Monkey market manipulation

This is an allegorical story told by one of my aunt’s husband on how certain players manipulate the market. A certain unscrupulous businessman sets up a company with the objective of catching all the monkeys in the wild. The catching operation is successful to the point of removing up to 90% of the monkeys in the wild. The businessman then advertises to the public that he would be buying up any of the remaining monkeys in the wild for a handsome sum if anyone is willing to catch these monkeys and sell it to him. Soon, there are people from the public who pay heed to the advertisements and set out catching the remaining 10% of monkeys in the wild. They are successful too and sells the businessman the monkey for the generously offered sum. Now, there are no more monkeys in the wild, and the businessman sends out another advert offering to pay an even greater sum for any monkeys in the wild that the public can get hold of. Concurrently, the businessman sets up another anonymous company selling the monkeys that his first company had caught at a price lower than what he had offered to buy the monkey from the public for. Certain greedy traders in the public decide to seize the opportunity to buy the monkeys at the lower price offered by the company, and resell them to the businessman at the higher price. They were in for a rude shock to discover that the businessman was nowhere to be found after they had bought from the company all the monkeys. These greedy traders found themselves with all the monkeys on their hands, but with no one else willing to buy the monkeys from them.

The fact of the matter is that the unscrupulous businessman had duped the public into buying the worthless monkeys by generating a false demand for them in the market, and then enticing the public to buy stocks of monkeys from a company linked from him.

The allegorical tale about market manipulation involving monkeys could similarly involve other form of tradable assets within the market, such as shares or commodities. There are probably syndicates in the real world who pull off more complex versions of the scheme. I wonder how authorities regulate markets to stem such unscrupulous practices. There are law books out there on financial regulation which I can read if I have the time.

A short reflection about money

I have peers my age from whom I would hear statements such as “I want to become a billionaire in the future”, or “One day, I will get myself onto the Forbes list as one of the richest people in the world”, or “Ultimately, money is everything.” Such statements may come from peers I have in law school, and even from Christians. I have been thinking about money, and have been reflecting on how this pervasive concept that humans have invented and put into practice in its commercial dealings should be put in perspective.

There is this video that I chanced upon presenting the illuminati conspiracy theory of how the Rothschild rule USA. The video was giving an account of how money and banks came into being. The primitive method for transaction was barter trading whereby physical goods were exchanged as the sole means for commercial transaction. But this was inconvenient, and soon people found substitutes like gold that were easily carried and had value in themselves due to their rarity and difficulty of production and replication, such that they could be traded for other goods. Subsequently, the banking system developed, people placed their gold in banks for investment and security purposes in return for a piece of paper guaranteeing these deposits and promising return of gold on presentation of these ‘I Owe You’ papers. The character in the video says that these “I Owe You” papers were the first invention of paper money, which later became transactable in themselves in place of the physical gold. To digress a little, the character in the video claims that bankers unscrupulously started printing more of these papers and handing them out as loans for interest when there were no equivalent value of golds stashed in the banks. When those who had deposited their golds found out that the value of their paper money were being eroded by inflation and made a run for the bank to repossess their gold, they found out that the bankers had absconded with their gold. And now, modern day currencies are no longer backed by gold but are fiat currency that obtains its value based on recognition by government as legal tender, giving those who control the production of money (which is supposedly the Federal Reserve that is allegedly owned by the Rothschild) a subtle way to repossess wealth from the common people into their own hands through the printing of paper money and the control of interest-based central banking system.

But my main point for this article is not to examine the conspiracy theory, which I have indeed some questions about, but to ask, how should we view money, and put it in its place? I hope that I can find a way to state my opinions in a manner that retains a sense of realism about the importance of money, but find certain insights that would place money and its acquisition in a perspective that places it for what it is.

For one, I believe that too many people place their sense of self-worth upon the quantity of money they possess. Take for example, the statement “I want to be so rich that I appear on the Forbes magazine”. It is as if having money simply for its value as a medium for commodity transaction and acquisition is not enough, but to the degree that one is recognized in society that one is in possession of such wealth. I have read the writings of a girl on her blog about how she believes in Darwinian theory of evolution, and she exhorts that it is only understandable that girls should go for guys who are rich because wealth is an indicator of the guy’s good genes (such as intelligence) that is responsible for his acquiring of such wealth. I can’t help but say as a guy that I feel a certain uneasy cringe to know that some girls may indeed think like this.

