This page has been archived and commenting is disabled.

Rock, Paper, Scissors... Life

Tyler Durden's picture




 

The structure behind the childhood pastime of rock, paper, scissors holds to modern game theory remarkably well for something so common to hungry college students contesting a final slice of 3 am pizza. As ConvergEx's Nick Colas explains, the optimal play choice is random, but human beings have real trouble fulfilling that mandate, as in the real world, life and human biases get in the way. And that, Colas notes, makes RPS a great tool for assessing how we make decisions in the real world – randomness is essentially impossible for humans, after all

Via ConvergEx's Nick Colas,

In today’s note we review some of the extensive academic work done by having research subjects play RPS in various formats and guises.  The big lessons: we have trouble thinking independently, we inadvertently pick favorites, and distractions really hurt rational decision making.  The best hints for winning RPS: rookies throw “Rock” on the first go, and “paper” is the least used choice of the three options.  When in doubt, go with that.  

There is an old Wall Street story, perhaps apocryphal, about a hedge fund manager who fell in love with a house in Greenwich in the mid-1990s.  This now-titan was just another guy with $100 million of walking around money at the time, so he could afford to tell the listing agent “I bid $10 million, cash” for the house, which was listed at $12 million.  The trouble was that the head of equities for a very large brokerage also wanted the house.  Not knowing our hero, he called the hedgie at work; “I will pay you $1 million to walk away.  My wife wants that house.”  Our now hedge fund master was offended.  His riposte: “Come to my house for dinner, and we’ll flip a coin for the house.  I don’t need the million.”  The offer only generated a dial tone.  But he got his house.

Games of chance are a popular way to settle disputes, and the oldest such challenge is Rock-Paper-Scissors (RPS).  Its roots go back hundreds of years in Asian societies, and its long lasting appeal comes from both an inherent simplicity and the ability for the dedicated individual to improve through practice.  The basic rules, where something beats one thing and is beaten by another, generate a stable system that should generate random results.  It is a coin toss without the coin, ideally. 
 
In the real world, however, things are far from ideal.  RPS is, in fact, a useful example of how easy it is to skew the results of a theoretically balanced construct once you introduce the human element to the mix.  Academics and researchers from fields as disparate as mathematics to behavioral psychology actually incorporate RPS into their experiments.  And it doesn’t take long to find some lessons for investing and even life.  We culled through some of the more widely cited experiments using the game as well as other source material and it wasn’t too hard to generate a list of key learnings.  Call them RPS 101…
 
Lesson #1 – People who need people aren’t lucky at RPS.  The most recent high profile RPS experiment hails from China and was published just a few days ago.  Researchers had 360 college students play 300 rounds of the game, noting their choices each time.  They found that if a player lost, they were likely to throw a different choice in the next game.  Moreover, the sequence of their choices tended to mirror rock, then paper, then scissors, just as in the name of the game itself.  Winners tended to choose their winning throw again. Win with rock against scissors, throw rock again.   Not random.  Not even a little.
 
This obviously goes against the ‘Smart’ way to play (be as random as possible), and there are other experiments that support the notion that people have trouble thinking independently as they make sequential choices.  Researchers at Indiana University found that, using a modified version of RPS, they could get subjects to cluster around certain outcomes rather than think independently.  Researchers in London took another twist – blindfolding the participants to see if that made any difference to the number of ties (both parties choosing the same option).  When both players were blindfolded, the number of ties was 33.3%, as expected.  But when only one was blindfolded, that rose to 36.3%.  Not a large jump, but big enough to convince researchers that people do unconsciously mirror each other if they can.
 
Lesson #2 – Distractions matter a lot.  If you search online for RPS tournaments – and there are a lot of them around the world – you will find that many participants dress with a certain flair.  Sartorial statements range from Cat-in-the-hat style getups to the genuinely racy.  Things that make South Beach resemble colonial Williamsburg.  That’s not exhibitionism (mostly, anyway); that’s strategy.  A distracted opponent will be more predictable and easier to read.
 
A fellow named Graham Walker, a five-time organizer of large scale RPS tournaments and book author on the subject, has some pointers for players:

Rookies play “Rock” on the first go more often than not, especially if they are male.  Experienced players try paper first, but they may be trumped by someone playing the fool but actually savvy to the game with scissors.  Pass the iocane powder if you followed that…

 

Inexperienced players will not usually play the same throw three times in a row.  So after two, look for one of the other options.

 

Rookies will also play the option that would have beaten their last throw.

 

Mess with their heads.  Tell your opponent what you are going to throw.  And then follow through, sometimes…

 

Actual choices made in competition don’t follow the 33/33/33% paradigm.  Walker estimates that “Paper” only gets the nod 29.6% of the time.  So when in doubt, go with that.

