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Benny
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Economics: other topics
« on: Jul 15th, 2009, 11:49pm » |
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Sources ;
Bernard Madoff
Madoff investment scandal
Ponzi scheme
Fairness Judgments: Genuine Morality or Disguised Egocentrism?
Jan-Willem van Prooijen's research articles
Retributive justice and social categorizations: the perceived fairness of punishment depends on intergroup status
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Why the bias?
In the wake of news about Bernie Madoff's Ponzi scheme people called for his head on a pike as well as victim compensation but the focus tended toward the former. A typical blog comment "Going to prison" -- no matter what happens there -- is still too easy a fate.
We often feel more lust for the blood of the perpetrator than sympathy for the victim...according to Jan-Willem van Prooijen.
In one study subjects were asked how much a mugger should pay his victim. People's named a higher price when the payment was framed as punishment than when it was framed as compensation.
In another study, when asked to decide whether justice would prevail in a criminal case, people sought more details about the perpetrator's likely comeuppance than the victim restitution.
Why the bias?
Jan-Willem van Prooijen says victims are easy to ignore or even blame -- unless they're close to us -- but offenders can strike again. Few want to think about strangers who made bad investments, but a threat to our own bank account demand immediate actions.
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| « Last Edit: Jul 15th, 2009, 11:52pm by Benny » |
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Re: Economics: other topics
« Reply #1 on: Jul 16th, 2009, 1:00am » |
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on Jul 15th, 2009, 11:49pm, BenVitale wrote:Culture.
The Anglo-Saxons (before the Norman invasion), for instance, had a compensation culture; if you injured someone you had to pay compensation, and that was it (to the best of my knowledge). But we have, I think, a roman law culture; which is geared at punishment.
Quote:| In one study subjects were asked how much a mugger should pay his victim. People's named a higher price when the payment was framed as punishment than when it was framed as compensation. |
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Is that surprising? The reverse would be illogical, because paying compensation is included in the punishment and so the latter cannot be smaller than the former. They can either be equal, or the punishment must be higher. And considering there are two interests, compensating the victim and ensuring the offender doesn't repeat, the latter makes the most sense.
One can additionally take into account that over-compensating a victim might lead to people trying to abuse the system, making false accusation to make a profit (such as does indeed happen with insurance fraud).
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| « Last Edit: Jul 16th, 2009, 1:05am by towr » |
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Benny
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Re: Economics: other topics
« Reply #2 on: Jul 16th, 2009, 10:01am » |
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I was a bit surprised ... but now, there's empirical evidence.
At first I tried to put the blame on evolution, then I searched for any evolutionary benefits to any type of behavior ... and then try to figure out how I can use it in Game theory
With these sorts of questions -- questions about human behavior -- I search for empirical evidence and proofs.
I found this comment interesting
Quote:
You watch enough mystery shows or read enough mystery stories, and you notice a certain trend: Sometimes, the murder victim (as these stories usually center around a murder) is an asshole.
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http://tvtropes.org/pmwiki/pmwiki.php/Main.AssholeVictim
The frequent impression left is that "the victim had it coming".
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Should we let criminals purchase clemency?
What about Bernie Madoff? Would you want him to stay in jail or pay an amount of $$ to stay out of jail?
Say that a captured criminal offers to compensate his victim in return for the victim dropping all charges.
If the victim agrees, should the government go along?
Game theory shows that people can be too forgiving.
Imagine that you have just been mugged. It can be a traumatic experience.
People lose far more than just their stolen property.
Suppose a mugger got $30 from you, and caused you $$ (a certain amount of money) worth of anguish.
Your lawyer advise you to set the amount to $9,000 for your mental anxiety.
Luckily, the mugger was caught and faces one year in jail.
Enter the negotiations :
Say $9,000 is too much. The mugger would rather do one year jail.
But he offers you $3,000
What do you think? You still have to give a 30% cut to your lawyer (you live in a big city)
Would you accept?
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Re: Economics: other topics
« Reply #3 on: Jul 16th, 2009, 10:59am » |
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on Jul 16th, 2009, 10:01am, BenVitale wrote:http://tvtropes.org/pmwiki/pmwiki.php/Main.AssholeVictim
The frequent impression left is that "the victim had it coming". |
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A murder mystery needs a motive for the murder. Sometimes it's money, sometimes it's hate. And people don't want to watch shows where nice people get killed.
