Everyone believes they are rational actors. Everyone thinks their actions make sense and represent a means to an end, whether in the short or long term. But how much attention do you pay to these actions? How much notice do you pay towards the actions of individuals that you don't understand? But what if you could understand? What if everything made sense, and the path to get where you wanted to be was brighter than it had ever been before? That is the promise of how to understand everything.
**Hunter Powers:** Hello and welcome to the ONE. I am Hunter Powers broadcasting live from our nation's capital, Washington DC. Today's ONE idea is everyone believes they are a rational actor. This is a very simple concept. It can be a very profound concept and it is a concept that I observe many people failing to apply. Everyone believes they are a rational actor. If you can master this concept untold fortunes await you. That's how powerful it can potentially be. Now, I don't know if anyone has truly mastered it. I think there are people that are better at it than others, but that's when I talk about being profound. If you were able to truly master this idea, untold riches await. How great is that? Everyone believes they are a rational actor.
**Hunter Powers:** So the first thing, the first thing we have to look at is what is a rational actor? I first learned about rational actors while studying game theory. Game theory is a branch of mathematics that uses models to study interactions with formalized incentive structures or put a little bit simpler: how and why people make decisions. And rational actors are the make believe people that you study in these game theory situations, they are autonomous utility maximizers. How's that? How's that for a put down? The next time you're angry at someone you autonomous utility maximizer, you. You can try it out, you can let me know if it works. What is an autonomous utility maximizer? It's someone that has freewill. Freewill in choosing which action to take and the belief that the action that they are choosing with their free will is one that maximizes utility, that maximizes value, that they are doing the thing that they do for a reason, a means to an end and that end could be very, very soon or very, very far away, short term or long term.
**Hunter Powers:** But they are making that action for a reason and that it a means to an end that they are an autonomous utility maximizer, that they are a rational actor. And so again, these rational actors are the make believe people that we study in these game theory situations. I want to give you an example, one of these so-called situations. So game theory, the study, the formalized study of game theory started in the 1700s, the early or I think it was like 1713. Early 1700s in England, but not a lot came of it and it really isn't until the 1950s that it starts to explode and it will eventually help pave the way to what I would say is a modern revolution in artificial intelligence and machine learning, but it was in the 1950s during this Renaissance of these theories originally postulated in the 1700s that this game, this scenario, was first frame and it is called the prisoner's dilemma.
**Hunter Powers:** Here's how it works. Two members of a criminal gang are arrested and imprisoned. Each prisoner is in solitary confinement with no means of communicating with the other prisoner. The prosecutors lack sufficient evidence to convict the pear on the principle charge, but they do have enough to convict both of them on a lesser charge. Now this principle charge carries with it a sentence of five years, five years of hard time, and the lesser charge, well, that carries a sentence of one year. And again, they don't have enough evidence to get a conviction on that principle charge of five years. So simultaneously the prosecutors offer each prisoner a bargain. Each prisoner in their solitary confinement with no means of communicating with the other. Each prisoner is given the opportunity to rat out the other one to betray the other one by testifying that they indeed committed the crime.
**Hunter Powers:** Because if the prosecutor can convince them to testify, then they'll have enough evidence. So each prisoner is given the opportunity either to betray the other by testifying that the other committed the crime or to cooperate with the other by remaining silent. And they're told that the other prisoner, their fellow gang member is being offered this exact same opportunity at this exact same time. And this is the prisoner's dilemma. There are four possible outcomes from this dilemma. Let's refer to these two prisoners as A and B. So if A and B each rat out each other, if they both accept the bargain and say, "Yes, I'll testify against the other one." Then they both end up serving five years in prison because now the prosecutor has enough evidence to convict both of them. Now, if A rats out B, but B says, "I'm not talking." Well in this scenario, A walks free and B serves five years in prison.
**Hunter Powers:** And if we reverse that, if B says, "I'll rat out A and A says, "I'm not talking." Well then B walks free and A serves five years in prison. And then the last of the possible outcomes, if they were to both remain silent then both of them would only serve one year in prison because the prosecutor wouldn't have the necessary evidence to convict them of that principle charge. And there was one more stipulation of this game, this situation, this dilemma. And that is that there would be no future repercussion for either of the two criminals, no matter which action they chose. So if A rats out B, and B remains silent and A walks free, and then five years later when B gets out of prison, nothing's going to happen, guaranteed. Won't affect their street cred, it won't affect anything. So given this knowledge, what is the correct strategy?