But my comment is this. A man can be both rich or poor in his lifetime, owing to circumstances such as luck or misfortune. Moreover, there is more than just intelligence that is at hand for the wealth of an individual. We should not forget things like ethics, and there are people in the world who stoop to no minimum limits on their standards of integrity to obtain money, such as trafficking drugs, or embezzling funds. Why, I encountered this Singapore case from my law studies where a lawyer absconded with $10 million from his client’s trust fund that was meant for the conveyancing of his client’s property purchase and was never found again up till today. He left his family, which includes his wife and daughter behind. I don’t suppose that should a girl who sports the mentality that I just mentioned above meets a nefarious guy like this, she would fall heads over heels with the criminal simply because he splurges on her with the tainted money he had obtained, and I would think it quite sad if all girls were to see guys like this.

Moreover, I find the publication of a magazine that details the accumulation of personal wealth by the various richest individuals in the world somewhat dubitable. Firstly, what is there to verify that these individuals have indeed such wealth, or if the figures are concoted for some individuals who had bribed the magazine publication to give them a place on the rolls for bragging rights. Secondly, there are probably individuals in the world who are rich enough to qualify on the Forbes list, individuals who might indeed be even richer than Bill Gates, but who would prefer to be discreet about their wealth acquisition, perhaps to avoid inquiry into the nefarious means by which they have acquired such wealth, to avoid tax, or on a more nobler purpose, to avoid jealousy.

That said, I wish to also talk about my opinions about the importance of which money entails. I don’t think I can identify with the other extreme view which is completely denunciatory of money or its possession. I think a sensible understanding of money should highlight the function of money foremost, which is a portable means of exchange by which to conduct commercial dealings and transaction. An apposite quote by my favourite philosopher, Bertrand Russell, comes to mind, though I am unable to remember the exact quote and where it came from. He says that a man who loves money more than anything else falls in love with an abstraction, and it is a curious quality of man to be able to derive his happiness from abstractions.

One point of my reflection of money is that it is a means of resource distribution. A society is comprised of many individuals working in different capacities that cater to the respective needs and wants of one another. We need money to spend it for the acquisition of goods, and such expenditure is the means by which another human being who produced the goods that was bought acquires his money for the purchase of his own goods that was similarly produced by another individual.  And society is this mass web of human beings interconnected to each other in a certain manner of goods and services provision, with money being the intermediary means of transaction. A man acquires money insofar as he is able to provide a certain service or good in exchange for the money, which can be used for the commercial dealing with other third party individuals because ultimately, all these individuals are connected to one another in the mass web of commercial dealings that exists. By way of analogy, the barber who cuts the hair of a teacher might be someone who buys his food from a hawker who sends his child to be taught at school by the teacher. Money allows for this transactional quality whereby services provided by one individual to another need not be directly exchanged for a good in kind, but is paid for by way of providing services or goods to another societal individual whom the first societal individual is dependant upon for his or her service.

What then is to be thought of an economic system whereby one individual has overexceedingly so much more money than the rest, such that his accumulated wealth is able of covering his needs and reasonable wants a few times over with spare, while his fellow man wrangles in poverty? Isn’t this more of an indictment of a flawed economic or political system whereby resources are not going to those who need them most? Wouldn’t it be better if some of the wealth of the rich man goes to the poor man so that the poor man is able to afford some of the produces in society, rather than the rich man buying some of the goods the same times over and wasting perfectly good and usable goods? And shouldn’t it be conscience-pricking that there are rich individuals in society who parade upon their wealth as a show off their status symbol, when there are people who go hungry and live off a meager wage in society?

There are many reasons why someone becomes poor. I don’t believe that all of them are due to cases of laziness or financial mismanagement. Illnesses or misfortune may be one of them. I have read an article that makes the claims that a lot of homeless people suffer from mental illness that makes it difficult for them to work. Personally, I fear ever becoming ill to such an extent that I am incapable of working, and I have seen cases of such before when I help out at the meet-the-people session with the MP of my constituency. There are people in Singapore who rely on financial and welfare handouts in order to get by in life because the sole breadwinner in their family had been incapacitated with terrible illnesses. And I won’t deny that such circumstances in life may happen to me. Why, I have never felt such prospects more acutely than coming down with the terrible chronic tension headaches that has put me on medical leave of absence for up to a year and a half now. And to think that I was so happy and grateful when I first got into law school thinking that it is my ticket to the upper socioeconomic class in society It is therefore that I hope that those in relatively good fortune, upon reflecting their own susceptibility to misfortune, may not stinge or gripe should they be taxed a little more should such taxes be necessary for assisting individuals in really dire financial circumstances.