Quote:| What about Bernie Madoff? Would you want him to stay in jail or pay an amount of $$ to stay out of jail? |
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I think many of his victims would prefer to have his money back, if that were an option.
Quote:Say that a captured criminal offers to compensate his victim in return for the victim dropping all charges.
If the victim agrees, should the government go along? |
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The government has a duty to its people to prevent future criminal activity. So it would depend on the likelihood of recurrence.
Quote:| Game theory shows that people can be too forgiving. |
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I think that you mean that game theory shows that some people are more forgiving than a perfectly rational (for some quaint definition of rational) agent would be in ideal circumstances that bear little resemblance to anything you encounter in real life.
Undoubtedly it also shows that in other circumstances people are too unforgiving by this same flawed metric.
Quote:Say $9,000 is too much. The mugger would rather do one year jail.
But he offers you $3,000
What do you think? You still have to give a 30% cut to your lawyer (you live in a big city)
Would you accept? |
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I'd probably consider it. It does neither of us any good if he sits in jail. But I think I would want reassurance that he doesn't do it again, so maybe I'd insist on a probational sentence.
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Benny
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Re: Economics: other topics
« Reply #4 on: Jul 17th, 2009, 12:01am » |
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Key concepts:
Homo economicus
Definition of Irrational Exuberance
Black swan theory
We know now that the rational man theory of economics has not worked.
Shiller's book "Irrational Exuberance." -- this book was named after Alan Greenspan's "irrational exuberance" quote
The most compelling rebuttal of the rational model, paradoxically, was delivered by the ultimate rationalist, Alan Greenspan. "I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders" ... Alan Greenspan's rational-actor model wouldn't let him.
People tend to overlook problems "Black swans" to use former trader Nassim Nicholas Taleb's phrase, that people assumed wouldn't happen in the near future because they hadn't occurred in the recent past.
Read about the Black swan theory
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| « Last Edit: Jul 17th, 2009, 12:04am by Benny » |
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Re: Economics: other topics
« Reply #5 on: Jul 17th, 2009, 12:18am » |
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on Jul 16th, 2009, 10:59am, towr wrote:
..............
I'd probably consider it. It does neither of us any good if he sits in jail. But I think I would want reassurance that he doesn't do it again, so maybe I'd insist on a probational sentence. |
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I'm looking at Credible threats and promises and Non-credible threat
Once someone has harmed you, it is often impossible to reverse the damage. If you would profit from continuing your relationship with the transgressor, however, it would be in your interest to forgive. Unfortunately, people are more likely to harm you if they expect to receive your future forgiveness.
I'll work on a solution to the problem of the mugger
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| « Last Edit: Jul 17th, 2009, 12:20am by Benny » |
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Re: Economics: other topics
« Reply #6 on: Jul 19th, 2009, 1:26pm » |
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Going back to the problem of the mugger:
- A mugger got $30 from you.
- You estimate that he caused you $9,000 worth of anxiety.
- The mugger was caught and faces one year in jail.
- $9,000 is too much. The mugger would rather sit in jail.
- But he offers you $3,000.
- Your lawyer takes 30% (so if you accept the offer you'll end up with $2,000.)
Do you take the deal?
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Let's assume that if the mugger escapes his jail sentence, you're extremely unlikely to become one of his future victims.
The mugger did $9,030 of damage to you, and he's offering only $3,000.
If he goes to jail, you get nothing.
So you're better off accepting the mugger's offer.
Unfortunately, there may be a downside to this:
being able to pay off victims could make muggers more bold.
Consider the game where the mugger first decides whether to mug you at A.
If he mugs, then nature moves at B.
Nature represents the random forces of the universe that determine whether the mugger gets caught.
(Criminal)...mugs......... (Nature)...criminal caught 1% of time.........(You)....press charges.....
--- A -------------------- B -------------------------------------- C -----------------------
OR.........does not mug ..........criminal caught 99% of time..............drop charges for $3,000
The mugger perceives that there's a 1% chance that he'll be caught at B.
If the mugger is caught at B, then you decide at C whether to send the mugger to jail or get paid $3,000.
Let's make the likely assumption that the mugger would prefer paying $3,000 to going to jail.
Thus, from the point of view of the mugger, it is more beneficial to mug you if at C you would accept
the $3,000 because in the 1% of the time the mugger gets caught he won't go to jail.
True, if the mugger gets caught and pays you $3,000, he's worse off for having mugged you.
Reducing the harm of getting caught, however, makes the mugger more likely to strike.
