Memo #12: Finite vs. Infinite Games

Play games not to win, but to continue playing.

Hi there,

Here’s an idea that I’ve not been able to stop thinking about lately.

Reality shapes Culture, Culture shapes Reality.

Reality determines universal constraints for humans, humans in turn codify heuristics to navigate these constraints in the form of Culture. Further, Culture determines outcomes, which lead to the next set of constraints to be navigated.

In this memo, I’d like to explore the first side of this causal relationship, that is, Reality —> Culture

From Reality to Culture

One way to establish this causal relationship of reality --> culture is by observing how changing just a few underlying technical parameters can give rise to diverse cultural phenomena.

As an example, I wrote in my last memo how the increasing cost of housing can be linked to a rise in Minimalism, a cultural trend in which you own a minimal set of physical goods because you have to live in a cramped studio.

Or, take the example of polyamory in San Francisco. Is it really a surprise that, in a city with a heavily skewed gender ratio, a cultural trend that pairs multiple men with a single woman finds a footing?

Finite vs. Infinite Games

So if Reality determines Culture, what particular aspects of Reality are the most influential in shaping downstream effects?

Allow me to nominate Finite vs. Infinite Games as that influential candidate.

In this memo, I'd like to present to you how profound the idea of infinite games is and how far-reaching its consequences are. We will touch upon vastly different domains like Biology, Evolution, Business, Silicon-Valley, and will finally tie it all together with thoughts on my previous memo on the ideal structure of a society.

There are at least two kinds of games. One could be called finite, the other infinite. A finite game is played for the purpose of winning, an infinite game for the purpose of continuing the play.

– James P. Carse (Author of Finite and Infinite Games)

A finite game is a game with a bounded number of steps, explicit instructions on how to play the game, what counts as a win, and a finite reward ranging between [1, MAX_REWARD)

In contrast, an infinite game has an unbounded number of steps, no explicit instructions on how to play, it's hard to tell what makes a winner, and the rewards range between [0, ∞]

Prisoner’s Dilemma – Finite vs. Infinite Variant

The concept of finite and infinite games is directly borrowed from game theory. It’s much clear to illustrate the impact of switching from a finite to an infinite setting using the canonical game theory experiment – The Prisoner’s Dilemma.

Here’s the gist of the experiment 👇

What would you do if you were one of the prisoners? Well, since you are so kind-hearted, you might consider cooperating. After all, if the other prisoner also cooperates, you both get much less jail-time (1 year each). But, you have to consider the case where the other prisoner does not cooperate. Well, now it sucks for you, as you get to spend a longer time in jail (20 years) while the other prisoner goes home!

In this one-shot game, the optimal strategy is to defect. You should confess and rat out your opponent, resulting in 5 years for both of you.

Consider what happens when we switch to a repeated version of the same game.

Now, not only you need to consider this rounds' payoff, but also the next round, and the one after that, and so on ad infinitum. Turns out, the optimal strategy now is to cooperate.

You may be wondering, what does this silly game of prisoner's dilemma has to do with anything? Well, a similar dynamic of cooperation forms the basis of the evolution of Trust. An indispensable social norm emerges right out of this game. Because each player has to now consider the future payoff, the strategy shifts from defecting to cooperating. In a larger society, that is what we call Trust.

Here’s an interactive and playful game that will walk you through the evolution of Trust.

Biology – Forming stable social hierarchies

One of the fundamental aspects of the group dynamics of a species is the structure of a hierarchy.

Consider chimpanzees who organize themselves in a dominance hierarchy. At the top is the alpha-male who enjoys greater control of the tribes’ resources, with each layer in the hierarchy recursively organizing itself. Every chimp in the tribe sizes everyone else and the resulting hierarchy is respecting going forward.

The most curious aspect of this hierarchy is that it's not merely based on pure strength. It’s not so obvious why strength isn’t the sole determinant of this hierarchy. If the chimps rely on combative means to determine their place in the hierarchy, then wouldn't the order be entirely determined by strength?

Yes. If this was a finite game, strength would be the sole determinant of the chimps’ social hierarchy. If there were a one-shot combative ritual where all the chimpanzees battled it out to determine their ranks, physical strength would be the only thing mattered. But what happens the day after this ritual? The alpha has won its rank but is now mortally wounded, and the three bottom-ranking chimps who are one-third as strong as the alpha can now easily take him out!

The takeaway here is that the social hierarchy, when predicated solely on power, is inherently unstable. It doesn’t sustain itself and devolves into chaos and bloodbath.

So, how do the chimps solve this problem? By switching the game from finite to infinite. The chimps don’t always tear each other apart, instead, they engage in mock (and sometimes real) combat to determine a stable social hierarchy. The alpha earns its rank not only through sheer strength, but by competence, forming social alliances, and looking out for the tribe.

This way, the game doesn’t end in a bloody murder every single time and the chimp tribe flourishes.

The alpha male doesn't get there by simply brutalizing every other chimp, but by cooperating, by taking care of others, and of course by being competent in the face of difficulties of survival.

Because life is an iterated game, the nature of the chimp’s hierarchy tends toward competence as opposed to brute force.

It’s not too big a leap to go from chimp’s social hierarchy to human hierarchies. But you wouldn't want me to spell out everything for you now, would ya? :)

Business – Playing non-zero-sum games

Infinite games play a huge role in business because infinite games are non-zero-sum games.

A finite game focuses on extracting value from one part of society to transfer to others. An infinite game, due to the constraint that it has to continue itself, focuses on creating value and then capturing some of it.

Naval has of course written about this here. Or see his tweet 👇

Naval @naval

“Play long-term games with long-term people. All returns in life, whether in wealth, relationships, or knowledge, come from compound interest.”

startupboy.comPlay Long-term Games With Long-term PeopleTalk a little bit about what industries you should think about working in. What kind of job you should have? And who you might want to work with? So, you said, “One should pick an industry where you can play long-term games with long-term people.” Why? Yeah, this is an insight into what makes Silico…

When Naval says long-term games, what he is really referring to is Infinite games - that is games that sustain itself.

The reason you want to play long term games with long term people is that, on some level, those are the only games worth playing, because short-term games devolve into a zero-sum competition.

Moreover, finite games have a fixed but limited reward. Infinite games have unclear but arbitrarily large rewards.

The Silicon-Valley culture is largely determined by the fact that it plays long term games. VCs make money when the founders succeed; founders make money when the company succeeds; the company succeeds when it gives people what they want, at scale.

The reason silicon valley has been the bastion of innovation and entrepreneurship because of its culture of playing long term games, leading to higher trust, cooperation, a more positive-sum approach to value creation.

Society – The mother of all infinite games

Society is the highest order infinite game. It is the meta-game that allows all other games to continue itself. If society collapses, so do all the other games.

I asked in a previous memo – what is the ideal structure of a society?

In that memo, I argued against a Rawlsian redistributive version of society. Equipped with the lens of finite and infinite games, let’s revisit the argument.

Here’s the central problem of a purely redistributive vision for society – let’s say you accomplish the perfect redistribution one day. Well, what happens the day after?

If all you have to offer from a policy perspective is redistribution, that's insufficient for the game to continue itself. For the game to infinitely sustain itself, you must greatly emphasize the production function instead of only the redistribution function.

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What we need is a long term vision for society in an increasingly short-term world. We need a longer-term focus on utility maximization for this game to be infinite.

After all, what good is our ideal society if it collapses on itself the moment it is perfected?

See you next week,

Ayush