Why Bitcoin Will Fail to Scale?

Bitcoin falls dramatically short of the scale provided by banks for payments. Currently, its ledger grows by the addition of blocks of ∼2,000 transactions every 10 minutes. Intuitively, one would expect that increasing the block capacity would solve this scaling problem. However, we show that increasing the block capacity would be futile. We analyze strategic interactions of miners, who are heterogeneous in their power over block addition, and users, who are heterogeneous in the value of their transactions, using a game-theoretic model. We show that a capacity increase can facilitate large miners to tacitly collude—artificially reversing back the capacity via strategically adding partially filled blocks in order to extract economic rents. This strategic partial filling crowds out low-value payments. Collusion is sustained if the smallest colluding miner has a share of block addition power above a lower bound. We provide empirical evidence of such strategic partial filling of blocks by large miners of Bitcoin. We show that a protocol design intervention can breach the lower bound and eliminate collusion. However, this also makes the system less secure. On the one hand, collusion crowds out low-value payments; on the other hand, if collusion is suppressed, security threatens high-value payments. As a result, it is untenable to include a range of payments with vastly different outside options, willingness to bear security risk, and delay onto a single chain. Thus, we show economic limits to the scalability of Bitcoin. Under these economic limits, collusive rent extraction acts as an effective mechanism to invest in platform security and build responsiveness to demand shocks. These traits are otherwise hard to attain in a disintermediated setting owing to the high cost of consensus. This paper was accepted by Kartik Hosanagar, information systems.

Influence of committed volunteers on helping behavior in emergency evacuations

We study how the presence of committed volunteers influences the collective helping behavior in emergency evacuation scenarios. In this study, committed volunteers do not change their decision to help injured persons, implying that other evacuees may adapt their helping behavior through strategic interactions. An evolutionary game theoretic model is developed which is then coupled to a pedestrian movement model to examine the collective helping behavior in evacuations. By systematically controlling the number of committed volunteers and payoff parameters, we have characterized and summarized various collective helping behaviors in phase diagrams. From our numerical simulations, we observe that the existence of committed volunteers can promote cooperation but adding additional committed volunteers is effective only above a minimum number of committed volunteers. This study also highlights that the evolution of collective helping behavior is strongly affected by the evacuation process.

The evolution of partner specificity in mutualisms

Mutualistic species vary in their level of partner specificity, which has important evolutionary, ecological, and management implications. Yet, the evolutionary mechanisms which underpin partner specificity are not fully understood. Most work on specialization focuses on the trade-off between generalism and specialism, where specialists receive more benefits from preferred partners at the expense of benefits from non-preferred partners, while generalists receive similar benefits from all partners. Because all mutualisms involve some degree of both cooperation and conflict between partners, we highlight that specialization to a mutualistic partner can be cooperative, increasing benefit to a focal species and a partner, or antagonistic, increasing resource extraction by a focal species from a partner. We devise an evolutionary game theoretic model to assess the evolutionary dynamics of cooperative specialization, antagonistic specialization, and generalism. Our model shows that cooperative specialization leads to bistability: stable equilibria with a specialist host and its preferred partner excluding all others. We also show that under cooperative specialization with spatial effects, generalists can thrive at the boundaries between differing specialist patches. Under antagonistic specialization, generalism is evolutionarily stable. We provide predictions for how a cooperation-antagonism continuum may determine the patterns of partner specificity that develop within mutualistic relationships.

Brand Spillover as a Marketing Strategy

When a weak-brand firm and a strong-brand firm source from a common contract manufacturer, the weak-brand firm may advertise this relationship to promote its own product. This paper investigates whether the weak-brand firm should use such brand spillover as a marketing strategy and how this decision depends on the firms’ characteristics and market conditions. We develop a game theoretic model consisting of one contract manufacturer and two firms with asymmetric brand power. The contract manufacturer determines the wholesale prices for the two firms and then each firm decides whether to source from the contract manufacturer. If both firms outsource to the contract manufacturer, then the weak-brand firm may choose whether to promote its product through brand spillover. Although brand spillover improves the attractiveness of the weak-brand firm’s product at no cost, we find that the weak-brand firm should not use brand spillover if (1) its original brand power is sufficiently low or (2) the contract manufacturer does not have a significant cost advantage. Interestingly, the adoption of brand spillover by the weak-brand firm can benefit all three parties under certain circumstances. Nevertheless, when the contract manufacturer has a significant cost advantage, in equilibrium the strong-brand firm will be hurt by brand spillover and hence should take actions to prevent it. This paper was accepted by Dmitri Kuksov, marketing.

