Games in rigged economies

TL;DR

This paper models rigged economies using a toy model to analyze how economic complexity and intervention influence system stability, revealing phases of equilibrium, defusion of cartels, and potential systemic risks from excessive complexity.

Contribution

It introduces a toy model capturing key elements of rigged economies, analyzing phase transitions and stability through Nash equilibria and agent-based simulations.

Findings

Increased intervention shifts economic dynamics from minority to majority games.

Higher economic complexity can spontaneously defuse cartels and consensus.

Excessive complexity leads to large fluctuations threatening system viability.

Abstract

Modern economies evolved from simpler human exchanges into very convoluted systems. Today, a multitude of aspects can be regulated, tampered with, or left to chance; these are economic {\em degrees of freedom} which together shape the flow of wealth. Economic actors can exploit them, at a cost, and bend that flow in their favor. If intervention becomes widespread, microeconomic strategies of different actors can collide or resonate, building into macroeconomic effects. How viable is a `rigged' economy, and how is this viability affected by growing economic complexity and wealth? Here we capture essential elements of `rigged' economies with a toy model. Nash equilibria of payoff matrices in simple cases show how increased intervention turns economic degrees of freedom from minority into majority games through a dynamical phase. These stages are reproduced by agent-based simulations of our model, which allow us to explore scenarios out of reach for payoff matrices. Increasing economic complexity is then revealed as a mechanism that spontaneously defuses cartels or consensus situations. But excessive complexity enters abruptly into a regime of large fluctuations that threaten the system's viability. This regime results from non-competitive efforts to intervene the economy coupled across degrees of freedom, becoming unpredictable. Thus non-competitive actions can result in negative spillover due to sheer economic complexity. Simulations suggest that wealth must grow faster than linearly with economic complexity to avoid this regime and keep economies viable in the long run. Our work provides testable conclusions and phenomenological charts to guide policing of `rigged' economic systems.