At C you're probably better off accepting the $3,000.
Since you have already been harmed, sending the mugger to jail won't erase the trauma.
Of course, ideally you wouldn't get mugged at A.
The mugger might have attacked only because he knew it would be in your interest at C to accept the money.
Thus, you might have been better off if in the beginning of the game you could credibly promise
to send the mugger to jail if the game reached C.
In the game this promise not to accept the mugger's money lacks credibility.
Consequently, you would benefit from a law that forbids you to drop charges in return for a monetary
payment from the mugger.
Players often have insufficient incentives to punish those who have done them wrong.
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To forgive or not to forgive?
Once someone has harmed you, it is often impossible to reverse the damage. If you would profit from continuing your relationship with the transgressor, however, it would be in your interest to forgive. Unfortunately, people are more likely to harm you if they expect to receive your future forgiveness.
It depends on the situation. To forgive or not to forgive involves "threats," and "promises" credible or not-credible and "sequential games."
Would anyone like to construct a "turn-the-other-cheek" game?
----------------------------------------------------------------
Here's an interesting article: Credible threats and promises
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| « Last Edit: Jul 19th, 2009, 1:43pm by Benny » |
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Re: Economics: other topics
« Reply #7 on: Jul 20th, 2009, 1:03pm » |
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In 2003, Tim Harford visited Washington, D.C. He had plenty on his mind: a new job, a new city, a new country (He's British) and a baby on the way. The World Bank offered him a job. The World Bank provides a small office to help new staff understand the health care system, the way the local bureaucracies operate, and where to live in Washington.
He said that he truly felt the nation's capital is a city divided.
He wanted to live downtown near the bank itself. The bank's housing officer unfolder a large map and told him that the northwest quadrant of the District of Columbia (Georgetown and Cleveland Park). She told him, "This is all safe."
Then, she took out a blue ballpoint pen and slowly drew a line along 16-th Street. The line began at the White House and ran North.
She said, "A Realtor isn't legally allowed to say this, but I am. Stay on the west side of that line."
The precise location of "that line" is a matter of controversy in D.C., but its existence does not seem to be.
What you experience in D.C. depends overwhelmingly on where you live.
In the area carved in two by 16-th Street and the ballpoint pen, the police department's third district, there were 24 homicides in 2005.
Elsewhere the situation is much worse: across the river, in Anacostia, the 7-th district, where he was repeatedly advised never to venture, there 62 homicides in 2005. Yet in leafy Georgetown and Cleveland Park, the police department's second district, there were none at all.
That isn't the only way in which Georgetown and Cleveland Park are nicer places than Anacostia. Fewer than one child in 30 lives in poverty, 15 times fewer in Anacostia. The overall poverty rate is 7.5%,
5 times lower. There were just two violent crimes per one thousand people, 10 times fewer.
And who gets to enjoy the difference in conditions?
Suffice to say that Georgetown and Cleveland Park are 80% white and Anacostia is 93% black.
There does not seem to be any rational reason why a city like Washington -- the nation's capital -- incorporates such deep pockets of deprivation, nor why segregation remains so stark.
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| « Last Edit: Jul 20th, 2009, 1:06pm by Benny » |
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Re: Economics: other topics
« Reply #8 on: Jul 20th, 2009, 2:38pm » |
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on Jul 20th, 2009, 1:03pm, BenVitale wrote:| There does not seem to be any rational reason why a city like Washington -- the nation's capital -- incorporates such deep pockets of deprivation, nor why segregation remains so stark. |
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? Poverty and misery is to an extend heritable. And people that have the means to escape such a situation/place do.
What would you expect? That the upper class moves into the ghetto? That people stay there, even if they can move to a nicer place? That people without opportunity suddenly get top jobs and are liberated from poverty? That a criminal environment fosters a better behaved next generation?
It's not that anyone chooses for that situation to continue. But it's just how things go. As for the racial segregation, that's a historical artifact. The abolition of slavery made them a free, but impoverished, underclass. As big a step up as that may be, it didn't suddenly make them economic equals. And it takes a very, very long time for that difference to ebb away.
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| « Last Edit: Jul 20th, 2009, 2:42pm by towr » |
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Re: Economics: other topics
« Reply #9 on: Jul 21st, 2009, 1:17am » |
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Tim Harford wrote:
"... the geography of the inner cities is not rational -- it is pathological."
