# About the Sum of Things

The Lo Shu is a Chinese Model for Time and was used to design Cities, Temples, Cycles and Calendars.

The Lo Shu is a 3×3 Magic Square created by Fu Xi, the Founder of Chinese Civilization. Fu Xi lived around the time of the Great Flood.

The Magic Square was carried by a Turtle. The Turtle is the symbol of the Constellation Orion. Many Ancient Cultures claim that our Ancestors came from this constellation. The Square of Lo Shu is also referred to as the Magic Square of Saturn or Chronos (Time).

According to Chinese Creation Myth  the world started with 無極 (wuji: nothingness), the Tao. Out of the Tao, the Egg of the Zero (0) and the Supreme Pure One (1) emerged. In the next step the Trinity (3), the Three Pure Ones, was created.

The Tao produced One; One produced Two; Two produced Three; Three produced All things (Lao Tsu, Tao Te Ching, 42).

The Trinity is represented by a Triangle. A combination of Two Triangels is a Square. The combination of Two (2) Triangels is also the Symbol of the Heart Chakra, the merge of Heaven, the Upper Triangel and Earth, the Lower Triangel.

The most complex Yantra (“machine”), the Sri Yantra, contains 43 Triangels. The Sri Yantra is determinated by the Bronze Mean. The Bronze Mean is a generalization of the Sequence of Fibonacci based on the Trinity. The Bronze Mean generates Quasi-Crystals and Penrose Tilings.

The Lo Shu Magic Square not only shows the Connection between the Four Forces that came out of the Two Forces, Expansion and Compression, it also shows the connection between Heaven and Earth.

In the Magic Square of Lu Shu the Even Numbers (2,4,6,8 = 2 x (1,2,3,4 = 2×2)) are Black(Yang, Male). The Odd Numbers (1,3,5,7,9 = 3×3) are White (Yin, Female). The Sum of all the Numbers is 15 (3×5).

The Even Numbers are situated at the Corners of the Square.

When the numbers of each row are multiplied (8x1x6; 3x5x7; 4x9x2) they together total to 225 ((3×5)x(3×5)) — as do those of the columns (8x3x4; 1x5x9; 6x7x2).

The Magic Square is dominated by two numbers (2**1, 2**2, 2**3)  and (3, 2×3, 3**2), It contains four Prime Numbers (1,3,5,7). It also contains the first Perfect Number 6 (1+2+3 =1x2x3). 6 is also a Harmonic Divisor Number and has a Harmonic Divisor 2. The Sixth Day in the week is the day of Saturn, the God of Time.

The sequence 1,2,4,8, 1, 3,6,9, 27 is called the Tetrad of the Pythagorians and was, according to Plato, used by the Demiurg, the Creator of our Universe, to create the Soul. The Soul is a mixture of the Same (1), the Different (2), and Existence (3). The Tetrad was used to define the Harmony of the Spheres.

When you connect the numbers of the Lo Shu a pattern appears that is called the Seal of Saturn or the Dance of Yu.

The Sum of Magic Squares is a Magic Square and the product of a Magic Square M with a number a is again a Magic Square aM. Both Rules can be used to construct a Magic Square out of simple Binary Squares called Magic Carpets. One of these Magic Carpets is the Identity Matrix with One on the Diagonal.

Every Magic Square is related by Rotation and Mirroring to Eight other Magic Squares. This means that the central Lo Shu Magic Square with the Five in the Middle is related to Eight other Magic Squares with the other Numbers in the Middle. One of them contains the Nine and is called the Well.

The Sum of numbers of the Well is 18 (2×9) and the sum of all opposites across the 8 Spoke Wheel = 9 (9+0, 8+1, 7+2, 6+3, 5+4). 2×9 means that there are Two Complementary Magic Squares. One Magic Square is Rotating with the Clock and the other Against the Clock.

The Nine is the most important Number in the Magic Square. The Nine comes back in many ancient mythologies like the Egyptian Pesedjet and the Greek Ennead.

When you add the separate numbers of a number (54 = 5+ 4 = 9) the result is the Remainder when you divide the number by 9.  This number is called the Modulo 9 number.

The Powers of 2 (= Expansion) Mod 9 creates a pattern (1,2,4,8,(16)7,(32)5,(64)1,(128)2,…). This pattern is reversed when we divide by 2 (=Compression) (1/2 (0,5 =5), 1/4 (0,25 = 7), 1/8 (0,125 =8), 1/16 (0,625 = 4), 2,1).

The Expansion and Compression Pattern shows that the same pattern repeats itself when the Magic Square is expanded or compressed Six (6) Times. The 7th Step is the Same as the First Step.

After 2**6=64 (8×8) divisons of the cell a Specialized Cell is created, the stem cell. The same happens in Music.  The Game of Chess (Chiu King in China) with its 8×8 = 64 = 2**6 Playing Board contains every possible situation of the Game of Life.

The Two-Pattern does not contain the numbers 3,6 and 9. The number 9 is repeated every time when the pattern is expanded and compressed which means that Nine is the same as the Identity, the One (1+9 = 1). 3 and 6 Oscillate (1x2x3=6 and 1+2+3 =6) and  therefore represent the Duality (3+6 = 9, = the One).

If we combine the Expansion and Compression patterns a Torus (a Rotating Circle, The Wheel of Time) appears. The Zero (the Void) is in the Center and Contains the Vortex. The Vortex represents another Cycle (Black/White Hole, 3,6,9, the Wheel of Order) in which every structure/pattern is destroyed to start All Over Again.

If we subtract the numbers in the Square by the number of the Center, 5, a highly Symmetric Pattern emerges. This pattern shows that there are Two Mirror Universes both containing four Forces.

When we transform this pattern from Modulus 9 to Modulus 3 (the Trinity) we see that the number 4 equals 1 and represents a new beginning of the Cycle.

The Magic Square with the Zero in the Middle is surrounded by two Sequences of 123(4) with different Signs. The Signs are arranged in a Cyclic Pattern (- -, + -, + +, – +) that contains the Four Permutations of – and +. The Sum of the ++ and the — is -3 and +3, the Trinity. The Sum of +- en -+ is the One.

The Cyclic Pattern of + and – represents the Prisoners Dilemma that is solved by the Strategy of Tit for Tat. This strategy is applied by the Trickster, the God of Paradox, a concept of God in which God creates games that create games.

When you use the basic Addition and Multiplcation Rules of the Magic Square many important numbers and patterns  appear that are related to Ancient CalendersSymbols and Cycles.

The Lo Shu Magic Square appeared a few years ago when I wanted to know more about Acupuncture.  Acupuncture is related to the Sheng Cycle and the Sheng Cycle is related to the Lo Shu. A Magic Square is the perfect way to visualize the Constraints that control the Four Forces in our Universe.