That said, I also acknowledge the negative prospects that a society that redistributes wealth might bring. The common label used to describe a society that wantonly distributes wealth is ‘welfarism’, and the alleged associated evils commonly cited are people becoming lazy or unproductive. But I think that such reasons might be overly-used by those in possession of wealth to not help those who in circumstances of genuine need. An economic system that puts the unfortunate in such a state of economic duress to the extent that they have to prostitute themselves or be exploited in order to obtain money for their basic needs is one that I would call inhumane and cruel, and I believe that this might indeed be the case for some countries. I hope not Singapore.

Addressing Singapore’s rising food cost

During a break session at the Meet the People Session, MP Faishal talked about the undergoing efforts by the government to address the rising cost of food. He thought that one of the reasons for the rising food prices is vendors raising their food prices to increase their profits. I pointed out that at NUS, food prices at canteen are regulated to ensure that vendors do not raise the price of the food they sell beyond a certain cost. MP Faishal concurred that that is one of the measure that a committee addressing this issue is considering, and it seemed like a good idea to him. Another resident volunteer at the session on the other hand felt that the price of food ultimately boiled down to rental cost, and that regulation has limited ability to curtail food prices from rising. MP Faishal mentioned though how certain food vendors who owned their outlet had taken advantage of a renovation of the food centre where their stalls are to make an excuse to increase the price of their food, even though the entire renovation had been funded by the town council. I could imagine that a food vendor would readily defend his pricing policy by saying that this is to recoup losses and opportunity costs while their stall was unable to operate during the renovation phase, but it seems that the increase in food prices is more likely going to be permanent than especially if it increases profits for them.

I had learnt while studying theory of firms for economics in my junior college days about how a firm’s ability to set prices depends on the type of market in which the firm is in. The theoretically ideal perfect market conditions where there are so many firms in the market competing selling the same good and barring for market imperfections like transaction costs would give a firm no ability to set its price. I think that a food vendor have market power and some ability to set prices of its food once it becomes an owner of an outlet at a food centre. By contracting for price regulation at the leasing stage, the pricing would be factored in the bidding process where there are more competitors, thus providing a more market competitive environment.

A friend whom I was discussing this issue with pointed out however how it would be difficult to regulate food prices. For one, vendors could start using poorer quality ingredients rather than increase prices in order to cut cost and increase profits. Moreover, regulation probably comes with its own costs as well, especially if regular audits have to be made.

The price of rental for food vendor is also another factor in the food pricing issue. I have heard about how middlemen subleasing the food vendor outlets drive up rental costs. For quite some time now, the Singapore government has adhered to a free market philosophy in addressing food prices. I heard that in the past, there were regulations for owners to tend the outlets that they own, but that this has been done away with by the government. Perhaps the difficulty in regulating middlemen is to distinguish between middlemen owners who add value to the industry by managing the food centre outlets. Moreover, perhaps the government think that free market conditions would be self-regulating if there are enough food centres around as middlemen owners can’t raise the prices of sub-leases without food vendors choosing other areas to operate where the rental is lower. But could it have been a mistake on their part to allow middlemen from coming into the food business in the first place?

What I have written so far pertains to competitive market pricing rather than the cost of food itself. I was wondering whether there are supply issues of food in Singapore that causes cost of food to go up, and whether this is the case worldwide or in surrounding neighbouring countries. My personal observation is that prices of food in Singapore is higher than those in comparatively similar developed country such as Hong Kong or Taiwan.

It’s been a long time since I read up on economics, and I suspect that the issue is much more complex than what I have written in my blog post here and requires extensive economic analysis, and there is unlikely to be an easy solution that will cure the high food price problem.

Economics- Game theory applied to Evolutionary theory

I studied H3 Economics as an additional academic course at SMU during my JC2 year. The course focused on a specific topic known as game theory which was popularized by the film “A Beautiful Mind” that featured Russell Crowe as the eminent Nobel Laureate John Nash.

One interesting concept that I learnt from the course is the Nash Equilibrium. The Nash Equilibrium is defined as the stable state in which the players of the game have no tendency to change their strategies given their knowledge of the strategies of their opponents. This concept can be illustrated by the notable game model known as the Prisoner’s Dilemma which is usually used to explain concepts such as deterrence in political science.

Now, what I found interesting in game theory is its application to the theory of evolution. The variations of genetics of a given species can be likened to the different strategies of the players. In the case of the evolution game model, the players are the genes possessed by individual species. These genes play against one another in a given environment with the better gene, or to put it in game theoretical term as the better strategy, winning the war of attrition and is therefore deemed fitter to survive and hence propagate that better gene. The process of evolution involves the various genes of the species finding that Nash Equilibrium whereby the better gene is retained as it dominates over inferior genes.

