Modeling Cycles of Grift with Evolutionary Game Theory
We are in a golden age of grift. Where adventurers once flocked to California or the Yukon because “there was gold in them thar hills,” the fastest way to get rich today is by fleecing suckers. We’ve got crypto rug pulls, meme stocks, nutritional supplements, MLMs—anything to make a quick buck.
Fraud is hardly a new phenomenon. The Great Depression brought with it a wave of con artists, mythologized in movies such as Paper Moon or The Sting. A century earlier, Mark Twain wrote about the innumerable swindlers and card sharps operating along the Mississippi River; indeed, Twain himself lost most of his fortune in fraudulent investment schemes. Medievalist Umberto Eco wrote several novels exploring frauds, liars, and magical thinkers in the Middle Ages. Such men thrived thanks to superstition and poor record keeping.
Is the current boom the new normal? The start of a slide into a new post-truth dark age? Or are we simply experiencing yet another high watermark in a cycle as old as civilization? If it is cyclic, is it driven by external circumstances such as war or poverty, or does it arise naturally from the dynamics of the system?
The answer, I’d argue, lies in a moderately obscure mathematical theory from the 1980s.
Evolutionary Game Theory
The version of game theory most people have seen is the rational-agent sort: perfectly informed players maximize utility, best responses snap into place, and equilibria have the clean finality of a solved puzzle. Evolutionary Game Theory (EGT) is different. It assumes that all strategies exist in the population and that success in games slowly increases the relative proportion of that strategy in the population over time. Strategies that earn higher payoffs become more common. Strategies that earn lower payoffs decline.
This is the framework John Maynard Smith popularized in Evolution and the Theory of Games. The book is now mostly read by specialists, but it contains a small number of ideas that are so widely applicable that once you know about them, you start seeing them everywhere.
I’d like to tackle the problem of understanding the cycle of grift by proposing a novel EGT model. The model is similar to the classic Hawks, Doves, & Retaliator model (which I’ll come back to later) but has a different payoff matrix that leads to very different dynamics.
The GSM Model
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