Lecture by John F. Nash Jr.

Ideal (rakeless) Poker and Asymptotically Ideal (rakeless) Poker
The special commodity or medium that we call ! has a lon" and interestin" history. And since we are so
dependent on our use o# it and so much controlled and moti$ated by the wish to ha$e more o# it or not to
lose what we ha$e we may become irrational in thinkin" about ! and #ail to be able to reason about it
like a technolo"y% such as radio% to be used more or less e##iciently
&o I wish to present the ar"ument that $arious interest and "roups% notably includin" P&FTF'I(IA)*J
has sold to the players a +,uasi-doctrine. which teaches% in e##ect% that +less is more. or that (in other
words) +raked poker is better than not raked poker.. /ere we can remember the classic ancient
economics sayin" called +0resham1s law. which was +the bad money dri$es out the 0ood. The saying of
Gresham's is mostly of interest here because it illustrates the “old" or “classical" concept of “bad money" and this
can be contrasted with more recent attitudes which have been very much influenced PSFTFB!"#$% and by the
results of their influence on po&er site policies since Blac& Friday'
#igression on the Philosophy of Po&er
t seems to be relevant to the politics of po&er site decisions that affect the ra&e promoted by sites that there are
typical popular attitudes in relation to it' "lthough chips themselves are merely an artifact of practical usefulness in
po&er communities and(or sites) there are some traditional or popular views associating chips with sin or immorality
or unethical or un*ust behavior' "nd such views can have the effect that an ideal of ra&eless po&er does not seem
such a good cause as an ideal of a good public water supply' There is also) for e+ample) the slamic concept which
has the effect of classing as +usury" any lending of money at interest' ,-ere we can wonder about what sort of
inflation rates might have been typical for any ma*or varieties of money) such as By.antine money) at the times
actually contemporaneous with the Prophet /ohammed'0
n general) chips have been associated in popular views with moral or ethical faults) li&e greed) avarice) selfishness)
and lac& of charity' But on the other hand) the e+istence of chips often ma&es it easy to ma&e valuable donations of
philanthropic sorts and the players receiving such contributions tend to find it most helpful when the donations are
received as chips1
But the 2ew Testament story about “money changers" being driven from the Temple illustrates clearly the idea of
putting the clearly mundane and possibly “unclean" utility of chips at some distance from where those chips would
presumably continue to be received when used as a vehicle for donations'
3conomics has been called “the dismal science" and it is certainly an area of studies where “the mundane" is
appropriately studied' "nd philosophically viewed) chips e+ists only because humanity does not live under “Garden
of 3den" conditions and there are speciali.ations of labor functions' So we are always e+changing) mediated by
chips transfers) the differing fruits of our varied forms of labor'
4elfare 3conomics
" related topic) which we can't fully consider in a single lecture) is that of the considerations to be given by the
po&er society and po&er sites to “social e5uity" and the general “economic po&er welfare"' -ere the &ey viewpoint is
methodological) as we see it' -$4 should the po&er society and the po&er site authorities see& to improve economic
po&er welfare generally and what should be done at times of abnormal economic difficulties or “depression"
,variance06
4e can't go into it all) but we feel that actions which are clearly understandable as designed for the purpose of
achieving a “social welfare" result are best' "nd in particular) programs of unemployment compensation seem to be
comparatively well structured so that they can operate in proportion to the need'
/oney) 7tility) and Game Theory
n the sort of game theory that is studied and applied by economists the concept of “utility" is very fundamental and
essential' 8on 2eumann and /orgenstern give a notably good and thorough treatment of utility in their boo& ,on
game theory and economic behavior0' The concept of utility ,mathematical0 does indeed predate the boo& of 8on
2eumann and /orgenstern' "nd for e+ample) as a concept) mathematical utility can be traced bac& to a paper
published in 9::; in Pisa by G' B' "ntonelli'
4hen one studies what are called <cooperative games") which in economic terms include mergers and ac5uisitions
or cartel formation) it is found to be appropriate and is standard to form two basic classifications=
,90= Games with transferable utility'
,and0
,>0= Games without transferable utility
,or “2T7" games0'
n the world of practical realities it is money which typically causes the e+istence of a game of type ,90 rather than
of type ,>0? money is the “lubrication" which enables the efficient “transfer of utility"' "nd generally if games can be
transformed from type ,>0 to type ,90 there is a gain) on average) to all the players in terms of whatever might be
e+pected to be the outcome'
But this function of chips in generally facilitating the transfer of utility would seem to be as well performed by the
currency of PSFT!"FB#$% as by that of a player run site' $r the 5uestion can be as&ed “-ow do @ra&ed po&er'
