop. As soon as that belief is broken, a run is guaranteed. This is why we have deposit insurance, and why the fed just effectively made it unlimited. If they hadn't, every small bank in the country would now be experiencing a run, including those in "the traditional banking sector". What changed late last week is not any fundamental of the economy or banking sector, but people's belief in the safety of banks.
jancsika 4y ago
Prisoner's Dilemma: Two members, A and B, are being driven around Silicon Valley and possesses every modern means of communication with each other. The bank holding their funds will collapse, but only if both of them send a globally accessible message advising everyone in the world to remove their funds from the bank. I've run some simulations in Python-- the best I can get is for one of the members to learn to refrain from resending the first member's global message 32% of the time. (But be careful with this-- once B accidentally escaped the simulation and shot out a tweet that caused a small ruckus for an investment bank in Omaha.)
- pcarolan 4y ago
  You’re assuming homogeneous agents. In other words, no leaders; no whales. The real world doesn’t work like this.

by pg_bot 4y ago

pcarolan 4y ago

It was a mismanaged crisis, I think on that point we agree.

pg_bot 4y ago
In theory a restaurant that is over capacity and catches on fire should be able to have everyone exit without death or injury. In practice, people panic and act in their own self interest leading to disaster.
- wahern 4y ago
  Except often enough in such a situation everyone does exit orderly. People are generally predisposed to cooperate; it's what makes us human. The situations where panic prevails are the exception. What's the saying... success has many fathers, but failure is an orphan?
  - chii 4y ago
    > everyone does exit orderly. this only happens when there's leadership present to which the rest get directed, and the crowd trusts the leadership to act with their interest in mind. E.g., a uniform wearing fire-warden, is often enough. If there's no such leadership, or they are acting (clearly) not in the interest of the "crowd", you will see panic and a failure to cooperate. This, not cooperation, is what makes humans truly humans.
- pcarolan 4y ago
  You also can't yell fire in a crowded theater when there isn't one. You could make the argument that someone did.
  - pg_bot 4y ago
    You totally can do that, it's not illegal! Schenck v. United States is a pretty odious court case I wouldn't want to be on the censor's side in that one. https://www.theatlantic.com/national/archive/2012/11/its-time-to-stop-using-the-fire-in-a-crowded-theater-quote/264449/ https://www.theatlantic.com/national/archive/2012/11/its-tim...
  - pixl97 4y ago
    No you could not. LegalEagle did a video on this in the last week talking about that ruling that was overturned and doesn't apply to the vast majority of case law anyway.

expazl 4y ago

It was a modified prisoners dilemma where 100 prisoners are faced with steal or share, and have every possible chance to communicate but just can change their choice after making it. And if just 20 had shared, then everyone wins, even those who chose steal. But the panic and the irresponsible VCs lack of communication with the bank and each other meant that in a heartbeat 85 prisoners had chosen steal, before even looking up at each other or listening to the rules being fully explained, and the remaining 15 where left perplexed that there wasn't even 5 amongst the panicked bunch left to help resolve the situation calmly to everyones benefit.

stickfigure 4y ago
You can allow as many phone calls as you want but with thousands of players, you're going to get defect every single time you run the experiment. There's no "steal" here. It's your money, at a bank, and if you're late on the defect button you might not get it back. The rational action is always to defect.
- expazl 4y ago
  > The rational action is always to defect. If that was true, then every bank every day would see runs on their holdings. Obviously that doesn't happen, because most traditional banks have larger institutional customers who understand that the market-to-market value on bonds might dip a bit, but that as long as the bank is able to negotiation loans or raise capital to provide needed liquidity then it's not a big issue. You don't see runs on traditional banks like this, because in the traditional banking sector people pick up the phone and talk to each other instead of taking to twitter and screaming doom and destruction because they read a blog post that they didn't understand but which said something about market-to-market insolvent and sounded scary.
  - stickfigure 4y ago
    Oh, you sweet summer child. You don't see runs on banks because people believe their money is safe. Full stop. As soon as that belief is broken, a run is guaranteed. This is why we have deposit insurance, and why the fed just effectively made it unlimited. If they hadn't, every small bank in the country would now be experiencing a run, including those in "the traditional banking sector". What changed late last week is not any fundamental of the economy or banking sector, but people's belief in the safety of banks.

jancsika 4y ago

Prisoner's Dilemma: Two members, A and B, are being driven around Silicon Valley and possesses every modern means of communication with each other. The bank holding their funds will collapse, but only if both of them send a globally accessible message advising everyone in the world to remove their funds from the bank. I've run some simulations in Python-- the best I can get is for one of the members to learn to refrain from resending the first member's global message 32% of the time. (But be careful with this-- once B accidentally escaped the simulation and shot out a tweet that caused a small ruckus for an investment bank in Omaha.)

pcarolan 4y ago
You’re assuming homogeneous agents. In other words, no leaders; no whales. The real world doesn’t work like this.