I realize I should spend some time on explaining why I think blockchain is a "rent-dissipating Aumann Machine", seeing that I made that up on the spot. This is going to get hardcore wonky for the #cryptoeconomics geeks. Looking at @VladZamfir, @VitalikButerin and maybe 2-3 others
Robert Aumann's major contribution to game theory is the formulation of the "correlated equilibrium", a generalization of the Nash equilibrium, especially mixed Nash. He got the Nobel for it but it's still not well known, partly bc it's, well, weird.
Aumann's insight was that there's a way to improve on the payoffs for mixed Nashs if we find a way to let the players "correlate" (or "coordinate") their actions. Money quote: "Now consider a third party (or some natural event)"...
This third party we know as the "trusted intermediary", and the natural event is known as "sunspots" or, in the cryptoverse, the "oracle". A big obstacle to the adoption of Aumann's idea was that it was very fuzzy on what such a correlating device could be.
Let's pick an example. In a two-strategy space, "I go first" vs "I go second" a mixed strategy could lead to disaster if both decide to go first. A coordinating device proposing that both players alternate could be beneficial. Such a device is also known as a traffic light.
Two big problems with tasking a third party to create the coordinated strategy portfolio: 1. We have to trust that third party that the portfolio is well-assembled 2. Anytime someone creates value for others they're also tempted to extract some or all of that value for themselves
So of course there is a common incentive to replace this not-so-trust-worthy third party with an observable, competent and impartial device that reflects their interests: an "Aumann Machine".
Lots of more nifty things about correlated equilibria (which I believe should be called Aumann equilibria), esp about equilibrium path and learning, but I hope I made the connection to blockchain consensus clear.

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More from @oliverbeige

Sep 21, 2018
To assess the relevance of blockchain to economics, it might be useful to sidestep the politically charged topics for the moment, to postpone judgment on the feasibility of any currently proposed solutions, and to focus entirely on the problem it tries to tackle.
We can, if we want, divide the "machine age" into five phases that align with the automation of particular enterprise functions: production, administration, supply, demand. The function that is still largely resisting automation is governance.
This might be somewhat counterintuitive since accounting, a major component of enterprise governance, was one of the earliest adopters of mainframe computing. But the role of automation in accounting is largely restricted to administration, the inward-looking part.
Read 14 tweets
Sep 13, 2018
From my own experience: There is no job market for economists* in German tech companies. One of the reason why the German big players missed the move from business processes to business models.
*Economics = VWL
H/t @abhishekn
"Business process" is about optimizing the enterprise as a production function. "Business model" is about optimizing the enterprise as a market participant. Germany as a tech economy is really good at the former, and has created a specialized labor market around it.
Business process is the realm of industrial engineering. Business modeling is the realm of industrial organization, a field that is still almost completely unknown in Germany, more than twenty years into the internet era.
Read 6 tweets
Aug 21, 2018
In a B2B context (i.e. "enterprise blockchains" aka "DLT") speed is indeed the main driver for any kind of research into blockchain. The two main areas of research, settlement automation and supply chain traceability, are driven by expected speed advantages over current tech.
Which shouldn't come as a surprise to anyone knowledgeable in enterprise systems. These processes are notoriously difficult to implement in an enterprise-centric systems landscape. Settlement takes days, establishing provenance can take weeks.
For industries with a high premium on real-time information (FMCG) or information integrity (pharma, food) "blockchains" are a heaven-sent for a problem that is only becoming more pressing over time.
Read 4 tweets
Jul 28, 2018
Hey, we sure like Uncle Bert, but we could do without his political rants on FB. This problem that connectivity clashes with preferences gave rise to websites like Flickr or LastFm where we can match preference and connectivity.
One of the key shortcomings of network theory is that it's still largely a theoretical construct, with weak empirical support. Most of our understanding is anecdotal, which is subject to ex post rationalization (like almost everything else in innovation econ).
Indeed since interaction effects undermine revealed preference, it's very tricky to empirically separate preference from influence in observed group behavior.
Read 14 tweets
Jul 28, 2018
Let's talk a bit about what @VitalikButerin called "anti-network effects". TLDR: There is no empirical basis for the notion that network effects inevitably lead to a winner-takes-all outcome. In most cases, such a conclusion is simply a matter of framing.
One of the iffy folk tales in network economics emerged when Brian Arthur didn't get his papers on increasing returns published in 1985/6 and opined that this must be that this must be bc his ideas were too radical and thus rejected by mainstream economists.
That maverick story was repeated in Mitchell Waldrop's 1992 on Complexity and the early days of the Santa Fe Institute, and like many of those truthy-sounding stories it just refuses to die. It's also mostly nonsense.
Read 18 tweets
Jul 22, 2018
I've seen quite a bit of "fishing for truth" about the interlocking topics of network effects, technology standards, platforms/two-sided markets, and blockchains recently, so it might be worthwhile untangling the lot.
TLDR: There's still a massive amount of confusion reverberating through the field, with sloppy definitions and the penchant to peddle old and largely false folk tales taking the brunt of the blame. Kinda ironic bc "path dependency" is a core concept.
The common impetus for the work in this field is to challenge the underlying assumption of consumer choice theory in standard microeconomics that individuals make choices disconnected from each other and reap utilities disconnected from each other.
Read 36 tweets

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