Category: Game Theory

The long blog

I write alot. Really, quite alot. What the means is that quite often I forget that I have written about something in the past and am reminded of it by others.

In addition, like many people, I have lots of usernames and passwords for various sites. I keep mine all nicely encrypted on my computer and occasionally I take a look at what I had registered for.

Today, I noticed that I had two blogger usernames! Yes, I already had a blog; something I had forgotten when I decided to launch this one earlier this year.

That ancient blog — well before blogging became a big thing — was called ‘GameTheorist.’ You can link to it here. It will become clearly apparent why I had forgotten about it: there is only one entry, dated January 2nd, 2003.

In those days, blog entries did not have things as sophisticated as titles (nor were the templates as good) but the lone entry there is about using game theory to toilet train our children. Suffice it to say, I was an advocate!

Interestingly, I was also an optimist. I concluded that by honing in my knowledge of game theory with my new found gift for child psychology we would have our next child toilet trained in no time. I concluded: “Let’s see how it goes.”

It didn’t go so well; a story I will recount in a later entry. For the moment, apart from the last bit I am pretty satisfied with that single entry.

While it didn’t take off that time, officially, this makes me one of the longest running bloggers around! Over three years and now counting.

The market for monarchy

In an interesting article in Slate, Tim Harford speculates as to why lobbyists pay so little for their so-called control of government. He wonders what people would pay for government if it were truely up for sale in a monarchy.

This all reminded me of an idea I had years ago when Australia was considering becoming a Republic. By Republic, the idea on the table as that we would replace our current non-elected Head of State — The Queen of England — with a local non-elected Head of State — who knows who that would be except that they would be an Australian citizen.

I wondered that we might be thinking about this the wrong way. After all, the Head of State in either case would have no real power but a little bit of residual control (that is, if something was not constitutionally specified then they would intervene) and lots of prestige. In this case, why should we care if the Head of State is Australian or not.

Instead, we should recognise that whoever got the position would have lots of private benefits associated with it. So the problem was that we were giving it away rather than selling it. It would be better to think about auctioning the position off to the highest bidder — regardless of which country they are a citizen of. Moreover, if they were foreign, we would have the additional benefit from a sale in providing export dollars (the current account deficit was still a big issue back then).

Seemed like a clear win-win. I wonder why nobody invited me to the Constitutional Congress?

Deal or no deal

You just knew ‘Deal or No Deal’ was amenable for the study of rational economic decision-making. Here is a write-up and links to some new studies of the game show.

Here is a link to an on-line version of the game. Of course, it isn’t really what happens as it seems to me there is a strategic player playing the role of the ‘bank.’ Their payoff function will take into account the observed risk profile of the contestant as well as maximising the watchability of the show. It would be interesting to think of what strategies that ‘bank’ might employ.

More on email externalities

Take a look at this analysis of the emailing issue I raised earlier this week.

FYI (and since you may want my input on this) on the binder versus notebook issue I will take a stand: I think binders are more useful than notebooks (you can put additional stuff in them). So there is no need for any more emails on that one.

Effective emailing

Dan Drezner identifies a New York Times story on emailing professors. I definitely couldn’t let that pass without highlighting it here.

Email is definitely the best way to approach me outside of class. It also makes a quick reply possible.

But I do get students emailing me apologising for missing class; including with excuses. That is all very nice but when I have 70 plus students, I am unlikely to notice and in any case I figure class attendence is a student’s responsibility; so turn up if you want to! Of course, if you are unwell I hope you return to health too and if you have a job interview, good luck. But traffic (!), enough with the excuses already.

Seating games

Some discussion has emerged on the web today about the ‘age-old’ up versus down toilet seat question. Apparently, the economics is pretty clear on this: the ‘do not do anything to the seat after use’ rule is more efficient than the always down rule. See this link for an informal discussion and this one for a formal treatment.

For my part, I — as a teenager — was listening to talk radio one morning where this was raised as a very divisive issue. My reaction was that this appeared pretty trivial to generate such conflict and, moreover, could be easily avoided by establishing a habit early in life. It takes about 30 turns to make something into a habit and so I trained myself at any early age to put the seat down.

I can recommend my strategy for ensuring the moral high ground especially when I got in trouble for missing the point. I formed a habit of putting both seats down. Apparently, one would have been preferable.

Game Reality

The Fox TV Network announced today yet another reality series. They all have their twists but this one’s quite interesting. Nine contestants will be locked in a bunker. They will be asked to vote which of them should receive $1.5m. If they ‘can’t decide,’ the amount they could win would be reduced and they will remain in the bunker to vote again the following week. However, as is typical of these things, one contestant will be ‘removed’ from contention each week but will still be able to vote. The interesting thing is that it is possible that the series could last anywhere from one to eight episodes.

The name of the show is ‘Unan1mous’ so we can presume the vote for the winner needs to be unanimous. It will be interesting to see if contestants will be able to vote for themselves. Either way it will be interesting. I am going to refrain from predicting what will happen here until we get a better sense of the rules (tune back in March) but it should be clear to all that the basic set-up here is akin to the Prisoners’ Dilemma: in order to generate the maximum prize, all but one individual will have to sacrifice winning anything at all. This is usually a recipe for social disaster and I am pretty sure that is what Fox is banking on. Even better, the bigger the disaster, the cheaper the program is to produce.