State Intervention in Collective Action

Chapter 2 develops a theory of state intervention in collective action. It argues that as unorganized people create negative externalities, officials increasingly have an incentive to encourage people who organize self-regulating organizations. When officials intervene with cash, licenses, and access to the bureaucracy, they lower the barriers that kept people from organizing on their own. Once informal workers take these incentives and start organizations, officials can bargain over regulation and enforcement with representatives instead of a mass of individuals. The theory builds on contributions from Olson (1965), Ostrom (1990), and Holland (2017). The theory is formalized in a game theoretic model to show that officials and informal workers are strategically linked. The chapter uses the model to demonstrate the exact conditions under which we can expect informal workers’ organizations as a result of officials’ encouragement. The model produces multiple equilibria that reflect the different levels of organization that we observe in informal sectors around the world. The equilibrium conditions generate clear expectations for the patterns that we should see in the empirical chapters if the theory is correct.

A Game-Theoretic Model of Strategic Interaction Using Advertising: Simulating the Evolution of the Cournot Nash Equilibrium under Different Competitive Scenarios

This paper examines the behaviour of two firms competing in a duopoly, where firms can influence demand through use of advertising. The paper simulates the strategic interaction of the two firms based on a game-theoretic Cournot analytical model. The evolution over time of the Nash equilibrium is graphically displayed for a number of different competitive scenarios. The results show that there exist threshold levels of advertising effectiveness at which duopoly behaviour bifurcates, that perfectly cooperative advertising can lead to competitive disadvantage, and that perfectly predatory advertising can lead to stagnation or losses.

Improving mathematical models of cancer by including resistance to therapy: a study in non-small cell lung cancer

In this paper, a large dataset of 590 Non-Small Cell Lung Patients treated with either chemotherapy or immunotherapy was used to determine whether a game-theoretic model including both evolution of therapy resistance and cost of resistance provides a better fit than classical mathematical models of population growth (exponential, logistic, classic Bertalanffy, general Bertalanffy, Gompertz, general Gompertz). This is the first time a large clinical patient cohort (as opposed to only in-vitro data) has been used to apply a game-theoretic cancer model. The game-theoretic model provides a better fit to the tumor dynamics of the 590 Non-Small Cell Lung Cancer patients than any of the non-evolutionary population growth models. This is not simply due to having more parameters in the game-theoretic model. The game-theoretic model is able to fit accurately patients whose tumor burden exhibit a U-shaped trajectory over time. We then demonstrate how this game-theoretic model provides predictions of tumor growth based on just a few initial measurements. Assuming that treatment-specific parameters define the treatment impact completely, we then explore alternative treatment protocols and their impact on the tumor growth. As such, the model can be used to suggest patient-specific optimal treatment regimens with the goal of minimizing final tumor burden. Therapeutic protocols based on game-theoretic modeling can predict tumor growth, and improve patient outcome. The model invites evolutionary therapies that anticipate and steer the evolution of therapy resistance.

Parochial cooperation and the emergence of signalling norms

Why do people adorn themselves with elaborate body piercings or tattoos, wear obstructing garbs, engage in life-threatening competitions and other wasteful and harmful but socially stipulated practices? Norms of cooperation and coordination, which promote the efficient attainment of collective benefits, can be explained by theories of collective action. However, social norms prescribing wasteful and harmful behaviours have eluded such explanations. We argue that signalling theory constitutes the basis for the understanding of the emergence of such norms, which we call signalling norms. Signalling norms emerge as a result of the uncertainty about who is a friend and who is a foe. The need to overcome this uncertainty arises when different groups compete for scarce resources and individuals must be able to identify, trust and cooperate with their fellow group members. After reviewing the mechanisms that explain the emergence of cooperation and coordination norms, we introduce the notion of signalling norms as markers of group distinction. We argue that adherence to signalling norms constitutes a commitment promoting parochial cooperation rather than a quality-revealing signal facilitating partner choice. We formalize our argument in a game-theoretic model that allows us to specify the boundary conditions for the emergence of signalling norms. Our paper concludes with a discussion of potential applications of our model and a comparison of signalling norms with related concepts. This article is part of the theme issue ‘The language of cooperation: reputation and honest signalling’.