Game Theory, Relationships, and the “If They Cared” Dilemma

The prisoner’s dilemma has long annoyed me for assuming the prosecutor is actually going to be fair or tell the truth. I think the dilemma would be more realistic with Ken Kratz as the prosecutor, albeit the game theory elements would be eviscerated.

However, if we apply the dilemma to different examples, bastardizing it to some extent, it can be more realistic. Generally, the dilemma is evident in situations where working together would benefit both parties, but if only one moves to work together (e.g., “extending the olive branch”), he or she will suffer. If trust can be established, then the risk of nonreciprocation can be minimized (mutually assured cooperation, which is evidently a term I just made up). Then, both parties can benefit. These benefits are not necessarily limited to one instance—they may continue on an ongoing basis in business, academic, or personal relationships.

Examples of the prisoner’s dilemma in business relationships are obvious. Firms or even two departments within the same firm might refuse to share information, resulting in needless duplicated work for both parties, because they cannot be assured of reciprocation. If one party shares information yet does not receive anything back, the sharing party may be in a worse position than had they shared nothing at all (similar to counterparty risk). Huge corporations are built on mediating counterparty risk (e.g., eBay, or practically any corporation that acts as a middleman).

It may be less obvious that this bulwark of game theory can be applied to interpersonal relationships, including romantic relationships. The “if they cared” dilemma is the situation where two courting individuals refuse to text each other (or take some other action) because if the other person cared, he or she would already have done so. Ignoring the shakiness of this logic, we can see that if both individuals subscribe to this perspective, it can easily be the death knell for the courtship. If both assume the other party should take an action first, then neither may act and both may chalk it up to people being assholes in general, rather than recognizing the dilemma that exists if both parties subscribe to “if they cared” logic.

Obviously, one party needs to send a loving text message to the other, yet receiving a response to such a text message does not allow the “if they cared” hypothesis to be tested. Attempting to determine whether another person cares based on that person spontaneously texting is completely short-circuited by prompting them with a text message. If you text first, you cannot tell whether they cared or not!

However, if the other person is thinking the same thing about you, then you both will never text again. Agentic contact, that is, contact that is deliberately initiated via one’s personal agency, is impossible to tease out if you happen to re-ignite the courtship by texting first or bumping into each other in-person. While the cost of texting first can be characterized in terms of losing face or appearing desperate, I contend this is a trivial issue—the real cost is in losing the ability to test for agentic contact (as a proxy for actual caring).

“If they cared, they would do X” is fairly bad logic. However, it is surprisingly common, and represents a dilemma by which many people feel rebuffed and become jaded. Inherently, the prisoner’s dilemma and “if they cared” dilemma are both starkly opposed to the zero-sum game model. If we were to gamify dating, if both individuals care, both are losing points by not texting. Each thinks the other should demonstrate caring by texting first. However, both could gain points by texting, if they had mutually assured cooperation (e.g., could know the other individual cares). If not, the big risk is they are being misled, unable to ascertain the true level of commitment of the other party due to their inability to refrain from contact. While pedantic to modern Westerners, the implications for human evolutionary biology are engrossing.

What Is Financial Independence?

Here are my notes from a speech I gave yesterday at the Port Orange Toastmasters club contest. While I came in 2nd out of 3 contestants (Dr. Charles Carroll won with his speech on smiles), it was a great experience to compete in a club contest for the first time, and we had a larger audience than usual—about 25 people. I actually ended up speaking without the notes at all, though I set them on the table as a psychological device and could have looked at them at any time.

What Is Financial Independence?
Speech by Richard Thripp | 5–7 minutes
Port Orange Toastmasters Club Contest
February 22, 2017

How to FIRE yourself and never work another day in your life unless you absolutely want to.