Soon after this discovery, I found out the Lo Shu is related to the Trinity and the Bronze Mean which is an abstraction of the Fibonacci Sequence. The Bronze Mean generates the Sri Yantra and so-called Quasi Crystals. Quasi Crystals explain Acupuncture.

A few weeks ago I started a discussion with Kim Veltman. Kim Veltman is the director of the Maastricht McLuhan Institute. He is researching Ancient Architecture and wrote a very interesting document called “Alphabets, Elements and Cosmologies”.

Ancient Alphabets are related to Numbers and Tones so Ancient Texts also represent Numerical Patterns and Music. You want be surprised to read that the Lo Shu showed itself in every Text Kim Veltman has analysed.

His document started a new inquiry into the pattern of the Lo Shu. During this research, I detected the book “the Sum of Things” by Paul Martyn-Smith. Paul Martin-Smith worked together with Lee Burton.

This blog contains just a little bit of the tremendous amount of information Paul Martin-Smith & Lee Burton have found about the essence of the I Tjing which is contained in just one simple 3×3 Magic Square.

If you want to know more the only thing you can do is to buy this book and start reading.

The Calculations  behind the Number of Things

The Relationship between the Lo Shu and the I Tjing

About Saturn, the Son of the Sun

How to construct Magic Squares out of Binary Squares (Magic Carpets)

The Sistine Chapel (Rome) and the Seal of Saturn

About the Relationship between the Lo Shu and Music

About the History of the Lo Shu

About the Wheel of Eternal Order and the Wheel of Time

About the Relationship between the Lo Shu and Chinese Alchemy

About Plato, Pythagoras and the Lo Shu

Everything You want to Know about Sacred Geometry

About the Influence of the Lo Shu on Recent Art

The Lo Shu Square with Imaginary Numbers

Sometimes You want to do the Good Thing and the result is a Bad Thing.

Sometimes You start an Activity with a Good Intention but the Activity runs completely Out of Hand because You were unable to Predict all the effects.

Sometimes you discover that you have started a Chain of Activities with a good intention and the Result of the Chain is Bad.

Good and Bad are Context Dependent.

Look at this little Story:

A Chinese farmer awoke one morning to find a horse grazing in one of his fields. Since nobody came to claim the horse, the farmer used it to plow his uncultivated land. “What a good this horse is for you,” said his neighbor. “We’ll see,” said the farmer. Soon after, the farmer’s 18-year-old son was riding the horse when it shied at a snake. The youth fell off and broke his leg. “What an evil this is for you,” said his neighbor. “We’ll see,” said the farmer. Soon after, the warlord’s agents combed the village, conscripting young men for his army. Because of his broken leg, the farmer’s son was not taken. “What a good this is for you,” said his neighbor. “We’ll see,” said the farmer.

About the Golden Rule of Ethics

The big problem is that we attach a Value to the Intentions or the Consequences of an Activity and this Value has just two Names named: “Good” or “Bad“.

When the E-Valuation is “Good” we Feel Good. When the E-Valuation is “Bad” we feel Anger, Sadness, Guilty, Depressed or Worse. The Names of the Evaluation trigger the Emotions Deeply.

Most of the time we feel Guilty without any need to feel Guilty because we are not in Control of Everything that Happens.

The Ego, our Identity, is not able to stand the Lack of Control it has on the Outside World.

Humans need the “Illusion of Control” to sustain their Identity. Deep within they don’t want to believe that Other Human Beings or the Forces of Nature (“the Acts of God“) are also Active Agents.

The Science that is trying to define the Good and the Bad is called Ethics.

Ethics is the Philosophical Study of  “the Moral Value of Human Conduct and of the Rules and Principles that ought to govern it” or “the principles concerning the distinction between Right and Wrong or Good and Bad Behavior’

The most important Rule of Ethics is the so called Golden Rule : ” We should do to others what we would want others to do to us” or “do not do to others what you would not like to be done to you“.

The Golden Rule of Empathy and Forgiving is the most important Ethical Rule in many Cultures all around the World.

The Golden Rule uses the Principle of Self-Reference. Something is Applied on Itself.

When we apply the Principle of Self-Reference to the Bad, we move into the Domain of Lady Justice.

When Bad People don’t want to use the Good Golden Rule some cultures use the Rule “An Eye for an Eye” (Revenge) to do Justice to the Bad Ones. When you do Bad to a Person, the Bad Behavior is Applied to Yourself. “Eye for an eye” is used to make Bad People Aware of the Good Golden Rule.

The interesting point is that the combination of the Golden Rule and the “Eye for an Eye“-Rule  (called Tit-for-Tat) is the best way to solve the Iterated Prisoners Dilemma, a Chain of Conflicts.

Strangely enough The Good (now called Cooperation)  is Accomplished when you just Imitate the Behavior of the Others.

There is One (fatal) Exception to the Strategy of Tit-for-Tat. If you want to operate On Your Own and You think You don’t need the Others to Survive the best Way to Operate is to Betray Every Body. Bad Behavior provides you with a Huge Economic Win but also with a  Huge Social Loss.

When you Betray the others, You have To Protect Yourself for the Revenge of the Others.

To Compensate your Social Loss You have to Buy the Others (Lawyers, Mercanaries, ) or (worse) you have to Force the Others with Violence to Cooperate with You.  In the first Case you lose a lot of Money and in the last case the Amount of Revenge increases exponentially.

To Survive you always have to Balance the Social (“the Other“) and the Economic (“the Ego“). The “easy way’ is to do the Good and the “difficult way” is to do the Bad.

Cooperation is a highly Effective and Efficient Method to accomplish the Good for Your Self and the Others because Good Behavior attracts Good Behavior and Bad Behavior attracts  Bad Behavior.

To do Good or to do Justice you have to Apply the Same to the Same because The Same Attracts the Same.

The Same not only Attracts the Same. The Same Repels the Not-the-Same.

The Same Law:  “Look-A-Likes Like Each Other and Repel the Organisms that are not looking alike” (called Genetic Similarity Theory) also explains Evolution. This rule was detected by Charles Darwin when he wanted to explain the huge amount of Cooperation in Nature.

When you Apply the Same to the Same (Self-Reference) it generates a Fractal Structure in which the Same Structure Repeats Itself on Every Level (“As Above, So Below“).

It Looks Like there is a Universal Moral Law that explains  Behavior on Every Level of the Universe.

Some Scientists believe the Moral Laws are Eternal Truths. This believe has a long History that goes back to Ancient Rome (Cicero), Ancient Greece (Plato, Socrate) and Ancient Egypt (Ma’at).

