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The reality game

Author

Listed:
  • Cherkashin, Dmitriy
  • Farmer, J. Doyne
  • Lloyd, Seth

Abstract

We introduce an evolutionary game with feedback between perception and reality, which we call the reality game. It is a game of chance in which the probabilities for different objective outcomes (e.g. heads or tails in a coin toss) depend on the amount wagered on those outcomes. By varying the 'reality map', which relates the amount wagered to the probability of the outcome, it is possible to move continuously from a purely objective game in which probabilities have no dependence on wagers to a purely subjective game in which probabilities equal the amount wagered. We study self-reinforcing games, in which betting more on an outcome increases its odds, and self-defeating games, in which the opposite is true. This is investigated in and out of equilibrium, with and without rational players, and both numerically and analytically. We introduce a method of measuring the inefficiency of the game, similar to measuring the magnitude of the arbitrage opportunities in a financial market. We prove that the inefficiency converges to equilibrium as a power law with an extremely slow rate of convergence: the more subjective the game, the slower the convergence.

Suggested Citation

  • Cherkashin, Dmitriy & Farmer, J. Doyne & Lloyd, Seth, 2009. "The reality game," Journal of Economic Dynamics and Control, Elsevier, vol. 33(5), pages 1091-1105, May.
    • Handle: RePEc:eee:dyncon:v:33:y:2009:i:5:p:1091-1105
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    • Dmitriy Cherkashin & J. Doyne Farmer & Seth Lloyd, 2009. "The Reality Game," Papers 0902.0100, arXiv.org, revised Feb 2009.

    References listed on IDEAS

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    2. Hilbert, Martin, 2016. "Formal definitions of information and knowledge and their role in growth through structural change," Structural Change and Economic Dynamics, Elsevier, vol. 38(C), pages 69-82.

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