Imagine never having to work another day in your life
When?
You might think at Age 65 or Age 70
What if it could be earlier?
FIRE yourself
That’s F-I-R-E
Financial Independence and Retire Early
Big online community: Reddit, blogs, et cetera
Many retiring at 40 or even 30
What do you need to FIRE yourself?
Ideally, about 20 times your annual cost-of-living
This is a lot
40 times a 6-month emergency fund
If your cost-of-living is $50,000 per year, you need to invest 20 times that = $1 million
Live off dividends
Invest where? Mostly whole-market or S&P 500 index funds [with Vanguard]
Max out 401(k) and IRAs for tax savings
NOT money market savings — must be stocks [Can put 401(k) + IRAs in stocks]
Whole market reduces risk
Long time horizon reduces risk
After maxing retirement accounts, use taxable investment accounts
Yield of whole-market index fund = Average 7%, INFLATION ADJUSTED, per year
Money doubles every 10 years
MUCH HARDER to achieve financial independence without stocks
Long-term (> 1 year) capital gains tax only 20% max, compared to 39.6% for earned income
What is financial independence?
The ability to not work another day in your life

It doesn’t mean you MUST not work
Many people enjoy working
If freelancing, et cetera, the 20× rule might become the 10× rule
HOW to become financially independent?
MUST save tons of money
Maybe 50% of income
Hard if you’re a “shop-a-holic”
Hard if you have kids
But, many tricks
Example: Moving to a lower cost-of-living area when retiring
MUST change your money mindset
More tools available than ever
Get online and start reading
FIRE yourself


Here are the notes I took on my speech performance immediately after giving the speech. Yes, I wrote them in third person, which is weird.

How do you become financially independent?
Save save save
Invest in stocks
Low-fee index funds
Told story about TIAA charging 14% management fees and making it very hard to get money out
Trump’s in; Stock market going “bonkers” — why was my TIAA money going down?
Richard engaged audience many times by asking them to raise their hand — how many know what financial independence is? How many believe a CD is a good vehicle (none)? How many believe all bonds is good (none)? Then, Richard joked how smart the audience was. He also joked about being able to leave a job where the boss is making inappropriate jokes requiring an uncomfortable smile to keep one’s job (referencing Charles’s speech).


A fellow Toastmaster approached me after the speech, incredulous that the stock market produces 7% annualized inflation-adjusted returns on average. Here is additional information I wrote for him:

Here is a source on the 7% annual average returns in whole-market or S&P 500 index mutual funds:

www.thesimpledollar.com/where-does-7-come-from-when-it-comes-to-long-term-stock-returns/

The FIRE (Financial Independence, Retire Early) calculator at FIREcalc.com can show you projected returns based on all prior year periods based on how much money you intend to retire with and how many years the money needs to last.

If you have enough money, you can just live off the dividends of this index fund: personal.vanguard.com/us/funds/snapshot?FundId=0585&FundIntExt=INT

Of course, we are in an unusual time right now (market is up 22% in the past year). It’s hard to say whether investing now is a good idea (is the market in a bubble?), but generally, trying to time the market doesn’t work well, so most people advise investing now, or a little bit each month.


More thoughts:

Obviously, if you put your money in stocks just for one year, there is about a 25% chance you will lose money, and maybe a 40% chance you won’t earn 7% returns. But, if the money is in there 10 years, the odds of at least 7% annualized inflation-adjusted returns are higher (which means your money could double—1.07^10 is 1.97), and over 20, 30, or 40 years, even higher still. This is why a long time horizon is important, and why retiring early with hefty investments is not only psychologically powerful, but financially powerful.

For further reading, I suggest James Collins’s blog and the Financial Independence Reddit forum.

How the Doctrine of Diversification Misses the Mark for Personal Financial Portfolios

Traditional financial wisdom says that diversification should be used to mitigate risk, by this recommendation operates only at the portfolio level. Typically, older individuals, closer to retirement age, are advised to put a greater percentage of their money in less risky investments like bonds and CDs, while younger individuals should have an aggressive, growth-oriented portfolio of mostly stocks.

However, this approach, by itself, fails to consider the underlying need for avoiding financial loss, which in many cases will never become more than unrealized loss. That is to say, as long as the money is not needed during the period the loss is occurring and ongoing, the primary benefit of diversification—the ability to withdraw money during a bear market without losing as much—is unrealized.

