Category: Games

It was great to see your “Thursday assorted links” link regarding chess. It has been fascinating to follow the recent online boom to which the game has been subject and to think about what it may mean for the organization, and business, of chess over time.

I speculate, of course, but – as to what the future holds – I believe at least one possible path for the sport runs as follows:

1. The three major chess-focused online platforms (chess.com, lichess, and chess24) reduces to one through a self-reinforcing cycle of greater revenue concentration, the attainment by one party of progressive technical superiority, and the increasing convergence of the chess-playing public on a single provider.

2. The market leader signs exclusivity agreements (governing non-FIDE play) with a significant portion of top players and becomes the de-facto organizer of most commercially significant tournaments. In contrast to (1), this could conceivably happen quite quickly, as it involves only a limited set of individuals.

3. The centralization of elite-level play on a single platform enables that platform’s Elo rating to emerge as the chess world’s most important manifestation of achievement, thus furthering the leading provider’s competitive position (and affording it, through subscription fees, the financial means of accelerating (1) and of maintaining (2)).

4. FIDE’s tight grip on the sport is somewhat loosened, and the organization reverts to being something more akin to what it used to be and was originally intended to be – a (gentler) gentlemen’s club (in the English, rather than the American-English, sense of the term) focused on advancing the sport of chess.

Step (2) is, to a certain extent, already underway in the form of Nakamura’s link with chess.com and Carlsen’s ownership interest in Play Magnus (which owns chess24 and hosts the Champions Chess Tour). Attempting to negotiate individual agreements with single players would very likely turn out no easier than herding cats (and a rather resourceful and independent sort of cat, at that); rather, I believe whichever party may seek to implement a form of player exclusivity would find it easier to, on a unilateral basis, simply issue rating-based cash compensation (in exchange for promises of exclusivity) to the top-10-ranked (or top-50-ranked – the precise number is of course unimportant) Grandmasters. To rate players, the provider could adopt the current FIDE ranking as its starting position, but thereafter “fork” it (much like an open-source piece of code is forked) and base future rankings (for payment purposes) exclusively on play on its own platform (to enable (3)).

Some would no doubt scoff at such a development as unwelcome commercialization. And, yet, I think it would constitute a step, if not indisputably forward, certainly not backward, for chess. International sports tend to be organized in one of two ways: through one-nation-one-vote Swiss associations (such as soccer’s FIFA); or through commercial corporations (such Formula1’s Liberty Media). Time has undeniably imbued governing bodies in the former category with a certain cachet, but it has also made many of them inefficient and corrupt, as their governance systems – designed for a pre-WWI European world of volunteerism and gentlemanly conduct – have failed to adapt to, and to ward off, an extent of contemporary cynicism. If the Guardian is to be believed, FIDE has not been entirely spared: https://www.theguardian.com/sport/2016/jun/03/chess-rights-multimillionaire-model-agency-owner-david-kaplan; https://www.theguardian.com/sport/2016/jun/03/chess-fide-president-offshore-firms-rights-kirsan-ilyumzhinov. I think most sports, including chess, would be no worse managed – in the sense of attracting both a broad player base as well as a vibrant elite tier – were they to convalesce around corporate organizations rather than Swiss associations.

I am pleased to report that Ola was an earlier Emergent Ventures recipient.

Here is his home page.  He has been at Stanford Business School since 1964, and born in Geneva, Nebraska.  Here is his personal website.  Here is his Wikipedia page.  He has a doctorate in business administration from Harvard, but actually no economics Ph.D. (bravo!)  Here is the Nobel designation.

Most of all Wilson is an economic theorist, doing much of his most influential work in or around the 1980s.  He is a little hard to google (no, he did not work with Philip Glass), but here are his best-cited papers.  To be clear, he won mainly for his work in auction theory and practice, covered by Alex here.  But here is some information about the rest of his highly illustrious career.

He and David Kreps wrote a very famous paper about deterrence.  Basically an incumbent wishes to develop a reputation for being tough with potential entrants, so as to keep them out of the market.  This was one of the most influential papers of the 1980s, and it also helped to revive some of the potential intellectual case for antitrust activism.  Here is Wilson’s survey article on strategic approaches to entry deterrence.

Wilson has a famous paper with Kreps, Milgrom, and Roberts.  They show how a multi-period prisoner’s dilemma might sustain cooperating rather than “Finking” if there is asymmetric information about types and behavior.  This paper increased estimates of the stability of tit-for-tat strategies, if only because with uncertainty you might end up in a highly rewarding loop of ongoing cooperation.  This combination of authors is referred to as the “Gang of Four,” given their common interests at the time and some common ties to Stanford.

His 1982 piece with David Kreps on “sequential equilibria” was oh so influential on game theory, here is the abstract:

We propose a new criterion for equilibria of extensive games, in the spirit of Selten’s perfectness criteria. This criterion requires that players’ strategies be sequentially rational: Every decision must be part of an optimal strategy for the remainder of the game. This entails specification of players’ beliefs concerning how the game has evolved for each information set, including information sets off the equilibrium path. The properties of sequential equilibria are developed; in particular, we study the topological structure of the set of sequential equilibria. The connections with Selten’s trembling-hand perfect equilibria are given.

Here is a more readable exposition of the idea.  This was part of a major effort to figure out how people actually would play in games, and which kinds of solution concepts economists should put into their models.  I don’t think the matter ever was settled, and arguably it has been superseded by behavioral and computational and evolutionary approaches, but Wilson was part of the peak period of applying pure theory to this problem and this might have been the most important theory piece in that whole tradition.

From Wikipedia:

Wilson’s paper “The Theory of the Syndicates,”JSTOR 1909607 which was published in Econometrica in 1968 influenced a whole generation of students from economics, finance, and accounting. The paper poses a fundamental question: Under what conditions does the expected utility representation describe the behavior of a group of individuals who choose lotteries and share risk in a Pareto-optimal way?

Link here, this was a contribution to social choice theory and fed into Oliver Hart’s later work on when shareholder unanimity for a corporation would hold.  It also connects to the later Milgrom work, some of it with Wilson, on when people will agree about the value of assets.

Here is Wilson’s book on non-linear pricing: “What do phone rates, frequent flyer programs, and railroad tariffs all have in common? They are all examples of nonlinear pricing. Pricing is nonlinear when it is not strictly proportional to the quantity purchased. The Electric Power Research Institute has commissioned Robert Wilson to review the various facets of nonlinear pricing.”  Yes, he is a business school guy.  Here is his survey article on electric power pricing, a whole separate direction of his research.

Here is his 1989 law review article about Pennzoil vs. Texaco, with Robert H. Mnookin.

Wilson also did a piece with Gul and Sonnenschein, laying out the different implications of various game-theoretic conjectures for the Coase conjecture, namely the claim that a durable goods monopolist will end up having to sell at competitive prices, due to the patience of consumers and their unwillingness to buy at higher prices.

Wilson was the dissertation advisor of Alvin E. Roth, Nobel Laureate, and here the two interview each other, recommended.  Excerpt:

Wilson: As an MBA student in 1960, I wrote a class report on how to bid in an auction that got a failing grade because it was not “managerial.”

And here is an Alvin Roth blog post on the prize and the intellectual lineage.

The bottom line?  If you are a theorist, Stockholm is telling you to build up some practical applications  — at the very least pull something out of your closet and sell it on eBay!  A lot of people thought Roberts and maybe Kreps would be in on this Prize, but they are not.  The selections themselves are clearly deserving and have been “in play” for many years in the Nobel discussions.  But again, we see the committee drawing clear and distinct lines.

Let’s see what they do next year!