He meant, even though each person makes rational choices, the result can be something that none of them wanted; you might say that rational behavior by individuals can produce irrational result for society.
I shall go into details ...
... at the way city neighborhoods work and the way mild preferences and smart decisions from individuals can produce desperate, extreme outcomes for neighborhoods.
... why neighborhoods can get locked into deprivation and why the rational responses of ordinary people perversely make their neighborhoods extremely difficult to rescue.
In Washington, D.C., there's a connection between city geography and race : The most deprived areas are often ghettos, packed with immigrants or with African Americans, Latinos and shunned by whites.
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| « Last Edit: Jul 21st, 2009, 1:17am by Benny » |
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Re: Economics: other topics
« Reply #10 on: Jul 21st, 2009, 1:22am » |
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The Logic of Life: Racial segregation
This YouTube video file shows us that rational decisions from individuals can produce tragic outcomes for a society as a whole.
Thomas Schelling's chessboard :
Tim Harford has this excellent description of Thomas Schelling's chessboard experiment that sought to explain how hetergenous groups or societies invariably end up segregating among themselves.
First, though, we'll look at a juncture of race and geography : the extreme racial segregation in
some American cities. That segregation seems to suggest deep racism, but that might be a misleading impression. Segregation -- by race, by class, by income level -- can be a stark symptom of surprisingly mild prejudices. Given some simple props, you can prove that to yourself in the comfort of your own home.
Find yourself or imagine a chessboard, or better yet view on YouTube the Thomas Schelling's chessboard presented by Tim Harford.
But if you have a chessboard in front of you, then place the pieces on alternate squares of the chessboard, black-white-black-white-black-white-black-white- ...
Leave the 4 corner squares blank.
Now pretend that these little black and white pieces are two different types of person: black and white is the obvious possibility, but it could be native and immigrant or rich and poor. Each one has up to 8 neighbors or as few as 4, for those near the corners. Each is motivated by a single concern, which is to avoid being dramatically outnumbered in her own immediate neighborhood. Everyone is perfectly happy to live in a mixed neighborhood, even to be slightly outnumbered, but if anyone finds that more than 2/3 of her/his neighbors is of the other color, s/he will become unhappy and move.
It's getting late, I need to catch some zzzzz..
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| « Last Edit: Jul 21st, 2009, 1:23am by Benny » |
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Re: Economics: other topics
« Reply #11 on: Jul 21st, 2009, 1:22am » |
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on Jul 21st, 2009, 1:17am, BenVitale wrote:| He meant, even though each person makes rational choices, the result can be something that none of them wanted; you might say that rational behavior by individuals can produce irrational result for society. |
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That's just the age old prisoner's dilemma.
Quote:| In Washington, D.C., there's a connection between city geography and race : The most deprived areas are often ghettos, packed with immigrants or with African Americans, Latinos and shunned by whites. |
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And shunned by anyone else that can avoid them. Barack Obama isn't going to live there just because he's black, you know.
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Re: Economics: other topics
« Reply #12 on: Jul 21st, 2009, 9:43pm » |
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on Jul 21st, 2009, 1:22am, towr wrote:
That's just the age old prisoner's dilemma. |
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Yes, it is the iterated prisoner's dilemma.
Researchers have for a long time looked to the iterated Prisoner's Dilemma (IPD) game to explain the evolution of human cooperation.
However, experimental evidence show that there's a higher degree of cooperation among humans and non-humans than predicted, leaving me wondering whether Harford missed that and why do they (humans and non-humans) cooperate to the extent they do. why does natural selection favor such cooperation?
Is Tim Harford wrong again? What do you think, towr?
I think that the iterated Snowdrift game (ISD) is a better model of an integrated society.
Snowdrift game goes as follows:
The situation of the Snowdrift game involves two drivers who are trapped on opposite sides of a snowdrift. Each has the option of staying in the car or shoveling snow to clear a path. Letting the opponent do all the work is the best option (with a pay-off of 300 used in this study), but being exploited by shoveling while the opponent sits in the car still results in a pay-off of 100. (The other two possibilities, both shoveling and both sitting, have pay-offs of 200 and 0, respectively.)
I only recently started to read the following document:
Human cooperation in social dilemmas: comparing the Snowdrift game with the Prisoners Dilemma
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And shunned by anyone else that can avoid them. Barack Obama isn't going to live there just because he's black, you know. |
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I'm referring to the Thomas Schelling's chessboard thought experiment ... It's a model that sought to explain how hetergenous groups or societies invariably end up segregating among themselves.
