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.


Want to continue reading this and the other 1,500+ essays you won't find anywhere else?




Already a subscriber? log in here

To learn more about Epsilon Theory and be notified when we release new content sign up here. You’ll receive an email every week and your information will never be shared with anyone else.

Start the discussion at the Epsilon Theory Forum

The Latest From Epsilon Theory

DISCLOSURES

This commentary is being provided to you as general information only and should not be taken as investment advice. The opinions expressed in these materials represent the personal views of the author(s). It is not investment research or a research recommendation, as it does not constitute substantive research or analysis. Any action that you take as a result of information contained in this document is ultimately your responsibility. Epsilon Theory will not accept liability for any loss or damage, including without limitation to any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your investment advisor before making any investment decisions. It must be noted, that no one can accurately predict the future of the market with certainty or guarantee future investment performance. Past performance is not a guarantee of future results.

Statements in this communication are forward-looking statements. The forward-looking statements and other views expressed herein are as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements, and there is no guarantee that any predictions will come to pass. The views expressed herein are subject to change at any time, due to numerous market and other factors. Epsilon Theory disclaims any obligation to update publicly or revise any forward-looking statements or views expressed herein. This information is neither an offer to sell nor a solicitation of any offer to buy any securities. This commentary has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Epsilon Theory recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.