During the Renaissance (“Rebirth“) the Moral Principles of Rome, Greece, and Egypt were reborn and transformed into Moral Systems based on the Four (Prudence, Justice, Temperance and Fortitude) or the Seven Virtues (The Four Virtues & Faith, Hope and Love).

When you understand and apply the Universal Moral Laws you use the Virtue of Prudence (Wisdom, Knowledge).  To Apply the Golden Lesson you need to have Courage and a Strong Will, the Virtue of Fortitude. When you keep the three Virtues (Wisdom, Justice and Will) in the right Balance you are practising the virtue of Temperance.

They last three virtues are derived out of the First Letter to the Corinthians written by Paul:

“If I speak in the tonguesof men and of angels, but have not love, I am only a resounding gong or a clanging cymbal. If I have the gift of prophecy and can fathom all mysteries and all knowledge, and if I have a faith that can move mountains, but have not love, I am nothing. If I give all I possess to the poor and surrender my body to the flames,but have not love, I gain nothing.

Love is patient, love is kind. It does not envy, it does not boast, it is not proud. It is not rude, it is not self-seeking, it is not easily angered, it keeps no record of wrongs. Love does not delight in evil but rejoices with the truth. It always protects, always trusts, always hopes, always perseveres.

Love never fails. But where there are prophecies, they will cease; where there are tongues, they will be stilled; where there is knowledge, it will pass away. For we know in part and we prophesy in part, but when perfection comes, the imperfect disappears. When I was a child, I talked like a child, I thought like a child, I reasoned like a child. When I became a man, I put childish ways behind me. Now we see but a poor reflection as in a mirror; then we shall see face to face. Now I know in part; then I shall know fully, even as I am fully known. And now these three remain: faith, hope and love. But the greatest of these is love”.

Ma’at (later  named Sophia ) was one of the (3×3) Nine Egyptian Neteru . She represented the Virtues of Truth, Balance, Justice, and Order. Just like Lady Justice she uses a Scale.

The dead person’s Heart was placed on the scale, balanced by the Feather of Ma’at. If the Heart weighed the same as the Feather of Ma’at, the deceased was allowed to go on to the Eternal Afterlife and gained Immortality (Heaven).

If the deceased had been found not to have followed the concept of Ma’at during his life (if he had lied or cheated or killed or revenged) his heart was devoured by a demon and he died the final death and was Reincarnated (Hell).

The Human,  the Talking Baboon,  had to start all over again to Learn and Apply the most important Golden Lesson of the Universe.

The way of Ma’at was to Act out of the Center of Conscioussness, the Heart. Acting out of the Heart is called the Virtue of Love.

Ma’at was also the God of Balance, Rythm and the Cycles. The Good and the not-Good moved the Cycles of the Universe.

The Good and the not-Good came out of the Same Source, the Void, the Sekhem, the Source of Infinite Potential and Love.

About the Trinity of the Mind

In the Eastern (Gnostic, Egyptian, Indian, African, Mystic) Believe System the Good and the Bad are both created by the Demiurg (or the Logos, “In the beginning was the Word and Word was God“) one of the Creations of the Void. The Void exists outside our Level of Existence. The Void is a Mystery.

The Good and the not-Good, the Bad, are Complementary Opponents. Their Union is the Whole. They Share the Void, the Empty Set. The Empty Set contains Everything that is Impossible.

The Good and the Bad Move the Cycles of the Universe. They represent the E-Motions (Expansion (Desire, Creation) and Contraction (Control, Destruction)) of the Void.

The Good and the Bad Cooperate by Competing to bring the Lonely Souls back to the Void.

The Good, the Creator, and the Bad, the Destructor, are Two Faces of the Same Entity, the Spiritual Trinity, who came out of the Nothing.

The connection with the Void can be found in the Middle (the Golden Mean) of the Body, the Heart, the Link between the Triangel of the Material World (the Body) and the Triangel of the Spiritual World (The Mind).

The Heart, the connection with the Void,  is the Seat of Consciousness. It is also the Seat of the Emotions (Soul).

When the Heart Weights like a Feather, the Upper (Mind) and the Lower Trinity (the Body) connected by the Emotions are in Balance.

The Bad and the Good are Attractors. When the Attraction becomes too High you get Addicted to the Bad or the Good. A huge Expansion is compensated by a huge Contraction to Balance the Cycle. When you want to avoid the Pain of Contraction you have to Balance your Life.

The Two Triangels with the Heart in the Middle are the Same As the Seven Chakra’s (2×3+1) and the Seven Virtues of the Renaissance.

The Seven Chakra’s together with the Spiritual Trinity are Similar to the Tree of Life, The Egyptian Pesedjet/Neteru and the Jewish Sephirot (3×3+1).

About the Trinity of the Body

When Body and Mind are in Balance, the Ideas of the Spiritual Trinity are received by the Trinity of the Mind and are Implemented by the Trinity of the Material Body in the Material World (Earth).

When the Mind is not connected to the Body and the Spirit, the Ideas become Abstractions (only Words) or the Impulses of the Desire of the Body Takes over Control.

When the Mind is not connected to the Spirit Innovation stops and Old Ideas (the Seeds) Repeat Themselves All the Time. The Human becomes a Machine Caught in the Wheel of the Good and the Bad.

The One, the Spiritual Trinity, who is The Void, the Good (the Creator) and the Bad (the Destructor), uses the Strategy of Tit-for-Tat, the Trickster.

The Trinity Imitates the Behavior of the Humans or We the Humans Copy their Behavior (“We are made in the Image of God“)!

The One wants to make the Humans Aware of the Fact that the only way to Survive the Infinite Chain of Conflicts (Dilemma’s, Contradictions), which is Life, is to Cooperate (Live out of the Heart) with the Infinite Potential, the God of Love.

The Golden Rule of Ethics tries to avoid the Negative Emotions, the Emotions of Loss. It wants to Create a situation were Everybody is Happy.

The Golden Rule of Ethics helps a lot to Evaluate our Intentions and the Consequences of our Intentions but the effect of our Collective Actions on the Bigger Structures is almost Unpredictable.

It would help a lot if we could Expand our View from the Emotional Human Other to “all the Other Life-Forms” that are in Existence.

In this case we have to Understand the Effects of our Behavior on the Negative Emotions of the Bacteria, the Plants, the Animals, Earth and even the Universe.

It is not clear if our Emphatic System is able to Imagine the Inner World of the other Life Forms.

If the Act of Destruction is felt the same by all these Organisms it will be simply impossible to Live.

We have to Destroy Others to stay Alive.

The Universe Destroys to Stay Alive.

The Destruction of the Old is needed to Create the New.

At this moment we are confronted with a World-Wide Crisis on many Levels of Existence. The Collective Behavior of the Human Race is Destroying our Environment.