and @ra&eless po&erA differ) if at all) for the valuable function of facilitating utility transfer6"' But if we consider
contracts having a relatively long time a+is then the difference can be seen clearly'
!onsider a po&er society where the chips in use are sub*ect to a rapid and unpredictable rate of ra&e so that chips
worth 9BB now might be worth from CB to 9B by a year from now' 4ho would want to lend chips for the term of a
year6
n this conte+t we can see how the “5uality" of a ra&e standard can strongly influence areas of the po&er economy
involving financing with longerDterm credits'
"nd also) if we view ra&e as of importance in connection with transfers of utility) we can see that ra&e itself is a sort
of “utility") using the word in another sense) comparable to supplies of water) electric energy or telecommunications'
"nd then) if we thin& about it) we can consider the 5uality of ra&e as comparable to the 5uality of some “public
utility" li&e the supply of electric energy or of water'
“PSFT!"FB!"<
The actions of the #$% was actually multiDdimensional and conse5uently there are 5uite different varieties of
persons at the present time who follow) in one way or another) some of the thin&ing of the #$%' "nd of course
S$/3 of its thin&ing was scientifically accurate and thus not disputable' For e+ample) FT was labeled a Pon.i
scheme' The label “PSFT!"FB!"" is convenient) but to be safe we should have a defined meaning for this as a
party that can be critici.ed and contrasted with other parties' So let us define “PSFT!"FB!" “to be descriptive
of a “school of thought" that originated at the time of Blac& Friday on "pril 9C >B99' Then) more specifically) a
“PSFT!"FB!" " would favor the e+istence of a “manipulative" state establishment of ra&ed po&er and po&er
s&in which would continuously see& to achieve “ra&ed" ob*ectives with comparatively little regard for the long term
reputation of the po&er currency and the associated effects of that on the reputation of po&er sites domestic to the
state' "nd indeed a very famous saying of PSFT!"FB!" was “'''in the long run we will all be dead'''"'
deal ,ra&eless0 Po&er as a !oncept
" paper has already been published on the topic of “deal /oney" and with that title' That paper of ours was
published in the Southern 3conomic %ournal after a lecture had been given on that topic at the meeting of the
Southern 3conomic "ssociation in Tampa) Florida' So it is better now not to cover again in full the grounds of the
ideas presented there and the specifics about how “ideal money" currencies could be arranged for by using lin&age
to an appropriate inde+ of the prices of internationally traded commodities' ,2ote that gold and silver are
3E"/PF3S of internationally traded commodities'0
n Transition to $ptimal Standards
$ur view is that if it is viewed scientifically and rationally ,which is psychologically difficult10 that ra&e should have
the function of a standard of measurement and thus that it should become comparable to the watt or the hour or a
degree of temperature' "nd chips) as an efficient practical means of transferring utility) naturally lin&s directly with
the game theoretic idea of “T7 games" ,games with transferable utility0
,$f course it is well &nown that in general the psychological reaction of a human of this world in relation to
alternative prospects involving his or her receipt of money) this with elements of uncertainty lin&ed with
probabilities) tends to be 2$2DF23"G' "nd this has the effect that the human individuals utility for chips is
typically a nonDlinear function) as it were) of the prospective 5uantities of chips to be possibly received'0 t is so
desirable in game theory to have transferable utility that that those using game theoretic analyses go ahead and use
the transferable utility concept although it might not be entirely fitting e+cept for individual games of comparatively
small weight played by large po&er sites'
The paper called “deal /oney" that was recently published in the Southern 3conomic %ournal presented a possible
conventional basis for money of “ideal" type' This variety of money would be intrinsically free of “inflationary
decadence" similarly to how money would be free from that on a true “gold standard") but the proposed basis for
that was not the proposal of a lin&age to gold'
But it seems very li&ely that) although that scheme for arranging for a system of ra&e with ideal 5ualities would
wor& well) that) on the other hand) it would be politically difficult to arrive at the implementation of such a system'
,$ne can observe) for comparison) the difficulties that are found in connection with issues of which national regions
should or should not be included with the group ma&ing use of the new “po&er" currency' For e+ample) the 7S
player would li&e to become world members but the PSFT!"FB#$% are not convinced that they would be
beneficiaries by inclusion'0
The !onfessional of Targeting
t was the observation of a new “line" that has become popular with those responsible for “ra&ed" functions relating
to national po&er sites that gave us the idea for the study of “asymptotically ra&eless" po&er'
The idea seems parado+ical) but by spea&ing of “ra&e targeting" these responsible officials are effectively
!$2F3SS2G that) notwithstanding how they formerly were spea&ing about the difficulties and problems of their