Key concept: Chicken (game), aka Hawk-Dove or Snowdrift game
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| « Last Edit: Jul 21st, 2009, 10:23pm by Benny » |
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Re: Economics: other topics
« Reply #13 on: Jul 22nd, 2009, 12:35am » |
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on Jul 21st, 2009, 9:43pm, BenVitale wrote:| Yes, it is the iterated prisoner's dilemma. |
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No, it's the regular, non-iterated one.
Quote:| However, experimental evidence show that there's a higher degree of cooperation among humans and non-humans than predicted, leaving me wondering whether Harford missed that and why do they (humans and non-humans) cooperate to the extent they do. why does natural selection favor such cooperation? |
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Because genes don't "care" about individuals. The genes are unequivocally better off if people cooperate, even if that is not true for the individuals bearing the genes. And therefore they have given people tendencies toward altruistic behaviour that defies their "rational" self-interest.
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| « Last Edit: Jul 22nd, 2009, 12:46am by towr » |
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Re: Economics: other topics
« Reply #14 on: Jul 22nd, 2009, 10:54am » |
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I thought of the iterated prisoner's dilemma because it has been extensively studied as a model of social interaction in which a kind of cooperative behavior can occur ... there are other models, such as, the prisoner's dilemma, the Ultimatum game, the Snowdrift game, the dictator game, ...
In the model I posted: the Thomas Schelling's chessboard thought experiment -- a model where we have a chessboard with white and black pieces, representing white and black people.
It is interesting to explore "altruism" and the conditions in which reciprocal altruism can arise.
In the iterated prisoner's dilemma (IPS), in each round of the game, two players choose to either "cooperate" (C) or "defect" (D). Each player then receives a payoff depending on the pair of choices. Two players interact some number of rounds, and the payoff for each player at the end of
the interactions is the total of the payoffs received each round.
The payoffs are:
If one player defects and the other cooperates, the defector receives the "traitor" payoff (T) and the other player receives the "sucker" payoff (S).
If both players cooperate, they both receive the "reward" (R).
If both players defect, they both receive the payoff (P).
T > R > P > S and 2R > T + S
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Re: Economics: other topics
« Reply #15 on: Jul 24th, 2009, 12:33pm » |
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Please view: The Logic of Life: Racial segregation
And, Schelling's segregation model from page 28 to page 32
A puzzle (page 2 :
Half of the white residents of LA and a few other U.S. cities prefer neighborhoods with 20% or more black residents
Almost none live in such neighborhoods
Why do we observe equilibrium racial segregation among weakly discriminatory individuals?
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Thomas Schelling's segregation model
Thomas C. Schelling (Micromotives and Macrobehavior, 197 developed a model to explain how this situations might evolve.
> Placed pennies and dimes on a chess board
> Moved them around according to various rules.
> Interpreted board as a city, each square representing a house or a lot.
> Interpreted pennies and dimes as agents representing any two groups in society (two races, two genders, smokers and non-smokers, etc.)
> Neighborhood of an agent consisted of the squares adjacent to agents location. (8 for inside, 3 or 5 for edge)
> Rules specified if an agent was happy in his neighborhood or not.
> If he was unhappy the agent tried to move away.
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| « Last Edit: Jul 24th, 2009, 12:34pm by Benny » |
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Re: Economics: other topics
« Reply #16 on: Sep 30th, 2009, 1:29pm » |
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How do you cancel a lunch meeting without revealing you are meeting with a competitor?
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Re: Economics: other topics
« Reply #17 on: Sep 30th, 2009, 2:44pm » |
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on Sep 30th, 2009, 1:29pm, BenVitale wrote:| How do you cancel a lunch meeting without revealing you are meeting with a competitor? |
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Don't tell them why you're canceling? Or lie?
In any case, I don't think you're obliged to tell them you're meeting a competitor.
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Re: Economics: other topics
« Reply #18 on: Oct 1st, 2009, 1:54pm » |
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I'll start with 2 humorous quotes:
"An economist is a man who states the obvious in terms of the incomprehensible."
--- Alfred A. Knopf ---
In other words, it is the painful elaboration of the obvious
"An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today."
-- Laurence J. Peter --
on Sep 30th, 2009, 2:44pm, towr wrote:
Don't tell them why you're canceling? Or lie?
In any case, I don't think you're obliged to tell them you're meeting a competitor. |
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Basically, I agree with you.
