206: Cloudflare & AWS CEO Interviews, Tesla, Are You Playing to Win the Actual Game?, Flexport CEO on Global Logistics, Ford & Rivian EVs, and Global Solar Power Capacity
206: Cloudflare & AWS CEO Interviews, Tesla, Are You Playing to Win the Actual Game?, Flexport CEO on Global Logistics, Ford & Rivian EVs, and Global Solar Power Capacity
The scrub article is very interesting. We want people to hack the system when the result is welfare-enhancing for society, like with a new drug, but we don't want people to hack the system in ways that decrease welfare for society, like finding legal ways to avoid taxes that don't align with what the law intended.
You definitely see this in sports - sports is an entertainment product, but as high stakes as sports are now, players and coaches find ways to exploit loopholes in the rules, eg by diving or fouling or so on, sometimes in ways that make the game less compelling to watch. So the leagues have to expend resources to evolve the rules or worse yet they can't agree and the game becomes boring. But it's not always clear which innovations make the game better and which make the game worse (although in some cases it's very clear).
Buffett is a good example. He steps over one foot bars on the investing side but he is also unwilling to exploit the same questionable tax loopholes most other big companies do, he doesn't run his profits through Ireland and the Netherlands and so on (I don't think). He does of course take advantage of tax deferral from long term holdings and those kind of things but generally he sticks to stuff that are clearly intended by the people who designed the tax code.
I think in the end, we're all optimizing for more than one variable. So you can both try your best to win at the actual game WHILE having high standards for ethics WHILE aiming to do non-zero sum, productive/creative activities, etc.
Great follow-up. I was thinking about this one a bit as well. There is a distinction between gaming the situation and playing the game to win. Having been in academia for several years, there were faculty that were actually playing a different game than the one that was intended. Once that happened, more rules were put in place in order to try to prevent that issue. Students would "game" the GPA process as it was in their short-term interest to do so rather than to focus on long-term learning. I'm sure every profession has the same (or similar) issues.
I think there's probably a spectrum between people being effective at playing the actual game to win, and those looking for any loophole and way to give themselves an unfair advantage. Here's an anecdote I love:
"As with most successful racers, Yunick was a master of the grey area straddling the rules. Perhaps his most famous exploit was his #13 1966 Chevrolet Chevelle, driven by Curtis Turner. The car was so much faster than the competition during testing that they were certain that cheating was involved; some sort of aerodynamic enhancement was strongly suspected, but the car's profile seemed to be entirely stock, as the rules required. It was eventually discovered that Yunick had lowered and modified the roof and windows and raised the floor (to lower the body) of the production car. Since then, NASCAR required each race car's roof, hood, and trunk to fit templates representing the production car's exact profile. Another Yunick improvisation was getting around the regulations specifying a maximum size for the fuel tank, by using 11-foot (3 meter) coils of 2-inch (5-centimeter) diameter tubing for the fuel line to add about 5 gallons (19 liters) to the car's fuel capacity. Once, NASCAR officials came up with a list of nine items for Yunick to fix before the car would be allowed on the track. The suspicious NASCAR officials had removed the tank for inspection. Yunick started the car with no gas tank and said "Better make it ten," and drove it back to the pits. He used a basketball in the fuel tank which could be inflated when the car's fuel capacity was checked and deflated for the race. "
Yes, the more I think about it, the more I can think of a lot of systems that kind of rely on most smart people saying, I know I could easily game the system for my own personal gain, but I also know that I shouldn't do it, because then it just turns into a zero-sum arms race of plugging loopholes or even worse, it eventually ruins the whole institution.
Academia is a great example. My understanding is that a lot of the American health care system has this issue - drug companies have to show voluntary restraint in raising prices or they will eventually all be subject to price controls, I think. Anything relating to government procurement is probably easily hackable too.
Another high stakes game that is surprisingly easy to hack is government policy - especially in state and local elections with lower turnout, it's possible to hack public funds or public subsidies for your special interest group, whether it be a corporate group, a union, or even landowners. It's especially easy when the issue is complex and the true cost is obscured and borne by the next generation - think about bloated pensions, limits on building housing (so the next generation will have nowhere to live), unnecessary tax waivers.