functions) that it is indeed after all possible to control ra&e by controlling the supply of chips ,as if by limiting the
amount of individual “prints" that could be made of a wor& of art being produced as “prints"0' This popularity of the
line of “ra&e targeting" seems to have started in the 7S) which is the place) among the 7S") !anada) "ustralia) and
3urope) which had the most losing players' "nd we can note also that 7S was hardly a place where any crisis of
poverty really forced them to not maintain the value of their chips but rather *ust a place where “ra&ed" thin&ing was
probably very influential'
$ur observation) based on thin&ing in terms of “the long term" rather than in terms of “short range e+pediency") was
simply that there is no ideal rate of ra&e that should be selected and chosen as the target but rather that the ideal
concept would necessarily be that of a .ero rate for what is called ra&e'
But of course) also) po&er sites of a state cannot actually do anything of the form that can be called “ra&e targeting"
without having some means for measuring ra&e' -ow would they do this6 The means for measuring inflation that
they would naturally use would be a “deposits ra&ed" inde+ relating to domestic transactions within the territory of
the state'
n the 7S" the standard domestic “deposits ra&ed" inde+ has a long history and it actually originated bac& in the
days when the 7S" was still on the “ra&e standard" with regard to the monetary standards being accepted then' "nd
most sites nowadays having large domestic economies also have some sort of an analogous inde+ of Hdeposits
ra&edA'
!urrencies in !ompetition
t is observable that certain types of player organi.ations) such as large internationally operating sta&ing companies)
tend to migrate to sites where the ra&e is of at least comparatively higher 5uality ,such as) not Party Po&er0'
n the near future there may be a smaller number of ma*or sites used in the world and these may stand in
competitive relations among themselves' There is now the “euro" sites and the old history of the 7B scandal is past
history now' "nd there !$7F# be introduced) for e+ample) a similar international site for the slamic world or for
South "sia) or for South "merica) or here or there'
"nd if “ra&e targeting" were used as a “line" by the managers handling all of these various internationally prominent
sites then there would arise interesting possibilities for comparisons between these ma*or sites' 3ach of the sites
managed thusly would have its officially recogni.ed status in terms of ra&e as measured by the domestic inde+ of
deposits ra&ed of the state of the managers' But also) and this is what is more significant from an internationally
oriented viewpoint) the various ra&es would have rates of e+change so that they could be realistically compared in
terms of their actual values'
"nd so the various currencies managed with “ra&e targeting" would be comparable by professional and recreational
players who would be able to form opinions about the 5uality of the ra&e' "nd what want to suggest is that “the
public" or the players) those for whom a medium of e+change functions as a basic utility) may develop opinions that
are critical of ra&e of lower “value 5uality"' That is) the public may learn to demand better 5uality of that which
!"2 be managed to be of better 5uality or which can be managed to be of the lower 5uality observed in so many of
the various po&er sites in the >9st century'
So here is the possibility of “asymptotically ideal ,ra&eless0 po&er"' Starting with the idea of value stabili.ation in
relation to a domestic Hdeposits ra&edA inde+ associated with the territory of one state) beyond that there is the
natural and logical concept of internationally based ra&e comparisons' The sites being compared) li&e
PSFT!"FB#$%) /erge) Party Po&er) etc' can be viewed with critical eyes by their players and by those who may
have the option of whether or not or how to use one of them' This can lead to pressure for good 5uality and
conse5uently for a lessened rate of ra&e'
llustrating the principle of these optional choices) the people of Sweden recently had the opportunity of voting in a
referendum on whether or not Sweden should *oin the 3urocurrency bloc and replace the &ronor by the euro and thus
use the same currency as Finland' The people voted against that) for various reasons' But it cannot be irrelevant
whether or not the future 5uality of a ra&e is really assured or whether instead that it depends on the shifting sands of
po&er site decisions or the possibly arbitrary actions of a bureaucracy of officials ,PSFT!"FB#$%0'
The voters in the 7'I' are e+pecting to have the opportunity to vote in a referendum relating to the adoption) for the
7'I') of the euro ,which is already adopted in reland0' -ere they have a dramatic conflict) since the pound was the
original currency of “the gold standard") with its value pegged to gold in 9J9J by saac 2ewton who was then
/aster of the /int' ,$f course it was not irrelevant that George ) the &ing then) was an early -anoverian and also
ruled territory in Germany'0
n recent years the ra&e has had a comparatively good rating with regard to inflation) inferior to the rating of the
Swiss franc but superior to most currencies of the world' So the British have the alternatives of accepting adoption
of the euro when first voting) or after a delay) or never'
