Game Theory
Oligopolies
A good applied example here of the strategic interdependence and non-price competition that occurs in oligopolistic markets. This example focuses on the games console market, where in response to the Nintendo Wii’s motion-sensor controllers, Sony have unveiled their own one; whilst Microsoft is joining the party later this year to go even further with a full body motion controller(!). Its a good example of how oligopolistic industries interdependence (follower-leader relationship) can be of benefit to consumers via dynamic efficiency aims.
•Behavioural Economics - •Game Theory - •Business Economics - •Competitive Markets - •Oligopoly -
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TV Time!
Lots of Economics on TV this weekend:
•AS Micro - •Behavioural Economics - •Game Theory - •Emerging Economies - •Economic Growth - •Government Intervention - •Buffer Stocks - •Government Failure - •Regulation - •Market Failure - •De-Merit Goods - •Externalities - •Information Failure - •Teaching of Economics -
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How Markets Fail - the logic of economic calamities
A huge number of well-known economists and a remarkable number of ideas make an appearance in John Cassidy’s new book How Markets Fail – the logic of economic calamities. From Akerlof and Arrow to Von Neumann and Walras, John Cassidy’s ambitious and lucid work takes us on a swift journey through over two hundred years of economic thought and policy-making through to the moment when the global financial system stared over the abyss in the early autumn of 2008.
read more...» •AS Macro - •Behavioural Economics - •Game Theory - •Credit Crunch - •Cycles and Shocks - •Economic History - •Market Failure - •Teaching of Economics -
Tags: economics, market failure, incentives, expectations, john cassidy
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They think it’s all over…
I wonder what John Nash would have to say about this unorthodox winning strategy in a football match. This Barbados vs Grenada football match yielded some interesting and entirely rational tactics!
read more...» •Behavioural Economics - •Game Theory - •Quirky Trivia -
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Law and Morality in Economic Life
It is easier to destroy a society than it is to build it. And tipping points that cause people en mass to lose faith and confidence in institutions are more likely than we might assume. This was one of the themes from an outstanding lecture given at the Royal Institution yesterday by Sir Partha Dasgupta as this year’s Royal Economic Society annual public lecture. Drawing on a lifetime of experiences and research, Sir Partha enthralled his audience with a brilliantly structured talk on the growing importance of social norms in helping us to understand more clearly the gulf in economic wealth and life chances between different parts of the world.
read more...» •A2 Micro - •AS Macro - •AS Micro - •Behavioural Economics - •Game Theory - •Economic Growth - •Standard of Living - •Teaching of Economics -
Tags: risk, investment, trade, confidence, strategy, incentives, expectations, capital, royal economic society, trust
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Going once… going twice… Still going once… going twice…
(A hat-tip to C. Gee for spotting this!)
For those of you who enjoyed Nudge, here is Professor Thaler in the New York Times discussing an interesting behavioural analysis of the website Swoopo.com. (If you haven’t visited the site yet, it’s very interesting to watch!).
read more...»The boy who harnessed the wind
This fantastic true story of boy’s dream to improve the standard of living in his village in Malawi is both inspiring and full of good economic examples (and therefore a winning combination!). William Kamkwamba’s family had to pull him out of school in Malawi as they could no longer afford the £50 annual fee; however, he continued to use his local library to study science and set out on a project to use items of junk and waste to build a windmill in order to bring electricity and running water to his village. There are some lovely examples here relating to development in terms of grassroots approaches, some of the problems faced by those living in developing countries, the positive externalities associated with education, alternative measures to tackling climate change as well as an inspirational entrepreneurial story. I for one will be buying the book telling the story of this young man’s vision.
•Game Theory - •Economic Growth - •Market Failure - •Externalities - •Public Goods - •Poverty and Inequality - •Development Economics -
Tags: entrepreneur, development, technology, grassroots
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Kick-start for the economy?
The British Retail Consortium estimate that England’s qualification for the World Cup finals in South Africa next year could be worth £1.25 to the UK economy next year. Pubs could take an extra £30-40mn at each live match they show, and electrical manufacturers will get boom sales in flat-screen TV’s to those watching at home and supermarkets will sell huge quantities of food and drink to keep the blood sugar levels up and combat the nerves. Spending on world cup advertising in 2006 generated £300mn, sports kit manufacturers Umbro will be rushing to make more England shirts, and flights and package tours to South Africa are selling out fast. Could this be the news we need to combat the recession and get people spending again? The Times leader writer yesterday thought it might be; in spite of the trillions that have been spent in the last year, this could finally be the news that we need. I see lots of educational opportunities too - game theory as illustrated by the penalty shoot-out for a start (should you shoot left or right? And can the goalie guess which way the penalty taker will go, to save the match?).
