You are receiving this email because you signed up to receive our free e-letter the Wealth Whisperer How to Use Game Theory to Make Better Investments 10/19/2023 Imagine Hunter Biden and his friend are caught stealing money. Not much of a stretch⦠The FBI pulls them into separate rooms and demands they confess. They can choose to rat out the other person or remain silent. The penalties vary based on the actions of each person.
- If both of them confess, both get eight years in prison.
- If both remain silent, they both get one year in prison.
- If one confesses while the other remains silent, the one who confesses goes free while the one who kept silent gets 10 years.
We can draw the scenarios out like this: Hunter and his friend must decide what to do. Yet, each person doesnât know what the other person will do. This is whatâs known as the Prisonerâs Dilemma, a classic game theory application. It teaches us to think through economic decisions and is invaluable to investing. Today, weâre going to help you understand this next-level thinking and offer simple techniques to improve your investing performance by grounding it in the study of game theory. SPONSORED CONTENT [Unveiling AI's $2 Trillion Opportunity!]( By 2030, AI could be worth an astonishing $2 trillion. AI magnates are eyeing untapped potential, and you can too. Our specially report on the Top 5 AI Stocks is your potential key to unlocking this vast wealth. Don't be left behind! [Grab your FREE guide before it's gone. Click here Now!]( [Click Here to Read More...]( What is Game Theory Chess is all about game theory. Each player makes moves based on the current layout and what each person thinks the other person will do. The best decision for one player, known as a âstrategyâ, often depends on what strategies the other players choose. There are different outcomes (or âpayoffsâ) for each combination of strategies, and the goal is to find the strategy that gives the best payoff. Letâs go back to the Prisonerâs Dilemma to help illustrate this point. We need to figure out what the dominant strategy is for each person. The best way to do that is to walk through the decisions each person would make based on the two scenarios:
- If Hunter believes his friend will confess, then his best option is to confess.
- This gives him eight years in prison.
- If he doesnât confess and he thinks his friend will, then he gets 10 years in prison. - If Hunter believes his friend will remain silent, then his best option is to confess.
- This gives him zero years in prison.
- If he doesnât confess and he thinks his friend wonât confess, then he gets one year in prison. Confessing becomes the dominant strategy for both players since they donât know what the other person will do, and this yields the best possible outcomes. However, if the game is played repeatedly, and the results are known after each game, we now get the potential for collusion. The key to understanding game theory boils down to:
- The information available.
- The number of times you can play the âgame.â [Have You Seen This $11 Trillion 'Tech Strip?']( While many folks today are wondering what to do with their money⦠a revolutionary âsheetâ of new technology has quietly sparked an $11 trillion tech revolution. Investors who get in FIRST have a rare chance to position themselves in front of a tsunami of profits. [Click here to see how anyone can profit fast.]( [Click Here to Read More...]( As Applied to Markets Raise your hand if you ever bought a stock that was already up a great deal because you didnât want to miss out. The only way this makes sense is if you believe someone else would buy the stock at a higher price from you. In fact, thatâs the only reason any of us buy a stock (ignoring dividends, etc.) -- we believe someone else will buy it for more than what we paid. But how do you know someone might be willing to pay more for the stock? Are you betting on the âbigger foolâ theory -- that someone else will get suckered into buying a stock because they think thereâs another sucker down the line? Or do you believe you have information that tells you thereâs more value here than someone else sees and once they do, theyâd be willing to pay more for that stock? This is whatâs referred to as ânext-levelâ thinking. Youâre making a decision based on what you think others will do in the future. Letâs use the Russell rebalancing as an example. This known event occurs once a year when the Russell Index changes its components based on a published formula. Since we know when this is going to happen, we could buy stocks that are going to be added to the index in anticipation of the rebalance. But letâs take that to the next-level thinking stage. Someone else knows that weâre anticipating the rebalancing. So, he or she buys those stocks ahead of us to profit from our decisions. In theory, this can keep going on and on and on. However, we really only need to go one or two levels deep. Anything more is unnecessary. [Trade Smarter: Discover Hidden Opportunities w/ A.I.]( The worldâs leading artificial intelligence is forecasting trends in the market in our Free Live A.I. Training. [Save your seat to watch live >>]( [Click Here to Read More...]( The Important Questions We now come to the heart of the matter -- making better investment decisions. Letâs cover the obvious:
- You donât have any news information that someone else doesnât already have.