**Hunter Powers:** You are an autonomous utility maximizer. What do you do? Do you rat out your friend or do you stay silent and wait for them to rat out you? Or do you trust your friend that you will both remain silent? Because if you both remain silent, then you're guaranteed to only have to serve one year. But if you start playing with ratting each other out, five years becomes a very real possibility. So what is the correct move? From a game theory, optimal standpoint, what is the correct strategy? What strategy maximizes your utility? What strategy does a rational actor take? The answer is they rat the other criminal out. And here's why. Let's assume that we are prisoner A and in this version B will remain silent. So if we remain silent as well, we both serve one year in prison. But if we rat out B, well then we get to walk free.
**Hunter Powers:** So if we knew for a matter of fact, B would remain silent, then it's in our best interest to rat them out because then we walk free. Now if we knew that B was going to rat us out, then we might as well make them serve the five year sentence as well. So we go right ahead and rat them out. But the reality is that we don't know and don't know what they're going to do. So the correct move is to rat them out because if they don't rat us out, then we walk free. And if they do rat us out, we have to serve five years. But in that scenario, if we hadn't ratted them out, we would still have had to five years because they ratted us out. And perhaps that idea is slightly unsettling that the correct move is to rat the other person out.
**Hunter Powers:** So I will leave you with a slightly affirming variation on the prisoner's dilemma, which is if you were allowed to play the game repeatedly, it wasn't a one time affair that the correct strategy actually changes. There's something called the folk theorem. And the folk theorem says that if we can repeatedly play these games, then it's often in our best interest to collaborate at first. And then if the other players stab us in the back, then we never collaborate again. So if we knew that we were going to play this game 10 times in a row, it might be the correct strategy to remain silent and continue to remain silent until the other prisoner rats us out one time. And once we know that they are willing to consider ratting us out, then it is the correct strategy for us to rat them out every single time thereafter. So there is the possibility for cooperation, but it requires us to have the opportunity to repeat a game over and over again. And that is the prisoner's dilemma.
**Hunter Powers:** So in game theory, you're studying what is the best course of action that someone should take. And you then have an expectation that they're going to take that action because you believe that it's in their general self interest, that it is maximizing the utility to them to take that action and that self interest may be someone else's self interest. A quick example of that, a mother and her child and she can only save one of their lives, which life is she going to save? Well, acting in her own self interest, you might conclude that she would save her own life, but most likely she values the life of her child more than her own and so she chooses to save the life of her child and sacrifice hers and that doesn't necessarily conflict with the game theory optimal approach.
**Hunter Powers:** She's just applied a higher reward function to her child, whether it's out of a sense of responsibility or if you just wanted to look at it in a mathematical sense the amount of life left is far greater in the child. That idea doesn't conflict with our game theory. So game theory attempts to figure out these structures and the way to play these games in an optimal way, and also provides a method for us predicting how people will behave given they are rational actors. And so we're back to this idea of rational actors. What are rational actors? They are logical beings, people who can think through things at a moderate level, not some crazy, incredible level, but they're able to think through and figure out what is the correct action to take. And then generally take the correct action, the action that maximizes their game. A lot of artificial intelligence is based on this idea of rational actors and predicting how a rational actor would behave given the circumstances.
**Hunter Powers:** So one way to look at these rational actors is that first off, most people they're probably rational actors, right? Most people are fairly competent fairly with it, and they behave in an optimal manner to maximize their reward. And if you are willing to accept this premise, then you can extend it a little bit further and say that people who don't behave as a rational actor have something potentially wrong with them, right? There's something broken with their logic in their head. Perhaps they are people to be avoided. Perhaps they are people to not trust. Why wouldn't you be able to trust them? Well because you have observed them acting in illogical ways. And the reason why you would trust them is because you have a belief system about how they will act based off of this rational act or logic. And now that you saw them, let's say they picked some food out of a trash can and they ate it. Now that you saw this behavior, you're like, "Well, maybe I should reconsider a few things. Maybe they're not a rational actor."