I started by asking myself, "How thinking like an economist can I shape my personal decisions?
Well, thinking like an economist means thinking in terms of opportunity cost.
For example, I gave up on chess to spend more time on math and economic theory ... because the opportunity cost was just too high for me.
To address the question I posted (How do you cancel a lunch meeting without revealing you are meeting with a competitor?) I've tried to look at it from the perspectives of :
Business etiquette, economic theory, behavorial psychology, game theory.
I didn't concern myself too much with etiquettes.
Lying?
Lying comes very easy for many people.
Research suggests that people lie to those they love quite often, and to people they they interact face-to-face in their workplace.
There are ways to lie effectively and to avoid suspicion.
Then, I asked myself, "Is it rational to be a loyal employee? "
I answer, "No."
Loyalty can slow down your success.
(I may be wrong on this)
A company exists to maximize profits.
As an employee, youre being compensated a fair market rate for providing a service, or creating a product; nothing more, nothing less.
Many companies offer perks or do have a positive impact in their communities. They do it because it is in their best self-interest ... it can be seen in the context of increasing the bottom line.
Now, how about meeting the competitor? How to meet him/her?
It depends on the situation:
By leveraging virtual technologies. To utilize social media. By conversing virtually, I may not have to cancel the meeting.
But if I must cancel the meeting, then what?
If I find myself in such a situation, I'll have to act calm, and have a plausible, not overly detailed answer ready
What are your thoughts?
[N.B. I posted this question on businessHarvard blog to which I got no reply.]
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towr
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Re: Economics: other topics
« Reply #19 on: Oct 1st, 2009, 2:55pm » |
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on Oct 1st, 2009, 1:54pm, BenVitale wrote:| Then, I asked myself, "Is it rational to be a loyal employee? " |
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Moreso than to be known as a disloyal one. Because you will quickly be fired as someone that cannot be trusted. Of course up to that point it's just an argument to feign loyalty.
Quote:Loyalty can slow down your success.
(I may be wrong on this) |
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I would say that in some cases you are. You're looking at things too abstractly. Because when you say:
Quote:| A company exists to maximize profits. |
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That is only true up to a point.
A company is also a social group. And especially in smaller companies, which have closer contact between management and other employees (or do not even have such a distinction), that can play a big role. If a company is also loyal to you, if it cares about the well-being of its employees and treats them as people rather than "resources", then it pays to be loyal to your company. Because another company might not care about you.
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| « Last Edit: Oct 1st, 2009, 3:07pm by towr » |
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Benny
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Re: Economics: other topics
« Reply #20 on: Oct 2nd, 2009, 2:39pm » |
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on Oct 1st, 2009, 2:55pm, towr wrote:
Moreso than to be known as a disloyal one. Because you will quickly be fired as someone that cannot be trusted. |
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I meant acting loyal till one day you come across a better offer.
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Of course up to that point it's just an argument to feign loyalty. |
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Yeah, cooperate, then defect.
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I would say that in some cases you are. You're looking at things too abstractly.
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Yes, you're right. I was reading this morning an article by the Harvard Business Reviews on the potential of agent-based modeling and emergent phenomena ... I haven't finished it... so many pages to read.
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Because when you say:
That is only true up to a point.
A company is also a social group. And especially in smaller companies, which have closer contact between management and other employees (or do not even have such a distinction), that can play a big role. If a company is also loyal to you, if it cares about the well-being of its employees and treats them as people rather than "resources", then it pays to be loyal to your company. Because another company might not care about you. |
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You're right.
My previous post describes the process of choosing a path based strictly on one's own interests, without regard for how that choice may affect anyone else.
I'm also reading Tim Roughgarden's book Selfish Routing and the Price of Anarchy
I came across the Braess's Paradox
And, Pigou's example of selfish behavior. Pigou showed that it doesn't always work
http://www.americanscientist.org/bookshelf/pub/coping-with-selfishness
--- To be continued ---
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Benny
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Re: Economics: other topics
« Reply #21 on: Oct 7th, 2009, 10:57am » |
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on Oct 1st, 2009, 2:55pm, towr wrote:
You're looking at things too abstractly. |
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Yes, it's too abstract, too broad.
I retract my analysis.
It may not necessarily work.
I should be looking at a particular model, because things vary from job to job and from industry to industry, and from organization to organization.
