Conversation with Prof. Bruce Bueno De Mesquita on The Predictioneer's Game
Chris DeMuth Jr:
Anything that you would add (or subtract) if this book were published today?
Bruce Bueno de Mesquita:
While I was writing the book I was also continuing to improve the modeling and its accuracy. The model I use today is better, more nuanced, more accurate, and faster. It is also easier to teach others how to use it. That is one big change on the research front. On the practice front, the book has helped expand my consulting practice, bringing the work to the attention of more senior management people in large corporations. This has also meant that their own decision making has been improved, which benefits both their bottom line and their company's ability to deal with difficult choices around the world. Further, since the publication of the book I am now asked eve4ry year to review likely important developments around the world for an investment group's portfolio committee. This means that the ideas and results behind the model analyses now are helping investors to have a better handle on how political developments around the world can be used to improve investment choices.
Chris DeMuth Jr:
Are there any specific investments that you have made or would make today specifically as a result of what you learned by writing the book?
Bruce Bueno de Mesquita:
Because most of my clients are in the private sector I am careful not to use analyses I do for them for my own investment purposes. However, I do studies on my own and in other settings from time to time that facilitate investment choices where there is no constraint from having access to anything other than publicly available data. In the recent past, student projects have led to investments, for instance, in the exchange rate between the dollar and the Chinese Yuan with considerable success.
It is great that people use the ideas. Some of the ideas are readily converted into action but others require deeper analytic ability such as is imbedded within my consulting firm's computer software. We are happy to license the software to firms and to provide training in the use and interpretation of results.
What was most applicable for me?
As an investor, the most relevant section, "Incentivizing Ignorance", explained how game theory can model and predict corporate accounting frauds. The key inputs involved the potential for "rational" fraud to emerge when auditors' revenue (and pensions) were more immediate incentives than the longer-term disincentive of litigation. Another useful and amusing section described the game theory behind optimizing car shopping. I have used both lessons and can confirm that they work in practice.
Bruce Bueno de Mesquita is a master of game theory, which is a fancy label for a simple idea: People compete, and they always do what they think is in their own best interest. Bueno de Mesquita uses game theory and its insights into human behavior to predict and even engineer political, financial, and personal events. His forecasts, which have been employed by everyone from the CIA to major business firms, have an amazing 90 percent accuracy rate, and in this dazzling and revelatory book he shares his startling methods and lets you play along in a range of high-stakes negotiations and conflicts.
Revealing the origins of game theory and the advances made by John Nash, the Nobel Prize-winning scientist perhaps best known from A Beautiful Mind, Bueno de Mesquita details the controversial and cold-eyed system of calculation that he has since created, one that allows individuals to think strategically about what their opponents want, how much they want it, and how they might react to every move. From there, Bueno de Mesquita games such events as the North Korean disarmament talks and the Middle East peace process and recalls, among other cases, how he correctly predicted which corporate clients of the Arthur Andersen accounting firm were most likely engaged in fraudulent activity (hint: one of them started with an E). And looking as ever to the future, Bueno de Mesquita also demonstrates how game theory can provide successful strategies to combat both global warming (instead of relying on empty regulations, make nations compete in technology) and terror (figure out exactly how much U.S. aid will make Pakistan fight the Taliban).
But as Bueno de Mesquita shows, game theory isn't just for saving the world. It can help you in your own life, whether you want to succeed in a lawsuit (lawyers argue too much the merits of the case and question too little the motives of their opponents), elect the CEO of your company (change the system of voting on your board to be more advantageous to your candidate), or even buy a car (start by knowing exactly what you want, call every dealer in a fifty-mile radius, and negotiate only over the phone).
Savvy, provocative, and shockingly effective, The Predictioneer s Game will change how you understand the world and manage your future. Life's a game, and how you play is whether you win or lose.