On the more benign side, Gladwell had an article / book on the subject - I remember the example of how smaller basketball teams use the press, which is considered by some to be "not real basketball".
The scrub article is very interesting. We want people to hack the system when the result is welfare-enhancing for society, like with a new drug, but we don't want people to hack the system in ways that decrease welfare for society, like finding legal ways to avoid taxes that don't align with what the law intended.
You definitely see this in sports - sports is an entertainment product, but as high stakes as sports are now, players and coaches find ways to exploit loopholes in the rules, eg by diving or fouling or so on, sometimes in ways that make the game less compelling to watch. So the leagues have to expend resources to evolve the rules or worse yet they can't agree and the game becomes boring. But it's not always clear which innovations make the game better and which make the game worse (although in some cases it's very clear).
Buffett is a good example. He steps over one foot bars on the investing side but he is also unwilling to exploit the same questionable tax loopholes most other big companies do, he doesn't run his profits through Ireland and the Netherlands and so on (I don't think). He does of course take advantage of tax deferral from long term holdings and those kind of things but generally he sticks to stuff that are clearly intended by the people who designed the tax code.
I think in the end, we're all optimizing for more than one variable. So you can both try your best to win at the actual game WHILE having high standards for ethics WHILE aiming to do non-zero sum, productive/creative activities, etc.
Great follow-up. I was thinking about this one a bit as well. There is a distinction between gaming the situation and playing the game to win. Having been in academia for several years, there were faculty that were actually playing a different game than the one that was intended. Once that happened, more rules were put in place in order to try to prevent that issue. Students would "game" the GPA process as it was in their short-term interest to do so rather than to focus on long-term learning. I'm sure every profession has the same (or similar) issues.
That's an interesting line..
I think there's probably a spectrum between people being effective at playing the actual game to win, and those looking for any loophole and way to give themselves an unfair advantage. Here's an anecdote I love:
"As with most successful racers, Yunick was a master of the grey area straddling the rules. Perhaps his most famous exploit was his #13 1966 Chevrolet Chevelle, driven by Curtis Turner. The car was so much faster than the competition during testing that they were certain that cheating was involved; some sort of aerodynamic enhancement was strongly suspected, but the car's profile seemed to be entirely stock, as the rules required. It was eventually discovered that Yunick had lowered and modified the roof and windows and raised the floor (to lower the body) of the production car. Since then, NASCAR required each race car's roof, hood, and trunk to fit templates representing the production car's exact profile. Another Yunick improvisation was getting around the regulations specifying a maximum size for the fuel tank, by using 11-foot (3 meter) coils of 2-inch (5-centimeter) diameter tubing for the fuel line to add about 5 gallons (19 liters) to the car's fuel capacity. Once, NASCAR officials came up with a list of nine items for Yunick to fix before the car would be allowed on the track. The suspicious NASCAR officials had removed the tank for inspection. Yunick started the car with no gas tank and said "Better make it ten," and drove it back to the pits. He used a basketball in the fuel tank which could be inflated when the car's fuel capacity was checked and deflated for the race. "
Yes, the more I think about it, the more I can think of a lot of systems that kind of rely on most smart people saying, I know I could easily game the system for my own personal gain, but I also know that I shouldn't do it, because then it just turns into a zero-sum arms race of plugging loopholes or even worse, it eventually ruins the whole institution.
Academia is a great example. My understanding is that a lot of the American health care system has this issue - drug companies have to show voluntary restraint in raising prices or they will eventually all be subject to price controls, I think. Anything relating to government procurement is probably easily hackable too.
Another high stakes game that is surprisingly easy to hack is government policy - especially in state and local elections with lower turnout, it's possible to hack public funds or public subsidies for your special interest group, whether it be a corporate group, a union, or even landowners. It's especially easy when the issue is complex and the true cost is obscured and borne by the next generation - think about bloated pensions, limits on building housing (so the next generation will have nowhere to live), unnecessary tax waivers.
On the more benign side, Gladwell had an article / book on the subject - I remember the example of how smaller basketball teams use the press, which is considered by some to be "not real basketball".
https://www.newyorker.com/magazine/2009/05/11/how-david-beats-goliath