- There are bigger players with a lot more money to perform better research.
- Technology and volume have eliminated a lot of those âarbitrageâ opportunities in trading.
Sounds kind of bleak. But here are some things you probably didnât think about:
- Big money players canât take positions all at once without moving price and screwing themselves over.
- You can choose when to buy or sell stocks and options, meaning you can pick the most advantageous times.
- No matter how much information is out there, people can and do make irrational decisions all the time based on emotions.
Your flexibility as a retail investor gives you an edge that big money cannot match. For example, you can choose to sell options when premiums are high, knowing that, based on history, there is a high probability those premiums will shrink. Essentially, you could sell an option for $5.00 and buy it back for $4.00 within a day when a stock goes nowhere, profiting entirely off volatility contraction. Even simpler, you can buy stocks, like Coca-Cola (KO), after their recent selloff at low valuations if you believe:
- People were forced to sell because the stock dropped.
- You have a longer investing horizon than the people who unloaded the stock.
- The people who sold the stock were irrational.
Thatâs why every time you make any investment or trade you want to ask the following questions:
- What do I think other people will do now and in the future?
- Why will those people make those decisions?
- Could those decisions change?
Going back to the Coca-Cola example, do you think that people will keep selling the stock here? If they will, why would they do that? In our minds, someone willing to unload the stock of a slow-moving company after itâs dropped some +20% must have a pretty dour view of the economy⦠or⦠they jumped on the bandwagon. Well, could they have a worse view of the economy than everyone else? Probably not. Chances are, theyâre stodgy investors who get too riled up about inflation and want to protect their assets. Down the road, theyâll probably realize theyâre wrong and end up buying back in at higher prices. Do we know that for sure? Of course not. But thatâs the thought process we want you to take away today. Now, we mentioned that retail investors have a clear advantage when selling options. Options prices increase when demand (i.e., volatility is high) and decrease when it's low. Think of it like a sound wave. You want to sell at the top and buy at the bottom. We canât know ahead of time when volatility might rise. But we CAN identify when it's high. And thatâs exactly how Bryan Perry puts together some of his most lucrative options trades in his [Eight-Month Millionaire Blueprint](. Bryan breaks down the process into digestible bits, making it possible for even the newest traders to exploit this edge. He walks you through every trade, explaining not just what heâs doing, but why. Youâll get a chance to see how a veteran trader applies game theory thinking in real-life trading. [Click here to learn more about Bryan Perryâs Eight-Month Millionaire Blueprint!]( To Your Wealth,
The Wealth Whisperer Team About Us:
Eagle Financial Publications is located in Washington, D.C. – only a few blocks from the Capitol. Our products have been helping investors build their wealth for several decades. Whether you’re a long-term investor or short-term trader, you’ll find the right strategy for you, including how to earn more steady income to spend now, preserve and grow your capital to enjoy later, and whatever other investment goals you have. Visit Our Websites:
- [StockInvestor.com](
- [DividendInvestor.com](
- [DayTradeSPY.com](
- [CoveredCall](
- [MarkSkousen.com](
- [GilderReport.com](
- [BryanPerryInvesting.com](
- [JimWoodsInvesting.com](
- [InvestmentHouse.com](
- [RetirementWatch.com](
- [SeniorResource.com](
- [GenerationalWealthStrategies.com](
- [[YouTube] Visit our YouTube Channel - Eagle Investing Network]( To ensure future delivery of Eagle Financial Publications emails please add financial@info2.eaglefinancialpublications.com to your address book or contact list. View this email in your [web browser](. This email was sent to {EMAIL} because you are subscribed to Wealth Whisperer. To unsubscribe please click [here](. If you have questions, please send them to [Customer Service](mailto:customerservice@eaglefinancialpublications.com). Legal Disclaimer: Any and all communications from Eagle Products, LLC. employees should not be considered advice on finances. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized advice on finances. Eagle Financial Publications - Eagle Products, LLC. - a Salem Communications Holding Company
122 C Street NW, Suite 515 | Washington, D.C. 20001 [Link](