**Hunter Powers:** And so this is kind of like the beginning of an idea. There might be some insight here, but it's also a very flawed idea. But I want to explore it just a little bit further. I'm going to keep going with this idea, this person that grabs some food from the trash can and eats it. So most people, if it's their good friend, and let's just say they loaned this friend a little bit of money in the past and this friend takes care of their kids regularly. And I'm just trying to come up with examples that they have a very strong trust bond with this person and now they observe this person, they go to a trash can and they pull out something that looks disgusting and we're not talking about a muffin that's just sitting on the top. And actually the muffin was never touching the trash, just the wrapper.
**Hunter Powers:** No, no, no, no, no, no. Like, this is someone, I don't know. Maybe they poured some spaghetti into the trash and it sat there for a couple of days, just a bunch of old food and below the spaghetti there was an apple and they reached through the spaghetti into the food that's been there for a week and they pull out the apple, which is completely browned and there's all kinds of junk just dripping off of it and they take a bite of it. And so in this moment you're like, "What are you doing?" And they're like, "It's fine. The apple is still good. And I just remembered it was in there and I wanted a bite." And you're like, "Are you crazy?" And they're like, "Yeah, it was probably a bad idea. I don't know what I was thinking." And you just go on.
**Hunter Powers:** So most people are willing to forgive that instance and probably incorrectly because that instance is not a small violation of your model of that person. It's a fairly large violation. There is some logic at play that is far out of bounds with the logic that you've used to create this very trusting relationship with the person. And so this is the first insight and it's a little bit of a side chain or a sidebar that I bet you don't do. When you see something that violates the pattern in general, we want to excuse that which we see because we would rather be right and we would rather not have to consider the implications that the rest of our pattern might be wrong. We want to compartmentalize it. Oh, this person, they're just kind of like a weird eater. They like these week old apples from the bottom of the trashcan. Maybe they grew up a little oddly. But the rest, everything else that I have assumed about them that has still got to be spot on.
**Hunter Powers:** It's just that sometimes they reach into the two week old trash and pull out a rotting apple and take a bite of it. But I don't know, people will be people. I think that's a giant flaw. It's something that a lot of people miss. They excuse the pattern violation far too easily. And it doesn't mean by the way that all trust must be broken with this person, but it does mean that you should probably reconsider it and you should at a minimum note that your assumptions are no longer okay until you take the time to reconsider them. You can choose to ignore the fact you can choose to be like, "Yeah, I'm not going to spend the time to go back and reconsider all of that. I feel like it's more valuable to me or I'm better off if I just keep assuming that everything's good. I'm going to go with that." And you'd go with that, that's fine. It's fine as long as you acknowledge that that's what you're doing, that you're doing it with your eyes open.
**Hunter Powers:** Okay, so this is based on this idea that everyone is a rational actor and that when you see someone not behaving as a rational actor, you should question it. Perhaps you should avoid them. There must be something wrong with them. And this was an idea that I developed and I wrote it down at one point. And this idea is a deeply flawed idea and there's just this small tweak to it that makes it correct, which is that it's not that everyone is a rational actor, it's that everyone believes they are a rational actor.
**Hunter Powers:** Everyone believes that the actions they are taking make sense. They make sense to them. In general, people are not rational actors. They all have their own unique way of approaching life based off of their education and experiences. And to assume that they are going to in general behave in some game theory, optimal way is really wrong. It doesn't happen. And while perhaps I assumed that I was approaching my life in some kind of game theory, optimal way, and I don't know, maybe I was or maybe it was actually that just as everyone else does, I assumed I was a rational actor. Maybe these ideas right here that you are listing to now, they are far from what a normal rational person would think. But here I am rationalizing them and explaining why. No, no, no, no, no. This what you're listening to now is completely normal.
