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Lehman and the Meta-Game of Trading

A cornerstone of the Epsilon Theory research project is the meta-game. It's the subject of the most popular ET note to date - "Too Clever By Half" - and I think it's the most important game theoretic concept to master if you want to have a successful career in financial services. Or a successful career in anything, really. But what I haven't written about is when the idea of the meta-game first really hit home for me. It was 10 years ago to the day - September 15, 2008 - the day that Lehman went under.

A "game" in the technical sense of the word is a strategic interaction, meaning that your decisions are contingent on my decisions, and my decisions are contingent on your decisions, and we both know it. Consciously or not, we are all playing games all of the time. A meta-game is a larger game that contains a bunch of smaller games. It's typically a long-term strategic interaction, and it's almost always harder to wrap your head around than an immediate game. It's not the same thing as a repeated-play game, which is its own interesting thing, but not this interesting thing. A meta-game is the big picture. A meta-game is the forest, not the trees. A meta-game is the portfolio, not the trade. A meta-game is the career, not the assignment. And yes, there are meta-games on top of meta-games.


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