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about Game theory |
For students in New York and Boston, who have a range of options beyond their neighborhood school, choosing a high school used to be a maddeningly complicated guessing game. In Boston, for instance, many students would list their three top school choices — but were not guaranteed acceptance at any of them.
That made school selection a stressful quandary for many students and their families: Should they put highly rated but popular schools on their lists, despite the low odds of acceptance? Or should they list less desirable schools, to increase their chances of getting in?
Picking a school wasn’t just a matter of figuring out which schools were good: Because students had to think strategically and anticipate which choices others would make, it was a real-world exercise in game theory. And a frustrating one: At least 20 percent of Boston students, by some estimates, were making strategic errors; in New York, a third of students were shut out of the system without receiving any school assignments.
Just a decade ago, it seemed like an intractable problem. But that soon changed, thanks in part to a graduate student — now an MIT professor — named Parag Pathak.
Building a ‘strategy-proof’ system
In 2003, New York City schools chancellor Joel Klein, who wanted to revamp the school-choice system, approached a Harvard University professor named Alvin Roth about the problem. Roth had studied the method for matching medical students to their residencies; New York officials hoped something similar would work for their school system.
In turn, Roth asked Pathak, then a first-year PhD student in economics, to look into New York’s school-choice system: Was it a substantive and interesting problem? Pathak decided it was. A decade later, he is still producing new research on the topic, and in 2011 received tenure at MIT, in part because of his work in the area.
Moreover, that work has produced real-world results. Based on the research of Roth and his collaborators, New York City soon adopted what is known as a “deferred-acceptance algorithm” to assign places. Then, Roth’s group, now including economist Tayfun Sonmez, helped Boston review its choice system, leading the city to adopt a new method in 2005.
Using this method, schools first weigh all the students listing those schools as first-choice venues; then, the students who are rejected are essentially allowed to revise their lists, and the process repeats until every student has been matched with a school selection. The crucial difference is that students and families can simply pick the schools they most want to attend, in order.
“Our whole agenda is to try to make these systems strategy-proof,” says Pathak, now an associate professor of economics at MIT. “All these methods move in the direction of simplifying the system for students.” Complicated tactical guesses about popularity are moot; the entire process is based on the substantive merits of schools.
This positive outcome, Pathak says, is the fruit of “trying to think of economics as an engineering discipline,” in order to construct practical solutions to real-world problems.
Within economics, his growing area of specialization is known as “market design.” Beyond schools, market-design problems can be found in health care, financial markets, even the process of keyword searching on the Internet. “These allocation problems are everywhere,” says Pathak, who now also studies school-performance questions and has produced papers examining the quirks of housing markets.
What makes schools good?
Pathak is the son of Nepalese parents who immigrated to the United States in the 1970s. He grew up in Corning, N.Y., where his father is a doctor and his mother a writer, before attending Harvard as an undergraduate. A direct line can be drawn between Pathak’s career and a class he took during his senior year at Harvard in the spring of 2002, team-taught by Roth and Paul Milgrom, two leaders in market design; Milgrom advised the Federal Communications Commission on the design of their broadcasting-spectrum auctions.
Pathak, an applied mathematics major who graduated summa cum laude from Harvard, says that class allowed him to recognize the possibility of linking game theory with practical problems. He soon enrolled in graduate school in economics at Harvard, received his PhD in 2007 and joined MIT in 2008.
Since then, Pathak’s research on school-choice issues has expanded in part because other places, including Chicago and much of England, have adopted systems similar to the ones he endorses — but due to their own initiative. “It’s as if they followed the discussion in Boston, although there is no evidence of it,” Pathak says. “It’s a great story of how markets evolve.”
Although strategy-proof systems are gaining in popularity, many cities do not employ them. And yet Pathak believes that in addition to making the selection process simpler, the new systems can lead to a virtuous circle in assessing school quality: If administrators know what students’ real preferences are — as opposed to their tactics-based selections — they can examine what makes certain schools popular and try to institute those elements of good schools in other places, too.
“If we have programs that are oversubscribed, we should figure out why and consider replicating them,” Pathak says.
To be sure, it can be very difficult for people to assess whether or not schools are good in the first place, and for what reasons. In part because of this, Pathak’s interests have developed to include measuring school performance. Along with MIT economists Joshua Angrist and David Autor, he is a founding director of the School Effectiveness & Inequality Institute at MIT, a new center that launched this year.
