Why bank in SL?

As often happens to me when I'm poking along on the SLCapEx forums, I came across a thread with a good question. The question is simple enough, and is the title of the thread: "Why should I put my money in an SL bank?"

At first brush, this may seem to be a simple and scared n00b asking a question because they're scared. However, ultimately this is a question that every investor has to answer: Why trust your Lindens anywhere outside your avatar?

When you put your money outside of your own control, you're exposing yourself to the risk of loss for a variety of reasons. There are the multitude of frauds that can and have occurred in Second Life, but also there's the genuine chance that the security you've chosen will simply fail to be successful. For this risk, you demand payment, which usually comes in the form of interest, dividends, or capital growth, depending on your preferences. How much growth is enough to make your Linden dollars stray from your pocket is up to you and your own private discussion with utility curves.

I'd like to bring something completely from left field into this discussion however: game theory. I've just recently gotten into the most basic concepts of game theory, and I'm loving every minute of it. Specifically, I'd like to call to mind a simple game called a "trust game."

Here's the gist of how a trust game works: You are given an initial allocation of $X. (Almost always, this is real money - if you ever have a chance to volunteer for a game theory experiment, do it! You'll probably get lunch money out of it.) You are then given a choice to pass an amount T to another player, T>=0. This amount T, once under control of the other player, earns a rate of return r, r>1 (usually r is 1 or 2, in the games I've read about). Then, the other person gets to divide the amount they now control, which is T * (1 + r), between you and themselves however they choose. There are no restrictions on how that money they now control is to be divided. That's why it's called a trust game. (If any of you are really interested, you can find an instructor's script for a trust game here.)

For the less math-oriented, let's do a quick numerical example. You sit down and someone hands you $10. You can then choose to give any part of that to me that you wish, with the understanding that it will triple as soon as you hand it to me and then I can divide it between us however I choose. You choose (as an example) to give me $5, which then becomes $15, and I, being grateful, choose to return $7 to you. You get $12 and I walk away with $8.

Here's the interesting thing, though: there has been at least one study done which links trust (as a culture) to wealth. (Apologies for the link not going directly to the paper - the paper costs money to get to, as near as I can tell.) The concept is simple enough: the more risk you take, the more return you get, and therefore the richer you become. I'm not well enough versed in the topic to attempt to argue it as this paper has done, but you get the idea: risk begets reward.

So, does this work in Second Life? Time will tell. Certainly blind trust will just get your Lindens stolen, as many lemmings have proven. However, well-placed trust could be the secret of success behind some of Second Life's most well-known names. That is a bit of mind candy I leave for you to chew on.