To me this incessantly boring fight between two camps that are both quite wrong, shows only one thing - that there is complexity under the rug, and quite a lot of it. https://twitter.com/frances_coppola/status/1344616932830564353

Pianos are bought for their utility, which is easily described, you can play them, and they sound good. More people desire this utility - more demand, less people desire it - less demand. Easy.

Not so easy with Bitcoin. It’s utility takes root in a tacit social understanding that it’s valuable. But what gives rise to this understanding is demonstrated in this precise conversation. It’s the stubborn commitment to the notion that limited supply is a useful feature.

Bitcoin, in other words, is a type II chaotic system, one in which the observer can alter the outcome, which, given that observers are many, is... well... complex.

Economists love simple models where utility can be easily measured (pianos, vacation destinations). This isn’t one of them, because utility is perceived by participants through quite an irrational lens.

But then isn’t it rational to act irrationally when everyone’s irrational behavior causes irrational behavior to generate positive outcomes?

Let’s play Bitcoin by the framework of prisoners dilemma. Cooperate = buy, defect = sell. Note: there are 7 billion players and you only observe a partial payoff matrix.

If everyone cooperates, you HAVE to cooperate. If everyone defects you have to defect. But you don’t know what *everyone* will do. You have to guess, using very limited information.

This is a known problem and evolution embedded us with heuristics some call “coordination factors”. Kings, gods, astrological calendars, what have you. As long as you have reason to believe that everyone [that matters] uses the factor, it’s a great factor for you to also use.

Irrational coordination factors are best, because they are unquestionable. To an outsider, a group of Pacific Islanders using the shape of the clouds in the morning to know whether to go to market or not may seem stupid and irrational but it’s not - if everyone does it, it works

So, back to bitcoin. The Irrational belief that bitcoin’s limited and inelastic supply is important may seem utterly stupid to an economist, who takes the statement at face value. So here we are @AriDavidPaul arguing with @Frances_Coppola till both are blue in the face.

Indeed, says the economist. The original drawings by my 3 year old are scarce because there’s only 5 of them, but utterly worthless despite the inelastic supply. So what on earth are the bitcoiners talking about it? This must be crap.

But it’s not crap, and the economist just missed the point. The point of the bitcoiner, one he is likely not even aware of, is most importantly that by what he, bitcoiner, knows, other bitcoiners share his belief, their sharing his belief guarantees the equilibrium, and ...

... because it guarantees the equilibrium the argument MUST be valid and sound. It must be valid because it’s useful, in other words.

He, bitcoiner, is wrong of course. His argument is not valid. And it’s only temporarily useful, until it’s not, until everyone (for a host of reasons easily seen) has to defect. But here’s the catch — timing.

Because this is NOT a proper Nash equilibrium (I leave this part as an exercise to the reader) but it can exist for an almost indefinite period of time, being in some ways “semi-stable”, one must decide on the most-likely-correct behavior *now* and that behavior is most likely ..

... to cooperate. Perplexing as this surely is to an economist, who has spent her life studying solid systems under the faulty assumption of common knowledge of rationality or at least prevalent common knowledge of rationality only to discover that not only individuals ...

... but entire societies can exist under some serious violations of such, pretty much indefinitely, rendering her science applicable to little more than a game between some robots in a lab setting.

Of course the economist has no choice but to call those people and societies stupid. But that does little to explain their behavior, nor indeed, their long term success.

So there. Happy new year Bitcoin, you ATH is much appreciated.

P.S. arbitrary limits on production do exactly that is seen by the consumer as a key feature. https://twitter.com/frances_coppola/status/1344627010090508290

P.P.S. There are irrational arguments that are useful and sound arguments that are destructive. Example:

Irrational argument that is useful: *your vote matters*

Economically sound argument that is counter to being useful: *your vote does not matter*

@Frances_Coppola would love to discuss this with you :)

Thread continues here https://twitter.com/mrsumfing/status/1345393014575923207