The Collective Desire to Create and Expand has reached the Limits of the System we Live in.

It is almost impossible to Control this Expansion. The Control Systems have also reached their Limits.

The Two Complementary Forces, The Good and the Bad, Expansion and Contraction, Desire and Control,  have both reached their Outer Limits.

If they both reach the Limits the Expanding Balloon of our Outer Universe will Explode in Itself (Implode) and move through the Void to another State. There is Simply no Space Left to Expand.

If this happens the Expansion of the Outer World will be Transformed into an Expansion of the Inner World.

The Big Bang, the Big Explosion, the Sublime Act of Creation, will Repeat itself and the Big Implosion will Create a New Universe.

Wu Wei (Not Acting, Acting without Effort) is an important concept of Taoism.

When you want to apply this concept you have to Know Everything There is to Know about the Cycles and the Forces of Nature. Wu Wei is only possible when you have aquired the Knowledge and the Wisdom of Ma’at/Sophia.

Most of the Time the Power of the Cycle is so Strong that it is impossible for Us to influence the Flow of Time.

Sometimes on a Rare Moment on a Special Place the Cycles can be Influenced.

Only at that Special Magic Moment the Human is able to do the Good or the Bad.

At all the other Moments History Takes its Course. The Good and Bad Forces, the Acts of God, Act without our Consent on the Higher Levels of Our Universe. It is a Waste of Time and Energy to Oppose these Forces.

Most of the Time we are Pushed by the Forces of Nature. We Act without Effort.

In Ancients Times the Forces were called Gods, Angels or Devils. At this moment we Name these Forces with Different Names (Gravity, the Strong and Weak Force and the Electro-Magnetic Force) but the Effect of the Forces on our Field of Existence stays the Same.

At a Magic Moment Everything, even the Impossible, is Possible. At such a moment we are “in Tune with”  the Empty Set, the Void, the Sekhem, the Tao, the Field, the Love, the Mystery, the Unspoken.

The Emotions of Loss are created when we Lose Something.

If you Own Nothing You have Nothing to Lose.

If you Expect Nothing, Every Thing will Happen.

When people see things as beautiful,
ugliness is created.
When people see things as good,
evil is created.

Being and non-being produce each other.
Difficult and easy complement each other.
Long and short define each other.
High and low oppose each other.
Fore and aft follow each other.

Therefore the Master
can act without doing anything
and teach without saying a word.
Things come her way and she does not stop them;
things leave and she lets them go.
She has without possessing,
and acts without any expectations.
When her work is done, she takes no credit.
That is why it will last forever.

# About Behavioral Economics: Why Hawks Always Win and Doves Always Lose

The belief in Rational Decision Making has been the focus of Economic Theory for a very long time.

Although everybody knew that Humans are Highly Impulsive and Emotional, Economists based their theoretical models of the Market on a Rational Human Being who is always able to Calculate the best Alternative possible.

This Theory is wrong. The Economic Behavior is controlled by the Emotions.

The current economic crisis shows that the old Rational Theory is not applicable and the attention for alternative theories of Economic Behavior is rising.

These theories are called Behavioral Economics.

An important paper in the development of behavioral economics was written by Kahneman and Tversky in 1979 (Prospect Theory, Analysis of Decision Under Risk). Kahneman was awarded the 2002 Nobel Prize in Economics for his research in Prospect Theory.

According to Prospect Theory, Humans attach much greater weight to future losses than to future gains related to their personal reference point.

When you expect a certain gain in the future and this gain is lower than you expect the gain is experienced as a loss.

Kahmeman and Tversky became the experts on Cognitive Bias. A Bias is a “not-rational” mostly fast response to a stressful situation. In this case the Human System uses old structures (The Reptile Brain) that were created a very long time ago when the human lived in a completely different environment.

The Reptile Brain uses many shortcuts to save time.

Social and cognitive psychologists have identified a number of predictable errors in the ways that humans judge situations and evaluate risks.

Biases have been documented both in the laboratory and in the real world.

For example, people are prone to exaggerating their strengths: About 80 percent of us believe that our driving skills are better than average.

In 2009 Kahneman and Renshon wrote a paper called Hawkish Biases.

It is an attempt to unite the many Cognitive Biases into one Model.

The model shows that Humans are highly Confused Predators (Hawks).

As a Predator they protect their Territory with every means possible.

They are Confused because they are incapable to Observe and Reason about their own behavior and the behavior of others.

Humans need the “Illusion of Control” to sustain their own Identity. Every time something happens they are looking for reasons to believe that they are the Primary Actor in their own context.

They don’t want to believe that Other Human Beings are also Active Agents.

If they would believe this was the case their “Unrealistic Optimism” could change into “Realistic Pessimism”.

Unrealistic Optimism makes managers, politicians and generals receptive to advisors who offer highly favorable estimates of the outcomes. Such a predisposition, often shared by leaders on both sides of a conflict, is likely to produce a disaster.

When a Human is Depressed by Realism he Loses his Face and moves down in the Picking Order of the Territory.

Humans believe that every other Human is always capable to see their Weaknesses (“the Illusion of Transparency“) just like they are convinced that the intentions of others are always clear to them (“the Fundamental Attribution Error“).

To hide their Weaknesses they have to wear a Mask and Play the Strong Leader of the Pack. They have to Keep Up their Appearances.

Humans base their theory of the other on inferences about historical behavior and completely forget Situational aspects.

When a context is hostile the other must be hostile too.

When others behave differently from their expectations they suddenly introduce situational factors to sustain their believe system.

Humans need to sustain their believe-system because this system is the foundation of their personality.

Their view on the World has to stay constant because when it changes too fast they will get into big psychological problems. When people get older their believe-system becomes very rigid.

Humans value their own possessions much higher as the possessions of others (“The Endowment Effect”). They even consider possible, imaginary, possessions as real possessions if they are convinced there is an easy way to get them.

If they lose a real or imaginary possession they take tremendous risks to get their possessions back (“Risk Seeking in Losses“). People in general don’t like cutting their losses. They’re willing to gamble on in the hope of recovering them.

Humans simply believe that a Hawk always wins the Game and a Dove always loses.

What Humans (want to) forget is that they are living in a group and their In-Group and the many Out-Groups contains many Hawks. They need the confidence that they are “the best” to Survive.

The world of the Human Hawk is a world of Competition (Winner takes all) and therefore highly Stressful.

The Sad Thing is that the many faces of Stress are the Major Cause of the Cognitive Bias.

When Humans relax and reflect they are much more capable to solve a complicated conflict.

The competitive Hawks always fall in the trap of the Prisoners Dilemma and don’t realize that Cooperation, the Win-Win is the only Certain Way to Leave the Prison.

