Game theory onboarding: NFTs and the collective

Game theory is the study of how interactions among economic agents influence outcomes concerning the preferences (or utilities) of those agents, whether or not the agents intended the results.

In this case, the agents are art and collectible buyers and community members, and their preferences — or utilities — include ownership of a digital asset as well as a desire to maximize its value.

The set of expectations and possible responses to their strategies by other agents is the aspect of the environment that is most essential to the agents’ attainment of their desired results.

I want to be clear; game theory is not the silver bullet that talking apes seem to think. Understanding game theory does not make you an immediately successful trader, investor, or artist. It’s a way to view, interpret and understand the actions of community members in the framing of collective and individual benefits.

That being said — actually understanding WTF game theory can help to separate Twitter bullshit from insight. Consider this a brief outline; do your own reading, research, and don’t take any of this as financial advice.

When it comes to NFTs, there are three distinct moves: buying, holding, or selling.

When a player buys into an NFT community pool, in the beginning, an immediate negative return is expected — however, if a player owns a token, its price may further rise or fall depending on several factors.

Rather than buying any more NFTs in the pool and selling them, you may choose to refuse both moves, taking on the potential danger of holding an asset with the risk potential for both positive and negative payoffs, to profit from the future windfall. But this only results in strategic advantage if you buy or sell at a later date.

The technique of selling or flipping an NFT allows for a quick return; however, this varies based on how the asset’s value has changed while in the player’s hands.

In a three-player setting, one of whom is buying an NFT, another holding, and the third considering a sale, each player must evaluate their set of plans and ultimately use game theory to assist them in making a decision. Game theory is what determines the best course of action for each individual.

In an NFT community, there is a clear benefit in the community achieving gains as a whole. For buyers, holders, and sellers, the communal rise in value and the rise in the social status of a token contribute to all members’ net worth.

Bargaining processes will influence the distribution of payoffs among competing individuals.

If I have a Bad Bunny (AND I F**KING DO) and I want to flip it, I’ll be able to sell for more if the community is on the rise, values are on the rise, and the social capital of ownership is desirable. If I want to hold it, the height of the community will encourage long-term growth, increasing the asset’s value.

If I want to buy into the community, sustainable growth determines the viability of early or late entry into the pool. In cooperative game theory, each agent moves to mitigate the damage of their individual choices to the collective whole and benefit the growth of their token.

A Nash Equilibrium occurs when both players’ best response strategy is the same. In this case, there is a best value for each player’s strategy that is roughly equal to the other players’ best responses.

To determine whether or not an NFT community will reach equilibrium, we need to know how likely it is — and when — players in these communities will be acting on information they have about their tokens.

The tragedy of the commons occurs when people take more than they give back to a communal resource. Because private benefits encourage overuse and under-supply, public services suffer due to use and non-availability owing to overuse and under-supply.

As it applies to crypto, game theory can help explain why players in the NFT space act in specific ways. It can also be helpful when predicting how future actions may play out. When applied to NFTs and smart contracts, game theory methods can be practically valuable. There are clear, rigid rules, the blockchain is open and accessible to all players, and information is openly shared.

Joan Westenberg is an award-winning Australian contemporary writer, angel investor, communicator and creative director. She is the founder of branding and PR firm Studio Self. Her approach to messaging, communication and semiotics has built her reputation as a writer, and she has been named as one of the leading startup voices in Australia by SmartCompany.

Her writing has appeared in The SF Chronicle, Wired, The AFR, The Observer, ABC, Junkee, SBS, Crikey and over 40+ publications. Her regular work can be found on Pizza Party, a blog about creativity, culture and technology. Joan is the creator of Transgenderinclusion.com, an open-source workplace inclusion hack.

Source: https://joanwestenberg.medium.com/game-theory-onboarding-nfts-and-the-collective-3558965956a6?source=rss——-8—————–cryptocurrency