Fidelity’s article on diversification explains how a diversified portfolio of 70% stocks and 30% bonds and T-bills would have significantly outperformed a 100% stock portfolio from January 2008 to February 2009 (the 2008 financial crisis), with –35.0% returns instead of –49.7% returns. However, when considering wider time periods, the diversified portfolio underperforms the 100% stock portfolio. We can effectively characterize diversification as a hedge against risk, reducing volatility at the cost of decreased returns over longer time horizons.

However, one’s future discretionary income can actually be interpreted as a hedge against loss. That is, if an individual or family lives well below their means, they may be able to maintain a more aggressive portfolio, because they can fall back on their income in bear markets rather than having to cash in their investments. A danger with this approach is that financial recessions can result in layoffs and reduced income. However, if one’s income is relatively reliable (e.g., work that is somewhat “recession proof,” Social Security benefits, and certain types of pensions), this danger is mitigated. Thus, if a young-old person receiving Social Security (SS) benefits wishes to continue aggressive growth of their investments for whatever reason, they can consider their SS benefits a hedge against investment risk. For example, if they live comfortably on $50,000 per year and receive $18,000 per year in SS benefits, they only need $32,000 in additional income per year. To the extent this money must be withdrawn from aggressive investments to fund one’s living expenses, the income is a hedge against downside potential, because overall, stocks continue marching upward quite vigorously, even though they may go down in many calendar years. (I am, of course, referring to broad mutual funds rather than individual stocks or sectors.)

Research shows that trying to time the market is not an effective approach (e.g., Henriksson, 1984). Consequently, rather than trying to time the market, and without concern to tax-advantaged accounts or tax brackets with respect to withdrawals, the best time to put money in stocks is now, in a lump sum (not dollar cost averaging), and the best time to withdraw money is as far in the future as possible, as needed (that is, avoid withdrawing a lump sum when only a fraction of the money is needed at a particular time). This is because overall, the market marches upward, despite volatility along the way. Therefore, the largest gains, on average, will be yielded by placing money in aggressive investments (stocks, not bonds or CDs) for the longest continuous length of time. For most people, attempting to time the markets on either end (investing or divesting) is not only an exercise in futility, but will be detrimental.

This may sound contradictory. If I recommend avoiding market timing because it doesn’t work, why would I argue that the primary benefit of diversification can be nullified by market timing? Actually, what I am talking about is not market timing, but rather avoiding being compelled to liquidate a position due to the financial hardship during a bear market. In a recession, not only will your investment portfolio lose value—you may also lose your job or take a pay cut, your home will decline in value, et cetera. Inasmuch as the value of diversification lies in being able to liquidate better-performing assets in a recession to make up for loss of income and other extraneous factors, the value of aggressive investing lies in making increased gains overall.

Conjecture: If withdrawals are stochastic in timing, then on average, the returns from a diversified portfolio will always be inferior to a 100% stock portfolio.

The ability to use reliable discretionary income as a hedge against loss enables one to avoid compelled liquidation during a recession, which, absent emotional issues, decouples withdraw timing from market factors and consequently reduces the value of diversification. Therefore, a portfolio analysis that does not consider debts or income may have substantial opportunity costs if a client over-diversifies due to having reliable discretionary income which is not considered, or under-diversifies due to having fragile income or liabilities which are not considered. In summary, as a doctrine, diversification should be titrated with a holistic analysis of one’s overall situation.

On the Purported Essentiality of Higher Education for the Adult Learner

Written on January 29, 2017 for an assignment in my Spring 2017 course, IDS 6504: Adult Learning, at University of Central Florida.

1. StatementQuote: The transformation of the world economy over the past several decades has put a premium on an educated workforce. A more fluid and volatile global economy is characterized by more frequent job and career change, which is an important factor in the growing demand for continual learning and skill enhancement. Because of these changes, it is clear that current and future generations of adult workers seeking employment and better quality of life will require more education credentials. Thus 2- and 4-year degrees, certificate programs, and workforce educational and training opportunities are becoming increasingly essential for all workers. (Hansman & Mott, 2010, pp. 19–20)

2. Explanation – There is a lot to unpack in this statement. First, we have to take Hansman and Mott’s arguments with a grain of salt—they are university professors and administrators, who are obviously not a neutral source to ask about the necessity of their practice. It is difficult to imagine them saying that higher education is becoming increasing irrelevant, even if it were true.