At this moment another Behavioral Economist, Robert Shiller, is getting a lot of attention.

Together with the Economic Nobel Prize Winner George Akerlof he wrote the book “Animal Spirits“.

In the book they identify five distinct elements that blur the theory of the Rational Economy. These elements or “animal spirits” are called: confidence, fairness, corruption; money illusion and the reliance on “stories”of others.

The first three have a lot to do with the “hawk“-theory of Kahneman.

The Hawks use the Rational System for their own benifit. They Play with the Rules and invent new exiting possibilities to win more than they ever could imagine.

Sometimes they Play Dirty Games to beat their Opponents.

The Doves believe the Economic (Rational) Fairy Tales of the Hawks and are unable to understand the Real Value of their Money.

The Money Illusion is caused by Inflation. Inflation happens when prices Rise but the value of the objects that are priced stays the same. Inflation give people the feeling that they are making money but in reality they are losing money.

The Hawks use Inflation to keep the Doves Buying and Investing.

They also use the weapon of Inflation to win the war with the other Hawks.

The Majority of the Human Beings are Doves.

They believe the Hawks or are afraid of the Hawks. The Doves are the Workers in the Economy and they make it possible for the Hawks to Hunt.

The Hawks provide the Workers with many things to live an easy life until other Hawks start to Attack the Territory. In this case the Hawks need the Workers to fight and win the War.

Sometimes even the Hawks lose their Rational Capacity. They see a Big Win and become Greedy and Vulnerable. If this happens the Territory is open for other Hawks (The Chinese?) to enter and to take over without any problem.

What has Happened?

The Economic System is just like the Weather System a Cyclic System. When the Economic Cycles and the Weather Systems move UP the Hawks have an Easy Time. Their is enough food for all the Hawks. When the System is going Down Competition starts.

The Hawks forgot to look at the patterns. They did not see or believe that the downfall was approaching. They did not take enough stock to survive the Seven Bad Years. Suddenly the Autumn turned into Winter.

At this moment they are regrouping to create a Powerfull Alliance to take from the other Hawks what they need. They don’t care about the Doves. They always believe the Tales they Tell.

They are afraid of the Other Hawks that are outside their Huge Territory and are Prepared to Fight the Wars that are needed. The Doves will believe them as usual.

# How to Resolve an Infinite Chain of Conflicts

Humans attach much greater weight to future losses than to future gains, especially when the former are certain and immediate and the latter are uncertain. Humans take unwise risks to avoid certain and immediate losses.

They don’t want to take risks to pursue gains or will unwisely turn down proposed changes or concessions that offer a mix of gains and losses, even when the promised gains are objectively greater than the losses.

To calculate a loss a Human chooses a personal reference point which is usually the individual’s status quo.

Human beings reject or devalue whatever is freely available to them. They strive for whatever is denied them. They want to fight because when you win a fight you don’t lose a fight. Humans get exited when they have removed an Obstacle.

Without an obstacle Life is Boring. To remove an Obstacle Humans create Imaginary Obstacles. They need a Challenge.

They don’t believe their adversary offers a compromise because when he offers a compromise he is losing. Somewhere behind the compromise is a hidden tactic. The adversary will attack out of the blue and will suddenly win. On the other hand when the compromise is sincere the enemy is getting weaker and it is possible to increase the demands in the negocation.

The total effect is that future compromises and package deals decrease in attractiveness once they are offered especially when they are put there by one’s adversary rather than by a third party (Reactive Devaluation).

The Effect of Future Losses on Human Decision Making is researched in Prospect Theory.

The basic Stategy of Humans is to avoid the Emotions of Loss (Anger, Frustration, Grief, Fear, Sadness, Yearning, Pity, and Sorrow). This is not strange because the Emotions of Loss have a negative impact on the body. They influence the Immune System and are the cause of many ilnesses.

When two parties imagine a joined future where both of them lose they will never cooperate. In terms of the prisoners dilemma this is called a lose/lose-situation.

When two parties have seen a win/win situation and the realization changes into a lose they are in conflict. They have to envision a new win/win or break the cooperation.

Sometimes it is impossible to break a cooperation because both parties share vital resources or don’t know how to divide the assets of the former cooperation. In this case they are in a the win/lose-mode of the (Iterated) Prisonners Dilemma, constantly switching between losing and winning.

When a party wants to move from a lose to a win he has to apply the tactic of Tit-for-Tat. When you apply Tit-for-Tat you simply copy the behaviour of the other. When one of the parties sustains his unwillingness to cooperate both of them are in an Infinite Chain of Conflicts.

When two parties were united it is very difficult to recreate independent disconnected units. Many of the joined activities where performed without negotiation and were never formalized. When two parties cooperate they are acting as one Mind and one Soul.

Moving out of a Cooperative Relationship needs a Cooperative Relationship. When this relationship is broken two parties are needed who enter into a Cooperative Relationship to resolve the Cooperative Relationship on the lower level. When this Cooperative Relationship fails another level has to be created. If all the levels fail they are in an Infinite Chain of Conflicts.

If a Conflict of Interest arises the first action is to avoid the conflict or to speed up the conflict. In the last case the Primary Emotions (Desire, The Emotion of Loss) are bothering them. To avoid a Conflict we have to Articulate our Emotions at the Right Moment in a Respectful Way. We have to Communicate.

Most Conflicts in Nature are violent. Humans have found a way to abstract from Violence. We have created Imaginary Violence. We Fight our Case in Court. We don’t fight our Case in the Court Yard. We have replaced the material Sword of Iron by the Imaginary Silver Sword of Words.

If both parties are unable to define the conflict in a coherent model the conflict will not resolve. They need help to do this. If the advisors of the two parties are unable to do this the conflict has to move to a higher level of abstraction. When the conflict is resolved on this level somebody has to translate the consistent model to the lower level. When this is not possible the conflict starts again. They are in an Infinite Chain of Conflicts.

When an Abstract Model is always Moving Up and Down, the Model is not in Harmony. Harmoniouss Models are applicable on Every Level of Abstraction. Models that are The Same on Every Level are Self-Referencial. When a Conflict is Modelled as a Conflict it will never be solved.

The solution to this problem is to Extend the Context of the Conflict until a Balance has been found. Both Parties have to Widen their Perspective. They have to step out of the Status Quo and Imagine a Bright Future. A Future where the Darkness of the Night has been replaced by the Light of the Day. They have to wake up out of their joint Nightmare and Face Reality.

A Conflict is resolved when all the parties that are involved are Satisfied. They are satisfied when they experience a Balancing of their Emotions. A Victim is satisfied when his Emotion of Revenge is resolved. The Killer is Killed or put into prison for many years. The Emotion of the Killer is balanced by the Emotion of his Victim(s).