 

Watch others play and look for “Tells”.  Just like in poker, no one is a perfect ramdomizing machine with zero give-aways.  You aren’t playing the hand, you are playing the other players….

Lesson #3 – RPS is life, or at least the part of life that makes investment and other choices.  Behavioral finance has made its fame and fortune telling us that humans are really bad at making rational choices consistently.  The lessons behind RPS studies support that thesis and expand it.  We are, at every level, predictable creatures of habit.  Even when the challenge is something simple, like choosing the numbers 1, 2 or 3 or their RPS equivalent.
 
And yet in this downbeat message, there are signs of hope.
  Every human – and certainly every group of humans – has certain predictable traits.  Rookies go with “Rock” – and they buy every momentum name that makes it to the top half of the fold in the newspaper.  We all tend to underweight “Paper” because it feels flimsy.  And who exactly was overweight bonds at the end of last year?  Yep, not many people.  Rates were going higher – bonds were too flimsy to own.
 
The bottom line is that RPS is a lot like investing.  You don’t have to beat the odds – you have to beat the opponent by finding their patterns and weaknesses.  And rest assured – they have them.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Sat, 05/10/2014 - 22:09 | 4747301 NoDebt
NoDebt's picture

Ugh.  Tedious.

Sat, 05/10/2014 - 22:15 | 4747316 medium giraffe
medium giraffe's picture

Fucking tenuous too dude.  wtf? 

Sat, 05/10/2014 - 22:32 | 4747358 palmereldritch
palmereldritch's picture

 Crock, fiat, shysters

Sun, 05/11/2014 - 03:51 | 4747650 strannick
strannick's picture

"Nothing beats rock"

-Homer Simpson

Sun, 05/11/2014 - 07:08 | 4747729 new game
new game's picture

iam powerless over the rock...

Sun, 05/11/2014 - 07:23 | 4747745 negative rates
negative rates's picture

Shoot the index finger, it's dynamite and beats everything.

Mon, 05/12/2014 - 03:23 | 4750051 Ghordius
Ghordius's picture

so the author is just affirming that he sees investment as a game. which probably fits his experience in this casino mentality financial market environment where everybody's grandmother is engaged in bets, particularly shorting ones

Sat, 05/10/2014 - 22:11 | 4747306 Groundhog Day
Groundhog Day's picture

I just did...buy DIA the odds are in your favor

Sat, 05/10/2014 - 22:16 | 4747320 Aussiekiwi
Aussiekiwi's picture

well, thats 10 minutes of my life I will never get back.

Sat, 05/10/2014 - 22:20 | 4747323 Kirk2NCC1701
Kirk2NCC1701's picture

In the case of the Ukraine... the WH and Affiliates think of the RPS game as:

  Rock = Bullets & Bombs

  Paper = Debt

  Scissors = Propaganda

Bet accordingly.

Sat, 05/10/2014 - 22:24 | 4747337 Cabreado
Cabreado's picture

The only thing I can figure is that embarrassing articles like this are perfectly normal symptoms of end-stage empire, somewhere in that black hole defined by cluelessness and pretending to have control over the situation.

It is important though, as it provides evidence of how we got here.

Sat, 05/10/2014 - 22:27 | 4747347 williambanzai7
williambanzai7's picture

g

Sat, 05/10/2014 - 22:34 | 4747363 Platinum
Platinum's picture

Provided the person giving the blowjob watches her molars,incisors, and canines.

Sat, 05/10/2014 - 22:53 | 4747396 medium giraffe
medium giraffe's picture

See, I agree.  Better to go with a later model.  False teeth, pop those right out, years of experience, good diaphragm development.  You can't go wrong.

Sun, 05/11/2014 - 13:16 | 4748267 whippet
whippet's picture

Herpes beats a blowjob. 

Sat, 05/10/2014 - 22:30 | 4747355 Whoa Dammit
Whoa Dammit's picture

Rock, Paper, Scissors....Mail Truck

Postal carrier dies after being run over by own mail truck:

http://www.wsbtv.com/news/news/local/postal-carrier-dies-after-being-run...

Sat, 05/10/2014 - 22:44 | 4747357 Platinum
Platinum's picture

I remember playing this as a young kid. It went by various names. What I noticed, was that new items were added by a segment of the school yard that we all liked.

Gun > Scissors,Paper,Rock < Dynamite  | Dynamite *Thumbs up fist* > Gun,Rock,Paper < Scissors.

I remember visiting my Elementary School a few years later and watched kids play. One kid put his hands together high above his head, and said "God!".

"What beats God?" asked the player of Dynamite.

"Nothing."

The kid walked away shaking his head when another kid walked up and asked to play.

"God" the one kid did again as the other kid sprouted two triumphant devil horns from his hands and said with a smile "The Devil!". There was a quick argument and then a fight.