Game theory is a very fascinating field and it is very easy to get seduced by it. But the theoretical limitations are daunting ... Game theory provides an excellent framework, real business situations are beyond what the theory could describe. I ought to drop the theory and simply play games to investigate, for example, what emergent phenomena will arise from interactions of competitor, including companies that learn and adapt to the actions of others.
My analysis was from the top down, I ought to do the other way around, that is from the bottom up ... and explore this on what-if simulation this could be expensive and risky in the real world, because one, for example, could get fired or the management may not appreciate someone playing games, even for the sake of deepening our understanding of Game theory.
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| « Last Edit: Oct 7th, 2009, 11:04am by Benny » |
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Re: Economics: other topics
« Reply #22 on: Oct 7th, 2009, 11:17am » |
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As for Emergent phenomena and agent-based modeling, I don't fully understand them.
To appreciate the full power of "agent-based" modeling one needs to understand the concept of "Emergent phenomena" and the best way to do that is by thinking of traffic jam. Although they are everyday occurrences, traffic jams are actually very complicated and mysterious. On an individual level, each driver is trying to get somewhere and is following or breaking certain rules and others slow down to let another driver change into your lane. But a traffic jam is a separate and distinct entity that emerges from those individual behaviors.
For example, gridlock on a highway can travel backward for no apparent reason, even as the cars are moving forward.
Emergent phenomena are not just academic curiosities but they lie beneath the surface of many mysteries in the business world.
As population densities and the number of interactions among people increase, so does
the probability of emergent phenomena. Businesses are becoming much more interconnected and complicated. Emergent phenomena have become very difficult to analyze, let alone predict.
adding new lanes to a highway often makes rush hour traffic jams far worse
See the Braess's paradox
People rationalize this by saying, of course adding a lane will increase traffic jams because drivers will change lanes more often, thus slowing down other drivers.
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| « Last Edit: Oct 7th, 2009, 11:17am by Benny » |
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Re: Economics: other topics
« Reply #23 on: Oct 7th, 2009, 11:23am » |
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Here's a game that describes Emergent phenomena:
To see a simulation of this game, visit http://www.icosystem.com/game.htm
Imagine that we all started mingling, as if we were at a cocktail party. At random, you silently pick 2 other people (call them A and B) and then you always position yourself so that A is between B and you.
If everyone else were to do the same, what would happen?
Now, let's change the game slightly: You always position yourself so that you are between A and B.
Again, if everyone else were to do likewise, what would happen?
If there are several dozen of us, in the first game everyone will continue moving around the room for hours as we continuously try to keep ourselves in the right position.
An outside observer who was unaware of our game might think that the movement was random.
In the second scenario, the result is markedly different. Within seconds, we will have clumped into a single, almost stationary cluster. The same uninformed observer might think that our goal was to join together. In either case, our collective behavior -- the milling around or the clumping -- is the emergent phenomenon that has risen from our individual actions.
(1) emergent phenomena can be unpredictable and often counterintuitive.
What would happen, for example, if half of us followed the rule of the first game while the rest obeyed the other rule?
(2) a seemingly minor change in what we do individually within a group can radically alter our collective behavior.
(3) a logical link does not necessarily exist between our individual actions and the resulting emergent phenomenon. That is, why should the second -- and not the first -- game result in clumping?
Indeed, emergent phenomena often have a life of their own that is separate and distinct from
the behaviors of their constituent parts.
A traffic jam, for example, cannot always be understood by studying what each individual driver is doing. Examples of emergent phenomena in the business world include organizational behavior that is shaped (or misshaped) thru employee bonuses and incentives, free markets in which prices are set thru the myriad interactions of buyers and sellers, and consumer buzz that propels sleeper products into runaway successes.
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towr
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Re: Economics: other topics
« Reply #24 on: Oct 7th, 2009, 2:15pm » |
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on Oct 7th, 2009, 11:17am, BenVitale wrote:| For example, gridlock on a highway can travel backward for no apparent reason, even as the cars are moving forward. |
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There have been experiments showing that it can be due to variations in people's speed, and the latency in their response.
http://www.youtube.com/watch?v=Suugn-p5C1M
Quote:| adding new lanes to a highway often makes rush hour traffic jams far worse |
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Often? Are you sure?
Just because it has been shown that it can do so in theory doesn't mean it does so often in practice. I only know of a few cases where it has been objectively verified that closing off a piece of road increased traffic flow; and I'm not even sure that wasn't because people knew about it and there were less travelers because of it.
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