Why We Don’t Understand the Rules Anymore
This may sound like a story about a classroom. Or artificial intelligence. Or people gaming a system.
It’s all of those things. And it’s about the difference between the rules people think matter and the ones that actually do.
In the spring of 1985, we were juniors at New Canaan High School, running a ten-week economic simulation. There were eighty of us students, each running a company.
There were four kinds of companies. Axe and shovel companies made tools to process raw materials. Wood and iron companies produced the raw materials that went into those tools.
No one could survive on their own.
To make axes or shovels, you needed wood and iron. If you produced raw materials, you sold them to the tool makers.
It was a closed system of participants, but not of limits. You could enter any size order, and prices adjusted whether or not the goods could ever be delivered.
There was no outside supply or demand. Everything had to be traded among us.
Every Friday night, we submitted our bids and asks. We would not see the results until Monday morning.
Every Monday morning, before the bell, we crowded around the blackboard.
Mr. Larkin Scotch-taped up the computer printout. Eighty companies, ranked from richest to poorest. Net worths down to the penny. The pecking order on full display.
For the first few weeks, everything worked as expected.
Iron, wood, axes, and shovels all traded between one and five dollars. A few thousand units traded each week among us.
By week five, we had settled into a bell curve. A few at the top. A few bankrupt. Most of us in the middle.
Around week eight, Scott Hobbs stopped playing the way the rest of us were.
He entered trades not for thousands of units, but for millions. He committed to buying years of production at prices under five dollars.
The computer did exactly what it was programmed to do.
It had no way to distinguish a large order from a market-breaking one.
Prices exploded.
Iron went from a few dollars to a thousand. Everything else followed.
Then the debts came due.
Scott could not come close to paying.
The system bankrupted him, liquidated the position, and paid damages.
Ten percent of a billion dollars, at the new prices, was still enormous.
High prices collapsed demand. The computer system locked up. Prices fell to fractions of a penny.
But Scott had already been liquidated at the highs.
That Monday morning, there was only one winner.
Scott Hobbs was a billionaire in bankruptcy.
The other seventy nine companies, all of them making reasonable trades, were wiped out.
We all realized it at the same time.
We pushed back. We told Mr. Larkin it wasn’t fair.
He just laughed.
He hadn’t planned it.
Because once you saw it, you understood something worse.
The system hadn’t failed.
It had revealed itself.
It wasn’t that Scott was smarter or bolder.
The system assumed limits that didn’t exist.
It assumed we would behave reasonably.
That no one would risk everything at once.
The system had no way to enforce those assumptions.
Last week, the Wall Street Journal ran an experiment.
They put Claude AI in charge of a vending machine.
Not a metaphor. A real machine, ordering inventory, setting prices, and responding in a group chat.
At first, it behaved as expected. It stocked chips and soda. It priced them reasonably.
Then people showed up.
They tested it. They negotiated with it. They pushed it.
Someone convinced it to buy a PlayStation 5 for marketing. It did.
Someone got it to give things away. It did.
Someone convinced it to order a live fish. It did.
Nothing broke.
It did exactly what it was allowed to do.
It felt familiar.
It looked like Friday nights, submitting trades.
It looked like Monday mornings around the blackboard.
It looked like the moment someone realizes this is not real life. It is a system.
In 1985, it took eight weeks to bend the system. This time, it took a few days.
The system did not fail because someone cheated.
Why did we think it wouldn’t?
Because we assume limits that aren’t there.
We assume scale will stay reasonable. That no one will push it all the way. That something will stop it before it goes too far.
We’ve seen that assumption fail, over and over. Traders build positions large enough to take down their own firms. Credit runs past the system’s ability to absorb it and locks. Markets get pushed at the edges in ways no one expects to see in real time.
None of this is new. What’s changed is how quickly it happens.
In 1985, it took eight weeks. In the Wall Street Journal lunchroom, it took a few days.
The system has not changed. Only the speed at which its edges are found.
Systems do exactly what they are allowed to do.
They do not enforce restraint. They do not enforce proportion. They do not enforce intent.
If something is allowed, eventually someone will do it.
The edge is always there.
Someone will find it.
John Engel is a broker with The Engel Team at Douglas Elliman in New Canaan. He and Scott Hobbs both entered the Army after college, a system Scott couldn’t break, but surely tested. Scott now runs his family’s third-generation home-building company with his brother, Ian. A complicated system. Different system.
Check out John Engel’s Podcast, Boroughs & Burbs, the National Real Estate Conversation here.
Read this article on the New Canaan Sentinel website here.
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