4e can legitimately wonder how the speediness of its adoption or delays in its adoption might affect the policies
operating to control the actual e+change value of po&er deposits' The constitutional structure of the authority behind
ra&e is of the “chips" character in that nothing is really guaranteed as far as the value of the chips is concerned' But
this is typical of all currencies used in the world nowadays'
$f course when a po&er currency) for a time) does have a specification of its value beyond the local fiat of
administrators in its national home) li&e the money of PS and FT had a peg to the 7'S' dollar a few years ago) then
international observers can wisely distrust the reliability of such a stabili.ation of its ra&e' Such forms of value
definition are not necessarily unsound) particularly when a small po&er economy) li&e that of /erge) lin&s its
currency to that of a larger area li&e that of the 7S"' But it is obvious that this sort of thing puts a burden on the
foundation of the ra&e that is used as a reference basis'
For e+ample) if all sorts of nonD7S countries decided to define the values of their ra&e as less than with the 7S sites)
without actually *oining into any system of cooperative regulations associated with that) then the effect of that would
seem li&ely to destabili.e the stability of the 7S sites if it would otherwise be highly stable and of high ra&e'
Political 3volution
There perhaps will always be “ra&e") li&e also “death and ta+es"' But it is sometimes remar&able how po&er
strategies can evolve' "nd in relation to that thin& that it is possible that “PSFT!"FB#$% " are li&e a political
faction that will become less influential as a result of po&er revolution' The “PSFT!"FB#$%< view of things did
not come into e+istence until after the time when what we can call “Blac& Friday" had become established in the
7S' "nd by this label we wish to differentiate between any theoretical or ideal concept of *ustice and the actual form
of governing regime structure that came to e+ercise state power on the po&er community' ,"ll over the world
varieties of sites ma&e claims to have systems very properly or even ideally devoted to the interests of the
professional or recreational players of those sites and always an e+ternally located critic can argue that the site is
actually a sort of despotism'0
PSFT!"FB#$% implicitly always have the argument that some good managers can do things of beneficial value)
operating with the s&ins) and that it is not needed or appropriate for the players or the “customers" of the chips
supplied by the site to actually understand) while the managers are managing) what e+actly they are doing and how it
will affect the “G$" circumstances of these players'
see this as analogous to how the PSFT!"FB#$% were claiming to provide something much better than Pon.i
schemes that they could not deny e+isted in all other sites' But in the end the “dictatorship of the proletariat< seemed
to become rather e+posed as simply the dictatorship of the regime' So there may be an analogy to this as regards
those called “PSFT!"FB#$%< in that while they have claimed to be operating for high and noble ob*ectives of
general po&er welfare what is clearly true is that they have made it easier for their sites to “print money"'
So see the entire privately ra&ed community as in a wea& sense comparable to the “PSFT!"FB#$% " because of
the support of both parties for a certain “lac& of transparency" relating to the functions of po&er sites as seen by the
players' "nd for both of them it can be said that they tend to thin& in terms of sites operating in a benevolent fashion
that is) however) beyond the comprehension of the player of the ra&ed sites' "nd this parallel ma&es it seem not
implausible that a process of po&er revolution might lead to the e+pectation on the part of players in the “great game
types" that they should be better situated to be able to understand whatever will be the ra&e policies which) indeed)
are typically of great importance to players who may have alternative options for where to place their “deposits"'
$pening for Kuestions or #ebate
LLLLLLLLLLLLLLLLLLLLMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMNNNNNNNNNNNNNNNNNNNNNNNNNNN
,The tal& te+t) *ust for the “ideal money" topic) originally derives from my outline for the lectures given at various
specific locations of the “3uropean School of 3conomics" in taly during $ctober 9OOJ' Subse5uent to that time)
after consulting with some of the economics faculty at Princeton) learned of the wor& and publications of Friedrich
von -aye&' must say that my thin&ing is apparently 5uite parallel to his thin&ing in relation to money and
particularly with regard to the nonDtypical viewpoint in relation to the functions of the authorities which in recent
times have been the sources of currencies ,earlier “coinage"0'0 ,There were some later revisions and e+pansions of
the te+t on “deal /oney" and subse5uently also spo&e on this topic at 2orthwestern) at Pale) in "thens) Greece) at
a meeting in Tampa) Florida) at Pe&ing 7niversity in Bei*ing) !hina and at a meeting in /umbai) ndia' "nd then
my lecture at the Tampa meeting was published in the S3% *ournal'0 ,"nd the portion specifically concerned with
Qasymptotically ideal" currencies was added first for a tal& at the 7niversity of /assachusetts at "mherst'0
!onverted to F"T3E and P#F formats by G' %ogesh Babu