Gamification

produce public goods in an adversarial environment- where bad actors will try to game the system

Gamification

Byzantine Generals Problem

The Byzantine Generals problem describes the difficulty that decentralized systems have in agreeing on a single truth - and was a problem that plagued monetary systems for a long time until the invention of Bitcoin.

The mechanism that started it all

Uncoordinated Attack

Leading to Defeat

The game theory behind this problem is as follows: Several generals are besieging a town called Byzantium. They have surrounded the city, but they must collectively decide to attack. If all of the generals attack at the same time, they win. But if they attack at different times, they lose. The messages between the generals may have been intercepted and deceptively sent by their enemies. How can the generals organize to solve the problem?

In order to add information (or blocks), to the blockchain, a member of the network must publish proof that they invested work into creating the block. This work imposes large costs on the creator, and thus incentivizes them to publish honest information. Because the rules are objective, there can be no disagreement or meddling with the information. The ruleset governing which transactions are valid and which are invalid is also objective, as is the system for determining who can mint new bitcoin

Byzantine Generals’ Problem

Coordinated Attack

Leading to Victory

If each player has chosen a strategy & no player can increase their own expected payoff by changing their strategy while the other players keep their own strategies unchanged, then it can be said that set of strategy choices constitutes a Nash equilibrium.

If a unique Nash equilibrium exists for a game, then all players can be rationally expected to converge to the state represented by the equilibrium

The Prisoners Dilemma

GreenPilled

The Prisoners Dilemma is a category of coordination game where the incentives of players diverge - and without a mechanism for coordination between players, a rational player will choose their own benefit at expense of other players.

Here’s how it works: Imagine two members of a criminal organization are arrested and imprisoned. Each prisoner has no means of communicating with the other.

Suppose the prosecutors lack sufficient evidence to convict the pair on the primary charge, but they have enough to convict both on a secondary charge.

Simultaneously, the prosecutors offer each prisoner a bargain. Each prisoner is given the opportunity either to betray the other by supply evidence that the other committed the crime, or to cooperate with the other by remaining silent. The possible outcomes are:

If player A and player B each betray the other, each of them serves 2 years in prison

If player A betrays player B but player B remains silent, player A will be set free and player B will serve 3 years in prison

If player A remains silent but player B betrays player A, player A will serve 3 years in prison and player B will be set free

If player A and player B both remain silent, both of them will serve only 1 year in prison (on the lesser charge).

As betraying the other player offers a greater reward than cooperating with them, all purely rational self-interested prisoners without the ability to coordinate will betray the other. Only mutual cooperation would yield greater reward - but with no way to coordinate towards that, it is not likely to happen.

ZERO Sum Games

A zero-sum game is a type of game in game theory where if one party loses, the other party wins, And visa versa.

Zero-sum games can include only 2 players or many many participants.

In financial markets, the investment mechanisms futures & options are considered zero-sum games. This is because the contracts represent agreements between 2 parties and, if 1 investor loses the wealth is transferred to another investor. In a zero-sum game, it is not possible for one party to advance its position w/o the other party suffering an equal and opposite loss.

Positive Sum Games

"Positive-sum" games, in game theory, are those games in which the sum of winnings & losses is greater than zero (net positive).

LIke Zero-sum games, Positive-sum games can include just two players or many many participants.

In positive sum games, it is possible for multiple parties (or all parties) to mutually benefit. As Regenerative Cryptoeconomics emphasizes games that are net-positive, it often involves designing positive sum games.

When Designing Coordination Games

To build mechanisms that are not fragile, design for mechanisms that are easier to defend than to attack (eg cheaper to coordinate than to defect).

The Matthew Effect

The Matthew Effect of accumulated advantage, is sometimes summarized by the adage "the rich get richer and the poor get poorer".

The concept is applicable to the cumulative advantage of economic capital - but can also apply to matters of fame or status or other types of resources.

Because the Matthew Effect is a repeatable pattern in human social systems, economic systems will typically consolidate in the hands of a rich elite.

Beating the Matthew Effect

The Matthew Effect is a fundamental law of economic systems, but that doesn’t mean that it cannot be mitigated.