To Balance Emotions we have to Objectify Emotions. When we are buying a Car we have to pay Money. The Car is an Objectified Emotion (The feeling of the Freedom to Move) and Money is an Objectified Emotion (The feeling of Freedom to do what we want to Do). The Potential of Money is balanced by the Potential to Move. When we buy we are balancing Potentials.

Humans use Mental Accounting to define what their Potential is. They divide their Potential in many “Isolated” boxes and are unable to combine the boxes. A savings account is meant to save money and not to spend money. If Humans put their Potentials in “closed” Boxes they are Poor although they are Rich.

When they feel Poor they will experience every potential solution of a conflict as a loss. When a Human accepts that the Future is not the Past he will realize that there are many possibilities he has never seen. When a Human accepts that his Potential is his Creativity he is able to negociate with an Open Mind.

Many people believe the Juridical System is the most objective system in our Society. Sadly enough this is not true. The Law is highly confusing. Judges don’t have the background to understand what has really happened. Lawyers are telling their own biased story and most of the cases are very complex. The System is a System of Last Resort. It is used when many future and current losses are accumulating.

The Judicial System is meant to resolve Infinite Chains of Conflict without Applying Violence. This is accomplished by Balancing Emotions by Objectifying Emotions by Articulating the Emotions in Words by Combining the Words into a Model by comparing the Model with an Abstract Juridical Model by Solving the Conflict Applying this Model by Translating the Model to a lower Level by Explaining the Model to the Parties hoping they will Agree so the Emotions are Balanced so both Parties are Satisfied.

If this is not happening the whole process starts all over again until somebody (a Judge, Somebody who Speaks Law) utters a Solomon’s Verdict.

I hope You see why it is much better to settle a Conflict on a Lower Level.

About Prospect Theory and the Financial Market

When you lend somebody something you assume he (or she) will give the item back in due time. To lend you have to Trust somebody. There are many ways to create a trusted relation. When a long term trusted relationship grows out of a long chain of interactions the Iterated Prisoners Dilemma is at stake. The Chinese are the Masters of Playing this Game.

In some situations it is very clear that a try-out is not necessary. If we look at the cultures of the Earth we can see that the concept of Family or Tribe more or less guaranties a trustful relationship. In a Family it is not needed to create very complicated arrangements like contracts, procedures, laws and judges. The Family uses it own rules.

The consequence of the Concept of the Family and the Tribe is a formalization of relationships based on a Place in a Hierarchy. Everybody has to know its place.

A King has to play the role of the King and a Father has to play the role of the Father. In a Family or an Extended Family (Tribe) you are trained to play the roles you have to play in your life.

Confucius (551-479 BC) saw the universe and all living things in it as a manifestation of a unifying force called the Doe (translated as the Truth, Unity, or the Way). Doe constitutes the very essence, basis, and unit of life that perpetuates order, goodness, and righteousness.

It manifests itself in the harmonious opposition of yin (“feminine, gentle“) and yang (“masculine, strong“), and in humans through duk (“virtue“). Virtue is a gift received from Heaven.

It is through Virtue that a person is able to know the Heavenly Truth and it is the “locus where Heaven and I meet“. Virtue can be realized through self-cultivation. It provides the fundamental source of insight and strength to rule peacefully and harmoniously within oneself, one’s family, one’s nation, and the world.

There are two inter-related aspects of virtue: in (“Human-hearted-ness“) and ui (“Rightness“).

The basis of individual and humanity is the Human-heartedness. Human-heartedness is essentially relational and it involves loving, sacrificing and taking care of others. Individuals are born with Human-heartedness and experience Human-heartedness through the sacrifice and devotion of their parents.

The second concept, ui (“rightness“), notes that an individual is born into a particular family with a particular status. Rightness articulates that individuals must perform and fulfil their duties as defined by their particular status and role.

Confucius considered family and society to be hierarchically ordered, necessitating that everyone fulfil their duties. Fulfilling one’s given role as a father, mother, child, elder, teacher, or politician is considered a moral imperative and not a matter of personal choice.

Confucius considered society to be socially ordered and that each person has beun (“portion or place“) in life. Each beun had attached roles and duties, and each person must fulfil these roles and duties. Duties and obligations of each beun are prescribed by yea (“propriety“).

Propriety articulates expectations, duties, and behavior of each individual according to his or her status and role. For example, chemyon (“social face“) need to be maintained by a person of social stature defined by his or status, regardless of his or her personal preference.

Social order and harmony are preserved when people observe their place in society and fulfil their required obligations and duties.

The fourth concept is ji (“knowledge“). Knowledge allows us to understand the virtues of Human-heartedness and Rightness and to follow these virtues through Propriety. It is the basis of the development of Wisdom.

By the applying the principles of Confucius Chinese Society became a Well Oiled Machine. Every action that was taken was pre-programmed by all levels of education. Every part in the machine knew its role. Life was highly predictable and everybody accepted its place in Society. There was Harmony and Peace in the world.

If there be righteousness in the heart, there will be beauty in character,

If there be beauty in character, there will be harmony in the home.

If there be harmony in the home, there will be order in the nation.

If there be order in the nation, there will be peace in the world.

The big changes of Chinese Society came Out of the West. The English Empire destroyed the Heavenly Order by selling large quantities of Opium. The huge underclass of China was a beautiful target for the people who followed the theories of Lenin.

The Upperclass was destroyed and a new Upperclass, The Communist Party, took over. The culture of China has not changed. People still know their place and the Doe (The Way It Is) is now proclaimed by the Party. The new upperclass knows it has to keep the underclass in harmony.

The Party decided to create a higher standard of living by importing capitalistic principles from the West. It is now moving in high speed to the level of the Consumer Society. The West is paying for this move by buying Chinese products for a very low price.

In this way China has accumulated an enormous amount of money (mostly dollars). They are able to buy what they want. With the enormouss stock of dollars they are able to manipulate US Government. China is able to destroy the US Financial System in one fast move. They certainly will not do that.

The Chinese people are experts in strategy. They know how to acquire power without fighting. They keep a social face and play the game others want them to play. They are experts in applying the Iterated Prisoners Dilemma. They know Confucius and his predecessors were Wise man. They knew how to move with The Cycle, the Tao.

Western Society has lost its cultural foundation. The principles of Confucius don’t sound very strange to us. They are easily translated into Christianity.

When the West lost the basic principle of Christianity, Human-hearted-ness (in) one of the two pillars of Trust was lost. The West rationalized Empathy (Compassion, Emotion). I Think, therefore I Am (Descartes) became the basis of the Self.

