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Economic Economics – A Game of Theories Part II

As university students, the problem of buying a new car may present itself in the near future. The misalignment of incentives between you the buyer and the commission-driven car salesman is always there, hiding insidiously behind the salesman’s phony smile. In fighting this imbalance, economics, more specifically, game theory might be of use. Bruce Bueno de Mesquita, author of The Predictioneer’s Game and The Dictator’s Handbook, explains how.

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The Profitable Orientation

“It is no longer economically viable to continue manufacturing here.” These are words which we have become increasingly desensitized to, and now expect from large companies in many industries. Resentment towards the faceless foreign factory workers who stole our jobs has largely died down, and has been replaced by arguments over how best to protect those remaining jobs (think, car subsidies).

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In many countries internet shopping is a growing business. Sites such as Ebay and Amazon are thriving as people are becoming more aware of the benefits of buying online: you don’t have to physically go to a shop where a salesperson will watch over you like a vulture, waiting for you to rest your gaze on something for more than 10 seconds;

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Real Estate

The secret pact forged in Xiaogang

Prior to 1978 in China, communal farmland was assigned to individuals to work for the government. Farmers gave anything that they produced from their land to the government, which then distributed the crops out to the people. Agricultural land was less productive in 1978 than it had been in 1949, when the communists took over. This was because the farmers did not have any incentive to produce more than the minimum; any extra work would result in the same food rations from the government.

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A Fine Point

Edwina Economist is driving to an important meeting with her boss to discuss the prospects of her promotion. She is confident that she will get the promotion if she is punctual and relaxed. Unfortunately, she is running behind schedule. Edwina entertains the thought of speeding to 100km/h along a road with a limit of 80km/h – a road which she knows to have light traffic at this time of day and is monitored by speed cameras. This will get her to the meeting in just in time, and maximize her chance of promotion.

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**It Happens

Many people suffer much confusion when trying to distinguish the different fields of economics. Luckily, Yoram Bauman, a stand-up comedian, has offered a very elegant and precise explanation of the nuances between them.

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Achilles and Cheiron

The Greek Epic

The Greek tragedy began with its declining competitiveness in the early 2000’s. Simply put, they were producing far less than they were consuming. Many factors lead to this including their adoption of the Euro (see Hungy’s article here). Some have pointed out the irony of too much Democracy from the people who invented it: pensions rose, retirement age lowered, and public sector salaries increased. This explanation has formed the view of the Greek people as lazy and unproductive, a label which is misinformed.

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A Game of Theories (Episode 1)

Psychologists refer to game theory as the theory of social situations. More specifically, it is the study of the strategic decisions, available to rational agents, producing outcomes with respect to the utility of those agents. Through analysis of different courses of action a ‘player’ can take, the outcomes which these actions lead to, and the actions which other ‘players’ might take, an optimal outcome – oftentimes a counter-intuitive one – can reveal itself. In the movie ‘A Beautiful Mind’ (2001), starring Russell Crowe as Robert Nash, game theory is explored in one scene.

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The concept of microfinance has gained popularity recently through stories of grand success and its promise as a panacea for global poverty. Microfinance institutes provide financial services to low-income people who would otherwise be rejected by more commercial banking institutions. Microfinance includes products such as savings, insurance and loans. Microcredit is a specific name for the loans given through microfinance, and is generally the main focal point of discussion.

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