**Hunter Powers:** And someone would think this. So the evolution of this idea is that everyone believes they are a rational actor. Everyone believes that their actions or the correct actions in the moment that they made them, that they are justified. And if you want proof of this, just look at the fact that they did them. People don't do things that aren't justified. It might've been impulsive. It was an impulsive thing. I was in the moment. Yeah, sure. But you still made the action. You made the action. You didn't think it was a nubby action. It wasn't random. You didn't flip a coin to decide what to do. You took the action. So if you're willing to accept this premise, this new premise that everyone believes they are rational actors, that we all believe in ourselves and that we are behaving in a way that makes sense to us.
**Hunter Powers:** How can you use this idea? How can you maximize the utility of this idea? A lot of people dismiss others for not behaving in their predicted fashion when they don't understand what they did. That's crazy. I don't understand it. I don't get what you're doing here. You get into an argument where you want to talk about why someone is so wrong. This was the wrong thing. You should have done this. This is what made sense. I can't believe you did such and such, but very few people take the time to ask, what is the series of logical behaviors that would lead someone to find this new logical behavior to take this action? What are the series of assumptions that one would need to make, right? Because they did this thing that you vehemently disagree with and you can't understand it. I don't understand why you did whatever you did, but they really believe in it. And so you must ask yourself what are the things that they would need to believe in and except that would get them to take this action?
**Hunter Powers:** Ask yourself that. Examine that. A lot of people don't do that. A lot of people aren't capable of doing that, but if you start practicing, you'll work up the muscle, you'll figure it out. And so you come up with this series of things that they must believe in order for them to have made this action, or have come to this conclusion now this makes any argument you might have much stronger because you now understand or at minimum have a hypothesis of why they believe this way. Whereas they don't necessarily know why you have your opinion and we call this information asymmetry. You have an advantage in this game or argument and that advantage is that you have far more knowledge than they have. You understand all of the logic of their opinions and you understand all of the logic of your own. Whereas again, they most likely only understand the logic of their own opinion and so you can utilize this to elevate your discourse and win your way.
**Hunter Powers:** I'll point out the obvious. There's no guarantee that your logic that you put together on how they justify this action is the actual logic that they used. But you can certainly use it to kind of push and prod and reverse engineer what their logic must have been by asking a few clarifying questions, a little 20 questions, if you will. And that is something that most people do not do. Most people stop at the point of like, "I just don't understand. I just don't get it. I don't know why. Why are they doing this? Why did this happen?" But what I said at the beginning of all of this was that if you can truly master this idea, then untold wealth and riches awaits you. That was the hook and you stayed with this all the way through and now you're like, "I still, I don't get it Hunter. Is this like I'm supposed to justify why you took me through all of this? Because I think it's kind of stupid."
**Hunter Powers:** Well, no, no, no. So here's the thing. When you get really good at this skill, when you get really good at predicting how people will react to different things, because what you're doing when you figure out the different logic that must have lined up in order to get someone to a conclusion is that you're building these models of reasoning. How does this person think about things and address things and you're ultimately building a series of personas. Here are the different people, here are the different types of people, that I can then match and better predict how people will react to these things. And you ultimately, in order to get the untold wealth and riches, you need something from people, right?
**Hunter Powers:** You need to buy something, you need them to tell you some information that is valuable. There has to be some sort of exchange of a value and if you understand how they think and how they come to conclusions and what are their beliefs, you are able to leverage that to figure out the ideal strategy of getting them to where you want them to be from a thought process. There's some conclusion you want them to come to. Maybe it's you need to buy my product. Maybe it's you need to sign up for my service. Maybe it's you need to let me know or give me some signal about what the earnings are likely to be on this stock because this information is something that you can leverage. But in order to get this information, you're going to have to understand how they think and how do you understand how they think by understanding that they believe they are a rational actor and starting to figure out what must have happened in order for them to reach the conclusions that they are reaching.
**Hunter Powers:** Because if you can do that, then the whole world opens up to you. Then the world is your oyster and that is your ONE idea for today. If you'd like to help us spread the word, please give us a five star review and tell your friends to subscribe. We're available on Apple Podcasts, Spotify, and every major listening app. Visit the website, www.One.HunterPowers.com to listen to the archive. And for even more follow @TheHunter on Twitter. I am Hunter Powers broadcasting live from our nation's capital, as we say in the city, DC Proper. And until next time.