 

I wonder if there is enough room for RPSGD/RPSDG in our 31 flavors world...

 

*EDIT* We preferred RPS overall, but we played that and variants from time to time.  Apparently there is an RPS-101...

 

Sat, 05/10/2014 - 22:58 | 4747411 Matt
Matt's picture

Rock, Paper, Scissors, Lizard, Spock. Each beats two, loses to two, and ties with itself.

http://en.wikipedia.org/wiki/Rock-paper-scissors-lizard-Spock

Sat, 05/10/2014 - 22:59 | 4747414 DaveA
DaveA's picture

... and also RPS-7, 9, 11, 15, and 25, complete with diagrams and mnemonic sentences:

http://www.umop.com/rps.htm

Sat, 05/10/2014 - 23:03 | 4747423 0b1knob
0b1knob's picture

Rock paper scissors is like so last week.

Rock Paper Scissors Spock Lizard is the new game.

https://en.wikipedia.org/wiki/Rock-paper-scissors-lizard-spock

 

Sat, 05/10/2014 - 23:37 | 4747485 3vallees
3vallees's picture

Rock, paper, scissors, lizard, Spock video

http://www.youtube.com/watch?v=x5Q6-wMx-K8

Sat, 05/10/2014 - 23:41 | 4747488 So Close
So Close's picture

Most people would rather die than think.   Especially when the thought is really simply like a little humility might uncover a simple truth that makes all the differance.  I have been up over 200% in my "correct" short term calls in my trading this week.  And while happy kept thinking, "this is the home run."  A ten bagger just waiting to happen.  Net net.  I am down 50%   I keep throwing rock when writing down the profit from ringing the cash register would have done just fine.   I see that it is not my ideas that are wrong... but that I keep pushing them too far.  Expecting too much.  And losing.  Lack of discpline?  Too much pride?  

Sat, 05/10/2014 - 23:58 | 4747507 DeusHedge
DeusHedge's picture

:3

Sun, 05/11/2014 - 01:21 | 4747597 ebworthen
ebworthen's picture

I prefer scissors because they cut paper, and run faster than rock.

Sun, 05/11/2014 - 03:04 | 4747635 I Write Code
I Write Code's picture

Amusing.

I would not say that "random" is optimal, as two random players will have random results.  But I guess it's "better" than say playing "rock" 100% of the time.

Sun, 05/11/2014 - 08:28 | 4747798 blindman
blindman's picture

r.p.s., could it be genetics too?
Austin Lounge Lizards - The Shallow End of the Gene Pool
http://www.youtube.com/watch?v=Cplrc2Z2FiE
.
" ..some natural laws will have to bend
to get me from the shallow end
of the gene pool." l.l.

Sun, 05/11/2014 - 09:31 | 4747872 Took Red Pill
Took Red Pill's picture

"Rookies go with Rock.  We all tend to underweight Paper because it feels flimsy." I'll take rock (hard assets like gold) over paper assets anyday!

Sun, 05/11/2014 - 09:47 | 4747904 Pseudonymous
Pseudonymous's picture

Dice, bitchez!

They are also good for generating easy to remember and hard to guess passwords. Also, for generating a private key for storing bitcoins with absolute peace of mind that no one can steal it from you.

Sun, 05/11/2014 - 10:51 | 4747990 d edwards
d edwards's picture

I play rock, paper, scissors, gun.

 

I always win! :-D

Sun, 05/11/2014 - 11:55 | 4748135 CHX
CHX's picture

Phyzz, bitchezz. Don't play the paper shuffle, that's their domain.

Sun, 05/11/2014 - 16:55 | 4748805 the0ther
the0ther's picture

New York Times has a nice RPS game and I played against the hard opponent and won. I am random as fuck.

Sun, 05/11/2014 - 17:02 | 4748814 NoTTD
NoTTD's picture

Not bad but it can't compete with "Rock, Paper, Scissors, Lizard, Spock".

 

P.S.  Ok, I see I'm about 8th with this.

Sun, 05/11/2014 - 18:59 | 4749115 hairball48
hairball48's picture

Einstein said something like, "Make things as simple as possible, but no simpler."

We played RPS as kids all the time. Three choices is simpler than any bigger number. No change needed.

The takeaway here is about "critical thinking".

Today's education system is making sure that critical thinking is NOT in the program. Many of the millenials I see can't think their way out of a paper sack....and it's not entirely their fault.

Today's education system teaches that "critical thinking" is somehow cruel and it's "unfair" that some people are smarter than others. The sports analogy is that "winning" is bad, no longer important. We should all be happy just to play the game.

Makes me fucking puke.

I'm glad I'm old and won't live to see AMERICA  become "amerika"

 

Do NOT follow this link or you will be banned from the site!