Angrist, Pathak and a variety of co-authors have published multiple studies about the performance of charter schools in Massachusetts, for instance, using random samples of students from schools’ admissions lotteries. While recognizing that this can be a “politically charged” issue, Pathak says their aim is simply to shine some empirical light on the matter. So far, the results they have found are nuanced: Some charter schools in urban areas such as Boston have dramatically improved student performance, but charter schools in other parts of Massachusetts have generally performed worse than their non-charter public counterparts.
The researchers are still trying to determine exactly why this is, and aim to expand their studies geographically. But the technical expertise of Pathak and Angrist — a pioneer in developing and refining “natural experiments” in economics — makes them confident they can rigorously equitably assess thorny questions about student performance.
“Through school assignment, we have an engine to measure a lot of things about education production,” Pathak says. And now, students have a vehicle for choosing schools on their merits.
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This morning’s headline on BBC Breakfast was the news that yesterday RBS raised the interest rate on three of its mortgage products by a quarter of a percent to 4%. Three days ago the Halifax wrote to its mortgage holders saying that it intends to raise the cap on its Standard Variable Rate (SVR) to 3.75% above base rate, rather than the current 3%. As the Telegraph reports, although this doesn’t guarantee that Halifax would raise the rate itself, brokers”… believe otherwise and suggested that this would soon happen for a million Halifax borrowers” – and the BBC are now reporting an expectation that the Halifax will announce a rise in the SVR with effect from 1st May. For A level economists this story has several implications.
The first is clearly in macroeconomics, with the likely effect on consumer spending. We know well how squeezed consumers are, with rises in fuel and food prices, and the Bank of England has regularly expressed the importance of keeping base rates low in order to allow households to keep their heads above water. For mortgage holders with an interest-only mortgage, the RBS rate increase represents a 14% increase in their monthly mortgage payment – highlighted in this BBC video report.
The second concerns kinked demand curves and game theory. We have already seen RBS actually raising their rate and a likelihood that Halifax are about to do the same. Stuart Gregory from Lentune Mortgage Consultancy, who used to work for Halifax, told the Telegraph he expected to see a “chain of events” whereby other lenders also increased rates. “Once one does it, the others see it as an opportunity,” he said. This sounds like oligopoly behaviour to me. Mortgage lenders have all held their rates low for almost three years since Base Rate sunk to 0.5% in March 2009. This could be because, in close competition with each other, they have been stuck on the apex of a kinked demand curve, not feeling that the market would allow them either to raise rates and increase their returns – perhaps because competitors would not follow suit, and in any case their clients couldn’t afford the repayments - or to lower rates and try to gain larger market share – perhaps because they can’t afford the lower margins.
But something must have changed to cause RBS and Halifax to risk moving away from the established position, and guess that others will follow suit. There is certainly no signal from the Monetary Policy Committee or the Bank of England, who are more inclined at the moment to give the impression that 0.5% remains set in stone. The justification given by RBS is a rise in their borrowing costs. Partly due to rises in the LIBOR rate – as this graph shows, there may be some justification for this as there was a significant rise between November 2011 and the end of January 2012, although it has fallen back a little during February.
Source: thisismoney.co.uk
A second reason may be that savers are becoming more savvy in moving their funds between banks and accounts in order to seek the best possible rate, squeezing the margin between the rate that banks pay to savers and charge to borrowers – a new paradox of thrift. And a third was suggested by Paul Lewis on the BBC this morning; could it be that base rate, stuck so low for so long, is losing its power as a signal to other banks, who see official monetary policy as increasingly disconnected from the real world?
A GAME THEORETICAL ANALYSIS OF ECONOMIC SANCTION
Khalifany Ash Shidiqi
Rimawan Pradiptyo
Abstract
Faculty of Economics and Business, Universitas Gadjah Mada, Indonesia
1
Economic sanction has been widely used and increasingly a popular tool in maintaining peace and political stability in the world. The use of economic sanction, as opposed to the use of military power, to punish target countries have been supported by the Charter of United Nations (UN). Tsebelis (1990) modelled economic sanctions using game theory and found that any attempt to increase the severity of the sanctions was counterintuitive, namely the policy reduced the likelihood of sender country(s) in enforcing economic sanction, however, it did not change the probability of the target country(s) in violating international agreement/law. This paper focuses on the refinement of the sanction game proposed by Tsebelis (1990) to analyse international relations. Recent findings from various studies on the effectiveness of economic sanction have been used to reconstruct the game. In contrast to Tsebelis’(1990) findings, any attempt to increase the severity of economic sanction may reduce the probability of the target country(s) in violating international agreement/law. A similar result was obtained in the case for which the sender country(s) applies any policy in preventing violation of international agreement/law by providing aids, assistances, and incentives to the target country.
