Altruism: Signalling Corporate Fitness

Prisoner's Tit-for-Tat

Variations on the Prisoner’s Dilemma game are widespread in financial studies. The idea is that two people are faced with a dilemma: if they both support each other and stay silent they get a short sentence, if they both rat on each other they both go to jail for several years but if one of them spills the beans while the other one doesn’t then the latter is banged up for a long time and the other goes free. On a single shot basis it doesn’t pay to be cooperative.

On the other hand, if the game is repeatedly iterated, the strategy of Tit-for-Tat – start by being cooperative and then simply copy the last action of your opponent turns out to be the best solution, as described by Robert Axelrod. Over long periods of time exploiters get found out and people prepared to cooperate win. This leads to the suggestion that self-interest dictates that we should operate as though we’re altruistic because this is the most successful strategy. So even if we're altuistic we're actually deceiving schemers. Don't you just love the businessman's view of human nature?

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Quality Signalling for Quality Stocks

Exeunt Investor

Making money from trading stocks should be ridiculously easy; after all,all you have to do is buy low and sell high. Which makes it a recurring mystery as to why so many people so often do the opposite. After all if you buy something at £5 and it drops to £4 it’s cheaper, right?

It’s not just with stocks that this problem occurs, although it’s just not so obvious elsewhere because we tend to buy goods and keep them rather than re-selling. Generally when we’re buying something we don’t understand too well we tend to look for signals that tell us whether it’s of a decent quality or not. Often one of the main signals we use is the price, such that a higher price is believed to identify goods of higher quality. Ergo, if the price goes down then that’s signalling something too: in the case of stocks, that we’ve made a mistake. Exit investor, followed by losses.

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