Next, we can contrast this 2010 book chapter, having been published after the 2008 financial crisis, with the Reach Higher, America report (National Commission on Adult Literacy, 2008), which was published just three months before the worst part of the financial crisis. The Reach Higher report complains that American adults are less educated than the generation before, unlike every other OECD free-market country. While it is unfair and inaccurate to blame the financial crisis primarily on Americans’ lack of education, in a time of economic recession, high-value skills are essential to obtaining a living wage. I would contend that Hansman and Mott (2010) would not have worded their arguments as strongly had they been writing a few years earlier, when times were good.

However, according to the U.S. Census Bureau (2009), in 2009, of adults aged 25 and older, 85% reported having a high school diploma or equivalent and 28% reported having a bachelor’s degree or higher. These statistics are higher than ever before. To say that Americans are less educated is a misnomer, at least with respect to formal attainment. Nonetheless, it is possible they are completing secondary and post-secondary education yet coming away poorly educated or educated in subjects that do not provide value to employers. If so, educators, administrators, and policymakers share much of the blame.

Economically, globalization is characterized as a foregone conclusion, except perhaps by nationalists like President Trump. However, in lieu of protectionist policies, it becomes necessary for adult learners to develop increasingly specialized and high-value skills to merit a living wage in the open market. Under globalization-friendly policies, coupled with mechanical and technological advancements, jobs can be outsourced to foreigners at a small fraction of the cost of an American worker. First, this applied to durable goods, and now, in the Internet age, it applies even to U.S.-based technical positions, and certainly any jobs that can be performed remotely (e.g., customer service). For example, Americans working in information technology (I.T.) frequently complain about reduced wages or unemployment due to skilled foreigners with H-1B visas flooding the American workforce. These foreign workers are willing to work for far lower wages than Americans were previously accustomed to.

Fundamentally, however, a significant component of the “growing demand for continual learning” (Hansman & Mott, 2010, p. 19) is induced demand. If not for Pell grants, student loans, tax money, and government guarantees, it is unlikely that many of the faculty and staff—even those employed at University of Central Florida (UCF)—would be able to sustain their tenure, salaries, or quality of life. Moreover, the federal government offers student loans at unnaturally low interest rates even to non-creditworthy borrowers pursuing unsalable degrees, further incentivizing perverse educational choices among Americans. Ironically, this may be even more destructive with respect to private institutions. For example, private universities like Keiser University and University of Phoenix are over-priced and fairly pointless compared to public institutions like UCF, and yet ill-advised Americans can be suckered into ridiculous and unnecessary debt burdens due to the illogical availability of student loans for private institutions with low return-on-investment (ROI).

The burgeoning sector of the American economy that operates with relative independence from market forces—government and government-sponsored or government-like enterprises (healthcare, education, large corporations, etc.)—is now the ticket to the American dream. Yes, advanced degrees are usually required. However, I contend that in many cases, the day-to-day duties in a surprising proportion of these positions could be performed by high-functioning high school dropouts with a few months of well-executed training.


3. Statement – “Nearly half of new job growth in the first decade of the 21st century required college or other postsecondary education” (Hansman & Mott, 2010, p. 19).

4. Explanation – Once again, the temptation to conflate formal education with real education is strong. What may really be happening here is that employers are requiring a 4-year degree as a weed-out. My Psychology B.S. does not make me any better an office worker, but in an employer’s market, employers are flooded with desperate applicants. Thus, they use shortcuts to thin the herd. This may be one of the antecedents of the bizarre credential-inflation phenomenon we have seen over the past 50 years. Even quite recently, new advanced degrees like the Doctor of Nursing Practice (DNP) have emerged, arguably to pander to this phenomenon. The cost to the adult learner is staggering. If a job that required 12 years education (Grades 1–12) in my grandfather’s time now requires 17 (Grades K–12 + Bachelor’s), the costs are huge, even to young adults who push straight through. (In truth, completing a 4-year degree in 4 years or less has actually become somewhat unusual.) Entering the workforce at Age 22 with $50,000 in debt versus Age 18 with no debt is a massive handicap, and this is a fairly conservative debt estimate. The 18-year-old can invest in retirement funds and brokerage accounts perhaps 10 years ahead of his/her college-educated counterpart, which can consistently produce a 7% inflation-adjusted annual return. Obviously, a 10-year head start yields an increase of 1.07^10 = 1.97× in retirement, which is almost double.