Experimental economists go to alot of trouble to conduct experiments that test the predictions of game theory. But reality television is offering a new dimension to all of this with much higher stakes. In an earlier era, Scientific American offered its own slice of reality. Formulated by Douglas Hofstadter, in June 1983, Scientific American made the following (seemingly extraordinary) offer:

This talk of holding back in the face of strong temptation brings me to the climax of this column: the announcement of a Luring Lottery open to all readers and nonreaders of Scientific American. The prize of this lottery is $ 1,000,000/N, where N is the number of entries submitted. Just think: if you are the only entrant (and if you submit only one entry), a cool million is yours! Perhaps, though, you doubt this will come about. It does seem a trifle iffy. If you’d like to increase your chances of winning, you are encouraged to send in multiple entries without limit. Just send in one postcard per entry. If you send in 100 entries, you’ll have 100 times the chance of some poor slob who sends in just one. Come to think of it, why should you have to send in multiple entries separately? Just send one postcard with your name and address and a positive integer (telling how many entries you’re making) to:

Luring Lottery c/o
Scientific American……

You will be given the same chance of winning as if you had sent in that number of postcards with ‘1′ written on them. Illegible, incoherent, ill-specified, or incomprehensible entries will be disqualified. Only entries received by 5:00 PM on June 30, 1983 will be considered. Good luck to you (but certainly not to any other reader of this column)!”

Well, what happened? It turned out that the vast majority of people in the world sacrificed for the common good and did not subit a ‘claim.’ However, a few thousand others did including one person for a googol entries (that is, 10 to the power of 100 or what Google would have been called if their founders could spell). So there was no chance of Scientific American paying out.

Given this, it is a wonder why Fox didn’t make this more interesting: say $10m or $100m or even a googol million! But how much faith you one put in game theory translating into reality.

For any of my students out there, one thing you can be sure of: I am going to find a way for this to be on the exam.

Playing the new IR game

In this week’s BRW, David James considers how the game between employers and employees will change under the new industrial relations regime. He quotes yours truely: “Employers can celebrate, but employees shouldn’t have families.” I apparently go on …

When you change who gets what, it will change people’s lives. Take someone who has four weeks leave, and can take two of those and buy it back. The claim is: ‘You don’t have to buy it back, so how can you be worse off?’ But if I am an employer who sees a benefit in having people work for 50 weeks a year instead of 48, who am I going to hire? I am going to hire the people who sell back the two weeks at a good rate, which basically means people without families. That is going to change the work culture of Australia. I find it ironic that a government committed to family values is enacting this kind of legislation.

You might wonder where to find the game theoretical model underlying these views. For this I need to thank a diligent PhD student of mine — Martin Byford — who worked out the bargaining model to analyse the impact of allowing entitlements to be traded. His paper is available here. Utilising an economic model of bargaining (similar to that in my textbook, Core Economics for Managers), he finds that competition in the labour market can mean that these reforms will leave some workers worse off. More importantly, when coupled with minimum wage laws, these reforms may reduce overall efficiency as well. Sadly and perhaps surprisingly, the trade union movement hasn’t shown much interest in these ideas even if the business press has (another irony!).

Martin and I published an op ed piece in The Age last year on this topic (for the non-economist, it is an easier read than the technical paper).

Solving the email game

This morning’s news reported intentions by AOL and Yahoo! to provide certain delivery of email for the price of stamp.

We all know the current situation that email sent may not be delivered or may be delivered into a spam filter. As Ariel Rubinstein identified almost two decades ago, this presents real problems for reliable coordination. (His paper is conveniently available on-line).

The problem is simple: if you and I need to coordinate our activities and a lack of coordination is really costly, then if communication between us is even slightly unreliable, we may shy away from such activities altogether. Moreover, doing simple things such as acknowledging the receipt of email can’t help (and indeed may make things worse!) if the acknowledgment cannot be reliably sent.

What this means is that AOL and Yahoo!’s solution is going to have to be perfect if it is going to provide real value.

Attracting eyeballs: The Dark Side

When you embark upon writing a blog like this (as I have done), you can’t help but turn to wonder how you get a readership. Even if what you say is interesting, there are so many alternatives for most people, that getting noticed is a problem.

My approach was to see if I had any sources of power I could leverage (at least in away that was not ultimately self-destructive. That is, I turned immediately to the dark-side of market power.

Here is what I have done. I have 80 fresh faced MBA students starting the compulsory Managerial Economics subject here at Melbourne Business School. I like to come up with exam questions based on current business topics (that is, true). So I told them that I would use this blog as the source for those questions. If the students want a little less surprise in the exam, they should read this blog regularly.

So there you have it: I have some power to get my student’s attention and have leveraged that to build readership of this blog.

Fortunately, there is a subtle efficiency here. My main trouble in getting good ideas for exam questions is not coming up with them (I think of them all the time). It is remembering them. By commiting myself to write interesting ideas here I also make it easier for myself in writing the exam.

Actually, even this little exercise has given me an exam idea: am I really going to gain a good following from my dark-side eyeballs strategy? Tune in on exam day to find out!