Distressed Debt Book Review - The Predictioneer's Game

As many of you know, I have written about how important it is to look at incentives when predicting what may happen, or what the probability something may happen, in certain distressed debt and high yield investing situations. It is my belief, that generally speaking, people act in their own best interest. Whether it be a management team that sides with a certain creditor plan because their upside will be greater, or a group of creditors that may block a debt exchange to trigger the default provision in a credit default swap, it is vitally important to look who is getting what spoil when deciding how to allocate your own capital. Few books discuss the implication for motivated self interests and how one can use those same self interests to make decisions about the future. I just finished reading one...and frankly...It was fascinating...

The Predictioneer's Game by Bruce Bueno de Mesquita talks about the use of game theory to predict the future course of events. If you have not heard of the Bueno de Mesquita, there have been a number of articles written about him in the past. He run's a consulting business (who's number one client apparently is the CIA) which predicts the unfolding of future evens using game theory. From the Book Description:

Bruce Bueno de Mesquita is a master of game theory, which is a fancy label for a simple idea: People compete, and they always do what they think is in their own best interest. Bueno de Mesquita uses game theory and its insights into human behavior to predict and even engineer political, financial, and personal events. His forecasts, which have been employed by everyone from the CIA to major business firms, have an amazing 90 percent accuracy rate, and in this dazzling and revelatory book he shares his startling methods and lets you play along in a range of high-stakes negotiations and conflicts.

For me, the political discussion in the book was interesting. But as noted above, I care more about how rational (maybe sometimes irrational) actors act in the finance world and how I can profit from these opportunities. Many of us have read about Game Theory, or learned about it in our Econ classes far too long ago - this bring a real world, tangible discussion to the mix which merits everyone's attention.

After reading this book will you be able to lay claim on a 90% hit ratio on prediction on which company is getting acquired or which company is next going to file...No. Definitely not. But it will begin to show you, that when you break things down, predicting how certain situations or cases will play out can become blindingly obvious.

The book is a fast, quick read. There is some promotional aspect to the book (he runs a consulting business and hence wants to show off his predicting abilities). Nonetheless, I think this text is an essential addition to the enterprising investor's library.