Consequently, the full-time adult learner pursues education at a massive opportunity cost. It is important for learners and educators to internalize this knowledge and act accordingly. If Americans desire the overwhelming, comprehensive advantages that high socioeconomic status (SES) delivers for themselves and their progeny, then as adult learners, it may be necessary to curate their programs of study with actuarial ruthlessness.


References (Note: Certain references are only included in the narrative as hyperlinks)

United States Census Bureau (2009). Educational attainment in the United States: 2009. Retrieved from http://www.census.gov/prod/2012pubs/p20-566.pdf

Hansman, C. A., & Mott, V. W. (2010). Adult learners. In C. E. Kasworm, A. D. Rose, & J. M. Ross-Gordon (Eds.), Handbook of Adult and Continuing Education (2010 ed.; pp. 13–23). Thousand Oaks, CA: SAGE Publications. Retrieved from http://www.sagepub.com/sites/default/files/upm-binaries/34503_Chapter1.pdf

National Commission on Adult Literacy. (2008, June). Reach higher, America: Overcoming crisis in the U.S. workforce. Retrieved from http://files.eric.ed.gov/fulltext/ED506605.pdf

Personal Limitations and Limiting Beliefs in Adult Learners

On January 29, 2017, added my replies to others to this blog post.

A brief exploration of my emergent beliefs about adult learning, written on January 22, 2017 for an assignment in my Spring 2017 course, IDS 6504: Adult Learning, at University of Central Florida. Many terms I have included, coined, or adapted are not operationally defined.

1. BeliefDisciplined and self-aware adult learners recognize their time, energy, and willpower is highly limited; consequently, under ideal psychological and physiological conditions they concentrate their efforts on what is highly interesting or useful.

2. Explanation – The feeling of infinite time and potentialities experienced by teenagers and twenty-somethings gradually evaporates, giving way through self-agency and external influences to realistic pragmatism, unhappy disillusionment, or something in-between. Those who recognize their personal limitations can focus pragmatically on what brings them the most happiness or benefit, particularly when they feel secure, well-rested, and are in a conducive learning environment. Sometimes, this may even involve strengthening areas where they already excel, rather than shoring up areas that require overwhelming efforts to yield minimal gains. However, the disciplined and self-aware adult learner is also able to direct their focus as appropriate to the goal at hand. For example, such an individual may focus on what s/he finds very interesting when learning in his/her spare time, but when it comes to formal or professional education, s/he recognizes the importance of pandering to syllabi, rubrics, requirements of courses or programs of study, and expectations of instructors or supervisors, which may involve learning or expressing interest in certain materials or tasks that are not of intrinsic interest, even though the overall course or program is of intrinsic interest. Finally, either consciously (ideal) or subconsciously (more common), such learners recognize the opportunity cost of learning, the value of creative and divergent thinking, the imperative to seek help and feedback early and repeatedly, and the value of strategic procrastination.


3. BeliefAdult learners are more susceptible than child learners to entrenched limiting beliefs operating globally and/or with respect to specific tasks or domains, including inferiority complexes, fixed mindset (entity theory of intelligence), performance-avoidance and mastery-avoidance goal orientations, social identity threat, and stereotype threat.