However in game theory, it is not necessary that only one Nash Equilibrium exists (eg: Hawk-Dove game model). It is possible for players to use more than one strategy as there is no sole dominant strategy. My idea regarding this concept is that it explains why supposedly ‘inferior’ genes are allowed to be expressed in reality. This is because these ‘inferior’ genes might be fitter in a given environmental condition. This environmental condition may also be dependent on the demographics of the different strategies present in the population as shown in the Macho-wimp game model.

Take for example the genetic characteristic known as introversion that is deemed to be inferior to the characteristic of extraversion in society. The demographics of introverts to extroverts is 1 is to 3. Obviously, nature has a way of telling us that introversion is less adaptable to the human environment and hence its minority. But why do introverts continue to exist? I postulate 2 possible reasons

1. This is a transitional evolutionary stage and the ultimate evolutionary stable state (ESS) is one where introverts are eliminated and the extraversion gene dominates.

2. A complete extrovert population is not an evolutionary stable state. Instead, the evolutionary stable state is one where there is a mixture of introverts and extroverts

The second line of argument is deemed plausible in game theory by the Macho-Wimp game model. Let me illustrate how this is so using a game model. First of all, let’s assume that extroverts dominate over introverts all the time. This is quite an observable social reality whereby extroverts are usually placed in leadership positions over introverts and are better able to attain power and influence through their more dominating personality. So in my Extrovert-Introvert game model, let’s assign a value of 5 to the player that uses the extrovert and a value of 3 to the player who uses the introvert. In the game theory model, payoffs are used to denote the ‘utility’ that each player gets from using that particular strategy. Of course, a rational player seeks to maximize his utility.

As seen in the table above, when player 1 is an introvert and player 2 is an extrovert, the payoff of 3 goes to player 1 and the payoff of 5 goes to player 2, vice versa. The payoff on the left of the comma is to player 1 and the payoff on the right of the comma is to player 2.

However, when an extrovert meets an extrovert, neither of them does as well than if they should individually meet an introvert. Put this assumption into the context of reality, a pure extrovert meeting a pure extrovert rarely get any work done and are unproductive. Or perhaps the power-struggle between two extroverts is destructive to both of them. So we shall assign a value of 2 to each player when extrovert meets an extrovert

On the other hand, when an introvert meets an introvert, both of them proceed with their task individually and produce their own work. Both do fairly well on their own without encountering an extrovert. For that matter, let’s assign a value of 4 to each player when an introvert meets an introvert.

Now, let me introduce the concept of Nash Equilibria which I had learnt. A player should choose the best response given his knowledge of the other player’s strategy. For example, if you are player 1 and you know player 2 is an extrovert, what strategy should you play then to maximize your payoff? The answer is to play the introvert strategy which would give you a payoff of 3 as compared to 2 should you have used an extrovert strategy. And if you know that your opponent is an introvert, then in order to maximize your payoff, you should choose an extrovert strategy which would get you a 5 as compared to a 4 if you choose introvert. In an evolutionary game model, individuals do not have control over whether they choose to be an extrovert or an introvert. Such characteristics are all determined by genetics and it is the genetics which play the game.

By using the best-response method which I had listed above, we can derive the 2 Nash Equilibriums which I have shaded in orange. The Nash Equilibriums denote the Evolutionary Stable States(ESS). The model shows that the Evolutionary stable states are when both players are unlike; when one player is an ‘introvert’ and the other an ‘extrovert’.

Why are the shaded cells the evolutionary stable states? First of all, the process of evolution is a dynamic procedure over a period of time. In an evolutionary game model, a population exists consisting of extroverts and introverts. The players of the population pair up randomly and the game is repeated between 2 random pairs. If there are too many extroverts, an introvert can successfully invade the population as it would get the payoff of 3 compared to many other extroverts who are getting a payoff of 2 from the extrovert-extrovert game. Over time, the introvert population would increase due to it being a better strategy and hence propagating itself. Similarly, an extrovert can successfully invade a population of introvert as the extrovert is able to exploit the pure introvert population and get a payoff of 5 most of the time which is higher than the 4 that an introvert gets from an introvert-introvert game. The population would tend towards the Nash Equilibrium, also known as the evolutionary stable state, where there is no tendency for either the extrovert population or introvert population to grow.

Conclusion

This is a simple game model which explains why 2 or more strategies may exist in a game. By applying this concept to the evolutionary model, I have a better understanding of what the theory of evolution is about; that the model of ‘superior’ genes and mere ‘war of attrition’ is too simplistic a postulation about the game of evolution. I have come to appreciate diversity more through my understanding of game theory; that everyone has a place in this reality. I have also come to accept certain characteristics of my own