Thursday, February 25, 2010

A meeting today!

Just as a reminder, there will be a general Econ Club meeting today at 6pm at Valley Library 1422 (that's the big room in the basement). We also baked brownies, which will be available if Jennifer can smuggle them past the library watchdogs.

Monday, February 22, 2010

Should I split or should I steal?

Aside from always sounding prim and intelligent, the Brits also have a knack with game shows. They invented Who Wants to Be A Millionaire and Deal or No Deal. Right now I'm hooked on one that hasn't made its way across the Pond, called Golden Balls.

The interesting part about Golden Balls is the way every game ends. It starts out with two random players working together to build up a pot of money. It's pretty much a lottery game up until the end, where the add an element of game theory, and my econ senses tingle. Anyone who knows the Prisoner's Dilemma will find it familiar. 

After the jackpot is final, each player gets to choose whether they will split or steal the pot. If both choose split, each one gets 50% of the pot. If one steals while the other splits, the thief gets all. If both try to steal, though, they both walk away with nothing. There is discussion before hand, but both players must announce their decision before hands.

All good economists know the Nash equilibrium. Both should decide to steal, and walk away with nothing. Sometimes this happens, but sometimes not. Sometimes, a little miracle happens and both choose split and both hug each other and even in me, a little part thinks I have it all wrong about how cruel and evil the world is. Sometimes, a good soul chooses split while the partner chooses steal, and I feel the loser will go on to be a cynical economist.

This game does break the standard prisoner's dilemma because the agents can communicate and collude. Real life prisoners have done the same thing by forming criminal organizations that have oaths of silence. Suddenly a little bit more jail time doesn't sound so bad when faced with having your loved ones killed by vengeful gangsters. Morality and social pressure work in similar ways. The crowd cheers when the partners reach a split-split decision, and boo when someone steals. Is that extra cash worth being televised as a jerk?

So what would you do? Split or steal? Personally I would split, but only because I'd be diversifying my risk. If my partner splits, I walk out with money and a sense of human progress. If my partner steals, at least I'll be assured that I did not make a mistake in studying the dismal science of economics.

Wednesday, February 10, 2010

Keeping up with the Joneses

Recently I've been looking at various government websites targetted to kids. The Energy Information Kids is highly informative and well made, but the Federal Reserve System Kids page is horribly lacking. I will be writing to Ben about this unfortunate situation. Stay tuned for my progress reports.

Thursday, February 4, 2010

February is Edgeworth Month

Someone gave my an American Economic Association 2010 Calendar that highlights a different economist every month, sort of like a cat calendar but without the cuteness and warmth. February is Francis Edgeworth Month.

Frank is famous for giving us the Edgeworth Box, one of my favorite economics gizmos. Aside from having fistfuls of innuendos shoved into every crack, the Edgeworth Box combines mathematical economics with the more talking-points economics (my personal favorite). An Edgeworth Box is great for demonstrating the first two fundamental theorems of welfare economics. The first theorem tells us that if certain conditions are met, self-serving agents will naturally come to a socially optimal outcome. The second tells us that by manipulating initial endowments, any socially optimal point is accessible.

What does this mean for the pundit economist? It means we should emphasize trade, trade, trade. Governments should establish property rights and allow individuals to exchange goods, and all parties will be better off. This sort of mutual benefaction is a good counter against those who are cautious about capitalism and see it as a zero-sum game.

There's some calculus in the Edgeworth Box which will not doubt please the more mathematically inclined econ student, but most of its concepts can also be demonstrated visually with some curves and lines. Overall, it's one of the sexiest things I've ever seen in my life.