4. Explanation – While child learners may face limiting beliefs such as stereotype threat for mathematics among girls (often due to not fault of their own), adult learners may carry limiting beliefs from childhood or early adulthood with them as entrenched parts of their identities. For instance, many adults have a fixed mindset for their mathematical abilities, which can circumvent efforts to develop these skills. Such limiting beliefs are often based on a modicum of truth—for instance, it certainly is easier to learn a second language as a child than adult. However, the limiting belief often serves to prevent all progress, even when a great deal of progress was possible. The velocity at which the adult learner reaches the inflection point where a limiting belief is overturned is crucial to maximizing the degrees of freedom in his/her learning horizon. For example, it is not very useful if an adult at Age 70 finally overturns the limiting belief that she is not “college material.” However, if this limiting belief can be overturned at Age 35, the remaining potentialities (degrees of freedom) are far greater. On the other hand, past beliefs and knowledge can function as heuristics that allow the learner to quickly absorb instructional materials with an adequate level of fidelity. For example, the experienced academic may be able to quickly synthesize a journal article with a surprising degree of accuracy, just by reading the abstract and skimming key sections, tables, and figures. The adult learner’s experience is a double-edged sword, inflicting self-mutilation only to the extent that experienced-derived beliefs are inconsistent with reality. The disciplined and self-aware adult learner recognizes the search for truth as ongoing, iterative, and asymptotic. Moreover, s/he recognizes and rejects fallacies of logic and reasoning such as the all-or-nothing fallacy.


Replies to discussion posts by others, written by me on January 28, 2017.

Belief to which I am responding: “Whenever a person cares about the topic they are learning about, they do a better job of learning about it.”

My response:

Sometimes, we don’t know what we find interesting. We may think we find a particular topic interesting, and yet be bored and unmotivated in a formal course on the topic. This can be related to how the topic is framed and presented in the curriculum and by the instructor, a mismatch between our perceived and actual interests, or a combination of the two. Further, I have often found myself highly interested in a topic that is of no practical relevance to my life or real-world plans. One only has to look at the hordes of people interested in fictional worlds like World of Warcraft or A Song of Ice and Fire to see that humans are not necessarily most interested in what is most relevant to their professional or financial success, even as adults.

Regarding high-level maths, it has always amused me that one of the main uses for learning these is becoming a math teacher. Now, even engineers and statisticians rely on computer programs to perform many of their calculations. Of course, people must know how to design, develop, improve, and trouble-shoot these programs, but just as farming has become concentrated in the hands of a few experts who perform it at massive scale, so might knowledge of higher maths become unnecessary for many. In fact, this simplification is ongoing in multiple domains—for example, we have a whole new generation of web entrepreneurs who don’t even know how to write JavaScript, PHP or ASP.NET, SQL, or advanced HTML and CSS thanks to software suites (e.g., WordPress, Joomla) that do much of the difficult work for you.


Belief to which I am responding: “Adult learners have a better grasp on what their learning style is, and can then tailor their education in a way that best suits them.”

My response:

Learning styles have been thoroughly debunked, but what you are describing here sounds more like learning preferences (and in fact you even used the word “preference” in your explanation), which have validity. The learning styles myth is typically summed up in the belief that some learners are better served by visual content, while others might learn better in auditory, linguistic, or kinesthetic modalities. In fact, a more accurate characterization is that particular content is best learned in particular modalities—if making a balloon animal is best learned visually, then it is best learned that way for all (or most) learners, even if a learner claims to have a linguistic learning style.

Using “learning styles” in the way you have is not incorrect, but the term just has too much baggage and must be abandoned, particularly if you attend conferences like the American Educational Research Association (AERA), lest you be lampooned by hordes of educational eggheads dying to pounce on usage of an educational proposition that has (a) been thoroughly and reliably discredited and (b) remains wildly popular and influential.

As for online versus face-to-face courses, I agree 100% that online courses work much better for those with busy schedules. Some people may ask, why even bother? If you are going to learn online, why not just use Coursera, Udemy, Wikipedia, et cetera? Well, there are plenty of reasons! Particularly as an educator, academic credentials are very important and cannot be earned via Wikipedia. You can’t go in for an interview to be a teacher, instructor, or professor without the requisite academic degrees. Being enrolled at a university provides access to journal articles that you actually have to pay for otherwise. UCF alone pays $1.3 million for its subscription to Web of Science, and many millions more to provide you with access to academic journals and resources. Try writing a literature review as an Independent Scholar, and you’ll quickly find it is no easy task. Plus, even online courses have a way of lighting a fire under your butt that a massively open online course (MOOC) simply cannot do. For example, in your M.A., Ed.D., or Ph.D. at UCF, fail more than two courses and you’ll be ejected from the program. If you stop working on your MOOC, no one cares.

Writing on education, finance, psychology, et cetera