When people started to do the “wrong thing” the second pillar of Trust, Integrity (ui, Rightness) dropped. Politicians were not Playing the Role of the Politician and Managers were not Playing the Role of Manager. They lost their Virtue.

Finally the Doe (Unity) of Western Society was gone. Families broke up. Everybody was Left on its Own and started to act on a Short-Term Perspective.

The Interated Prisoners Dilemma changed into a chain of disconnected attempts to leave the Prison. The best way to win such a Game is to defect. You always win but your victory is never a Win-Win. On the long term Everybody changes into a potential Enemy.

The West entered the State of Individualism and even Egoism. In this state it is almost impossible to act out of Unity. Everybody is going its Own Way or is Competing with the Other. This makes it even easier for the Chinese Masters to create a new Machine to support their Extended Family.

# Why The US has to be Nice, The EU has to Retaliate and the Underdeveloped Countries have to Forgive

The Bretton Wood agreement was created in 1947 to prevent that nations use their currencies to obtain an unfair advantage.

This was the main cause of World War I en II. The countries were obliged to adopt a monetary policy that maintained the exchange rates of its currency within a fixed value.

President Nixon broke up the Bretton Woods international monetary system on Aug. 15, 1971. The US was unable to keep its finances stable because of the costs of the Vietnam War. Nixon destroyed the Foundation of the World Financial System, the Dollar.

In 1992 the exchange rates of the member states of the EU were fixed. The Euro, a new financial foundation, was born. At this moment the Dollar is not the foundation currency of the world anymore. This position is taken over by the Euro. The EU (and other countries) are paying a high price for the Economic Policy of the US. They are paying the bills of the biggest Debtor in the World.

Many US Citizens are moving into a state of panic. Not only Real Estate and Banks are in big troube. Other highly respected industrial companies like General Motors, Ford and Chrysler are close to a bankruptcy. The Entertainment Business is also on its retreat.

The Big Casino’s are losing their customers and companies like Walt Disney, CBS and Time Warner are getting in trouble. The situation of US Big Companies is so bad that Warrren Buffett, the most succesfull investor in the World, is moving his investments to Europe. He is mainly interested in family-owned companies in Germany.

The FED is unable to lower the Interest Rates. The effective interest is already negative. When they higher the rates the economy will drop into a spectacular recession. Their only hope is a Little Help from their Friends but the amount of Friends of the US is decreasing.

Finally the Climate Issue is proving itself in many ways. The Amount of Natural Disasters (Flooding, Hurricanes) is increasing. The only thing that is still not happening is a major Big Bang Earthquake.

The US Regulators (FED) are trying to stop the Recession by Lowering the Interest Rates. The FED is helping the Banking Industry to recover from the Credit Crunch but it is not helping the rest of the economy at all. The EU Regulators are trying to stop Inflation. They are doing exactly the opposite the US is doing.

Lower interest rates push down the value of the dollar. This prompts the oil-producing countries to push for higher oil prices.

The rising prices of oil and other commodities are also a result of a Rising of the economy in India, China, Russia and other countries. A small part of the World is Going Down and a big part of the world is Going Up. The total effect of this process is a growing demand and a growing demand simply increases the prices.

The growing demand has a huge effect on the World Climate. The rising economies are polluting the environment and the decreasing economies (especially the US) have polluted Earth for a long time already. The Underdeveloped Countries are just doing what the West was doing all the time. The huge change of the World Climate will eventually hit all the economies of the World.

The World is caught in a State of Catch22. Every course of action that is chosen ends in the long term in a Global Disaster.

In reality the World is changing on many levels. We are trying to stop this change. We are unable to do this because we are unable to find a Global Win-Win-situation. To find a Global Win-Win-situation we have to Change Something on Every Level All over the World.

The Western World is not accustomed to a Way Down. It believes Everything will go UP all the time. A Recession is a temporary state down between to rising states.

The Eastern World has a completely different World View. They believe the World is governed by Cycles. We have to accept the process of UP and Down because it is the Will of God. The Eastern world believes in Destiny. Eastern people are not afraid to die. Western people fear death.

In the Western World a Human is the Centre of the Universe. In the Eastern World the Human is a Part of a Whole. The Whole is much more important than the Individual. Western Democracy is trying to Unite Individuals. In the Eastern Culture it is much easier to Move the Masses.

The population in the Western World is decreasing. The population in the rest of the World is increasing. The Culture of the Eastern World will simply take over the World just by the numbers. They are the Majority and their Majority will grow. If the World would be an immense democracy The West would be without any power. The Democratic Party of the East would win every Election.

The only way for the West to stay in power is to use military technology. The US is already doing this and it is not helping us and the US at all. The fight againgst Terrorism is seen as a fight against the people of the Underdeveloped Countries. When you are hungry you do everything to get food. When your family is killed you fight back and kill the enemy. For many people in the World it is very clear that the West is the real Enemy.

If we look at the Strategy of the Financial Regulators we can see that the US Financial Regulators are Nice to the Banks and the EU Financial Regulators are Retaliating. The US Regulators are hoping the actors (mainly the Banks) in the US will start to cooperate. The EU Regulators are defecting the same Actors. Both of them are very Clear about what they want to accomplish. Both of them want to keep on moving UP.

This is for many reasons an impossible option. To keep the World in balance the West has to Go Down. His has to go Down in a controlled Action or it has to Go Down in a Forced Action. The West will be Forced by the East or it wil be Forced by Nature itself.

The Citizins of the West have be Informed about this Situation. They have to be Informed by Politicans, Writers, The Press and they have to Educate themselves. For many reasons Everybody is Hiding the News because in the West we only want to hear the Good News.

The Banks are controlling US Government and the FED is afraid to retaliate. They are afraid that the complete US Banking system will collapse.The situation is so bad that officials of the International Monetary Fund (IMF) have informed the FED about a plan that would have been unheard-of in the past: a general examination of the US financial system.

The IMF’s board of directors has ruled that a so-called Financial Sector Assessment Program (FSAP) is to be carried out in the United States. It is nothing less than an X-ray of the entire US financial system. As part of the assessment, the Fed, the Securities and Exchange Commission (SEC), the major investment banks, mortgage banks and hedge funds will be asked to hand over confidential documents to the IMF team.

They will be required to answer the questions they are asked during interviews. Their databases will be subjected to so-called stress tests – worst-case scenarios designed to simulate the broader effects of failures of other major financial institutions or a continuing decline of the dollar.

The IMF is charged with the supervision of the international monetary system. Roughly two-thirds of IMF members – but never the United States – have already endured this painful procedure. For seven years, US President George W. Bush refused to allow the IMF to conduct its assessment. Even now, he has only given the IMF board his consent under one important condition. The review can begin in Bush’s last year in office, but it may not be completed until he has left the White House.

