What is happening to GameStop at the moment seems like a classic case of the Prisoner’s Dilemma. Should you sell or hold?
What is the Prisoner’s Dilemma?
Imagine, me and my lover robbed a bank. We were caught, but the police has no evidence that we robbed a bank except for our statements against each other. There are 4 possible outcomes.
- If we both betray each other, we each get 2 years jail time.
- If I betray my lover, I get off Scot-free, while he gets 3 years jail time.
- If my lover betrays me, he gets off Scot-free, while I get 3 years jail time.
- If both of us said nothing, we are each given 1 year’s jail time each for possessing arm fire instead.
Which one will I choose?
Should we follow our self interest and betray each other, hoping that the other party will keep silence, or should we stick to cooperate so that we each only get 1 year of jail time?
From the above outcome, not saying anything represents the best outcome for both of us. However, if we only care about ourselves, then we each have a chance of not getting any jail time.
The GameStop Dilemma
This is exactly what’s going on with GameStop. The reddit’s r/wallstreetbets (WSB) who are holding the stocks are the prisoners here.
The best outcome for everyone (WSB) is they hold until $GME reaches the said $1000 or the moon (the squeeze). Then starts selling back to the hedge funds. This is where almost everyone holding the stocks wins. Hedge fund loses here.
However, can they trust each other to hold out? There are going to be some that are in it for their own self interest. So this will present the 2nd outcome, where you will see some sell out, and take profit. The holders will lose here.
The worst scenario, is everyone holding starts selling because of a sell down. Almost everyone except those that got in really early will lose. And not surprisingly, from last week’s actions, it does seem like companies are trying to trigger a panic sell down.
Why did I buy into $GME in the first place?
(These are purely my own opinions, and should not be taken as financial advice)
I haven’t thought about buying $GME. I was pretty intrigued with what was going on with this that I was following the r/wsb.
I encourage you to check out the reddit sub r/wallstreetbets if you haven’t already did. The people there seems to be fueled by emotions and anger towards to hedge fund companies rather than in it for the profit. (but then, this is an online community, so I would suggest to take it with a degree of literally)
On Thursday night (because I’m in Singapore so US market starts at night for me), I found out that Robinhood and others were restricting Buy orders of $GME and some other stocks. People can only sell them. I was infuriated by it at that point. How blatantly rigged this market was!
Being the righteous me, I felt like I had to do something to help these WSB peeps. So I went on my MayBank KETrade, and surprisingly, I could buy $GME! So, of course I bought them. And am still holding them. These are amount that I am prepared to lose.
What will I do?
Am I in it because I want some quick profit?
Or am I in it because I want to be part of this La Résistance movement against the hedge fund companies?
Personally, I want to hold it enough to cripple the hedge fund companies, so that it forces legislative changes that makes it fairer to us retailers, but not like crazily waiting for the moon.
So let’s see how this one plays out.