Not all businesses will be so happy though. In 2006 estate agents found a huge drop of interest in house buying during the World Cup, and some cinemas had to close for the month with too few visitors. Not to mention the potential effect on A level students: the tournament kicks off on 11th June, with group matches and the knock-out round of 16 lasting through the rest of that month – just when the exams will be scheduled. Best to get the revision done early……..
•Game Theory - •Credit Crunch - •Cycles and Shocks - •Aggregate Demand - •Consumer Spending - •Recession Watch! - •UK Economy -
Tags: recession, revision, gdp, world cup
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Game Theory and North Korea
In the post-AS lull, we have been studying the basics of game theory; and this week had a great discussion on game theory applied to the current political hot potato that is North Korea and its nuclear program. Various aspects of game theory can be applied to the issue of North Korea’s nuclear programme, from credible threats, brinkmanship, to dominant strategies.
read more...» •Game Theory - •Teaching of Economics -
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The Mind of the Market
The causes of financial and economic crisis and distress are complex and multi-layered. There will be much written about it in the months and years to come and I suspect many of the best new writing will focus on neurological explanations for the behaviour of agents.
read more...» •Behavioural Economics - •Game Theory - •Credit Crunch - •Teaching of Economics -
Tags: neuroeconomics, mind of the market, michael shermer
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Game theory and emotions
The most interesting and recently controversial application of economic theory has been in the realms of Game Theory.
Game Theory was born in the inhuman brain of Johnny Von Neumann and is the branch of maths which especially suits the “dismal science” of economics.
Fundamentally it digresses from classical economic assumptions in that it sees the world where the right thing to do depends on what other people do. The point of Game Theory, like much of science and economics is to find a simplified model of the real world, or in other words a universal prescription (which became know as the Nash equilibrium – the least worse in any circumstance).
read more...» •Behavioural Economics - •Game Theory -
Tags: economist, rationality, choices, robert frank, behaviour, irrationality, matt ridley, emotions, richard dawkins
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Tobacco price fixing
John Fingleton’s tenure at the competition watchdog the Office of Fair Trading has coincided with some huge fines for price collusion within oligopolistics markets and yesterday came one of the biggest with a tobacco manufacturer and five retailers agreeing to pay the biggest collective penalty yet imposed for price-rigging after admitting their role in efforts to boost the cost of cigarettes.The six companies agreed to pay £132m to settle the charges with Gallaher, one of two tobacco manufacturers involved in the case, shouldering the lion’s share of the burden after agreeing to pay £93m.The Times reports that “The six companies fined made prompt admissions of illicit competition practices in return for lenient fines.” - another example of game theory and the prisoners dilemma in action!
Coverage here
BBC news: Six firms fined in tobacco probe
The Telegraph: OFT’s hefty fines for tobacco price fixing
The Times: Supermarkets and tobacco firm are fined £173m for price fixing
Office of Fair Trading press release
There is a recent profile of John Fingleton here in the Times
1st or 2nd?
Should you choose to go first or second in a penalty shoot-out? Or serve first rather than receive in a grudge tennis match? Tim Harford has a neat piece in today’s Financial Times which unearths some research which seems to suggest a fairly decisive advantage for teams that win the toss of a coin and opt to take the first shot in a shoot-out! Unless of course they crack under the pressure!
•Game Theory - •Teaching of Economics -
Tags: tim harford
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Probability
Radio 4’s In Our Time recently looked at the issue of probability
read more...» •Game Theory -
Tags: probability, monty hall
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Learning Lessons from: Experiment 11
Last Thursday I guinea pigged for an economics experiment at UCL. Unfortunately it wasn’t anything as exciting as Tim’s ones, no apples or chocolates were on offer but it was fascinating to see an economics lab from the inside. The invitation simply named it “Experiment 11” which I thought to be rather mysterious but it was probably just because economists don’t have an imagination. I’ll try and describe what it was like, but it will be very confusing so bear with me.
read more...» •Game Theory - •Quirky Trivia -
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