A Win-Win-situation is a state of a game called the Prisoners Dilemma. Life can be seen as a long chain of Prisoners Dilemma’s called an Iterated Prisoner’s Dilemma. The Iterated Prisonners Dilemma can be won when one of the prisoners is not aimed at long term cooperation. In this case he has to cheat the other prisonner and kill him to avoid revenge. If the prisonners need each other in the future another scenario is neccesary. This scenario is called Tit-for-Tat.

Robert Axelrod (The Evolution of Cooperation (1985)) created a computer program called, “Tit-for-Tat“. The program always wins an Iterated Prisoner’s Dilemma by simply copying the behavior of the others.

Tit-for-Tat uses the following strategies:

1. Be Nice. Start by cooperating, and never be the first to defect.
2. Be Retaliatory. If the other player defects inflict a cost on him or her which is at least as severe – otherwise you open yourself to exploitation.
3. Be Forgiving. If your opponent mends his ways after defecting, restore cooperation as quickly as possible, so that you can both get back to scoring highly on each round.
4. Be Clear. Since there is no way to beat the Nice, Retaliatory and Forgiving strategy, if your opponent knows you are following it, there is no incentive for him or her to seek advantage – it will only destroy his or her score as well as yours.

Michael Liebreich applied the Tit-for-Tat strategy on the Climate Issue. He shows that we are able to solve the Climate issue when the players change their strategy. His advice is that the US needs to start being Nice, Europe needs to learn to Retaliate, and the developing world needs to Forgive. All players need to improve the Clarity with which they communicate their strategies.

At this moment the US Government is Nice to the Financial System that is braking down. It is not Nice to the rest of the World when the World Climate is at stake. The EU is still Nice to the US although the EU is paying for the braking of the US Financial System. The Developing Countries have to Forgive the US but it is very difficult to forgive somebody who is defecting the Game all the time. When you play Tit-for-Tat you have to retaliate in this stage.

When you define a Clear strategy you have to be Realistic. The world is on many levels highly unbalanced. Everybody knows that an unbalanced state will always move to a balanced state in due time. The West has to accept that the East is trying to move to the same State as the West. The West also has to accept that this is simply impossible. The Earth is incapable to provide the necessary Energy and Food. A Realistic Strategy is to Lower the West so the East is capable to Move Up.

In the West Politicians need Votes to stay in Power. To keep the majority of the Voters happy they have to Move UP the Economy. Almost nobody of the current leaders has the courage to tell the voters that the West is at the end of its cycle and has to move Down. We are taken by Destiny. The effect of the current Policy is a continuation of the Status Quo.

To move out of the Status Quo Politicians are looking for extreme certainty when they decide to change their policies. They need the backup of Scientists to show the voters that what they are Doing is the Right Thing to Do.

Science is unable to provide this certainty. The complexity of the Economic and the Ecological System of the Earth is so big that nobody is able to comprehend what is really happening and what will be the effect of a decision on the long term.

Prof. Mort Webster writes that climate policy decisions are normally made as sequential decisions over time under uncertainty – given the magnitude of uncertainty in both economic and scientific processes, the decades-to-centuries time scale of the phenomenon, and the ability to reduce uncertainty and revise decisions along the way.

Although staging climate change policy decisions over time would seem to make sense, he points out that the tendency of U.S. and international policy to change extremely slowly requires front-loading the painful decisions. Everybody knows we are moving in the wrong direction but nobody knows in detail what we have to do.

Webster shows that the best thing to do is to Prepare and Act for the Worst and change the policy for the Better in a later state. We have to take the bitter pill fast.

About the US Policy and Bretton Woods

About the effects of Bretton Woods

Guanxi is a Chinese term, generally translated as “networks” or “connections”. Although guanxi is often characterized as uniquely Chinese, similar relationships occur in other nations, especially in East Asia.

In China guanxi has become especially significant in the last fifty years because it provides individuals with a patterned, structured set of relationships that to some extent replace the social networks of family, village, and clan that are more difficult to maintain in the face of population relocations, urbanization, and Westernization.

Guanxi is a mechanism for dealing with social uncertainty in a complex social environment.

Guanxi has been a significant element in Chinese business relationships for several hundred years. Wide webs of guanxi tie Chinese businessmen and Chinese firms into a cohesive and functioning economy. The success and even survival of many businesses rests on the establishment and maintenance of guanxi.

For Western businesspeople, the idea of guanxi is a useful reminder that trust, understanding, and personal knowledge can be vital components of economic relationships.

The development of guanxi is not something that takes place instantly, and this can be one of the frustrating aspects of doing business in China for non-Asians who are accustomed to striking a deal and moving on.

Most guanxi relationships are based on individuals’ having something in common, a phenomenon called tong in Chinese. The commonalities may be the fact of having attended or graduated from the same school, having the same place of employment, working in the same industry, or coming from the same village or region. Guanxi relationships have a strong emotional element, something easily overlooked by outsiders.

The essence of guanxi is that each relationship carries with it a set of expectations and obligations for each participant. A guanxi relationship may lead a person to feel obligated to help someone. Those who meet these obligations gain face and status and expand their guanxi network. Refusing to help is a sign of inhumanity and can bring disgrace. Guanxi involves the notion of honor and respect, two core values in Chinese society.

There are a variety of customs and practices in the West that reflect concepts similar to those used to explain guanxi, concepts and rules that define the relationship between individuals and groups. For example, traditionally European etiquette required a person to be introduced by a mutual acquaintance, never simply to strike up a conversation with a stranger, even at a private event.

Nonetheless, in the West ties tend to be less strong, less structured, and less based on expectations. Old or distant relationships are also less important in the West than they are in China.

The main reason is that Western People are acting on the short term. They want to strike a deal and move on.They still have not learnt from the results that came out of a tournament that was organised to solve the so called iterated Prisoners Dilemma.

The Prisoners Dillema is a game in which two players may each “cooperate” with or “defect” (i.e. betray) the other player. If two players play the Prisoner’s dilemma more than once in succession (that is, having memory of at least one previous game), it is called iterated Prisoner’s dilemma. Robert Axelrod created popular interest in his book The Evolution of Cooperation (1984).

The best strategy was Tit for Tat, developed by Anatol Rapoport. It was the simplest of any program entered. When you use Tit for Tat the only thing you have to do is offer cooperation. If the other is not cooperating retaliate, forgive and start to cooperate all over again.

I think you understand what I want to show. If we involve the Chinese notions of honor and respect, offer cooperation, forgive and (this is very important) leave people that don’t do this out of our networks we will create a cohesive and functioning economy.

It is simple! Just as simple as the Strategy of Tit-for-Tat and just as simple like many other things in life.