Keywords: Economic Sanction, the Sanction/Inspection Games, Mixed Strategy Equilibrium.
JEL Classification: C79, K42, F51رفرنس: http://mpra.ub.uni-muenchen.de
"How can any missile crewman know that an order to twist his launch key in its slot and send a thermonuclear missile rocketing out of its silo—a nuke capable of killing millions of civilians—is lawful, legitimate, and comes from a sane president?" When Maj. Harold Hering asked this question it made his commanders so uncomfortable that it cost Hering his career.
Major Hering wasn't asking this question in an historical vacuum. This happened at the height of the Cold War and the Watergate scandal. President Richard Nixon was not only losing his mandate to govern and lead, but also, some feared, Nixon was losing his grip on reality. The extent of the president's alcohol abuse may not have been public knowledge at the time, but there were plenty of signs of erratic behavior that raised eyebrows. For instance, Nixon reportedly told a group of Congressmen at a White House dinner party "I could leave this room and in 25 minutes 70 million people would be dead." Nixon may have been many things, but genocidal maniac was fortunately not one of them. And yet, Hering had challenged the very foundation of the nuclear "failsafe" system.
As Ron Rosenbaum writes in the new book How The End Begins: The Road to a Nuclear World War III, while the president is "the ultimate authorizer of Armageddon," what if his mind "is deranged, disordered, even damagingly intoxicated? Should there be a breathalyzer lock on the nuclear football? A brain scan?" In other words, the most horrific decision in history "could be executed in less than fifteen minutes by one person with no time for second-guessing."
How do we safeguard against a President who is "off his meds" or otherwise mentally incapacitated? This is not a far-fetched question considering that a 2006 Duke University study found that mental illness has affected about half of all U.S. presidents, including Lincoln, John Adams and James Madison. U.S. presidential history, in fact, is filled with "secret surgeries and strokes." John Kennedy, Franklin Roosevelt and Woodrow Wilson all hid illnesses from the public, leading to the 25th Amendment that mandates, among other things, that presidential illnesses be disclosed.
Of course, in today's media environment, it is almost impossible to imagine a president being able to hide an illness the way FDR did during World War II. Moreover, our culture has greatly evolved when it comes to discussing illness openly. "I'd prefer to live in a world where people can embrace that our [public figures] can be ill, and still be great leaders" says bioethicist and Big Think Delphi Fellow Dr. Jacob Appel. "Now that this information is open, I think it can be for the greater good."
But how much information is really open? Are there actually sufficient medical background checks in place for presidential candidates? This became an issue in 2008, when the 71 year-old candidate John McCain allowed only select members of the media a three-hour "peek" at his medical records.
On the other hand, our public vetting process must be some measure of comfort. "The presidency is the most intimate office we have," Time magazine columnist Joe Klein recently told Chris Matthews on MSNBC's Hardball. "They live in our kitchens. They live in our living rooms." We demand to get to know them.
Indeed, evaluating a candidate's mental competency has indeed become a staple of our politics in the nuclear age. Remember Lyndon Johnson's devastating attack on Barry Goldwater in 1964. While Johnson's infamous "Daisy" ad only hit the airwaves once, as it has been noted, "once was enough". The American public is extremely wary of "nuclear cowboys" who might risk "total extinction in the defense of liberty." This subject is no joking matter, as evidenced by Ronald Reagan's famous mic check gaffe that cost him 9 points in public opinion polls in 1984:
"My fellow Americans, I am pleased to tell you I just signed legislation which outlaws Russia forever. We begin bombing in five minutes."
So if we were to administer a presidential sanity test, who would pass it?
Let's pick on Ron Paul, for instance. While 90 percent of what he says might be defended by a reasonable person, what about the 10 percent that appears to be insane gibberish?
But what about JFK, who took LSD?
And what about Ulysses S. Grant, who was drunk at his own inauguration? Would he have passed the test?
What about our military strategists that Rosenbaum references in his book? Their literature is a bizarre mix of "nuke porn" and nuclear war game theory, in which the "calculated irrationality" of men like Brig. Gen. Jack D. Ripper builds to an inevitable climax, or "wargasm." Are these "young Strangeloves" not demonstrably insane? Or, as Rosenbaum asks, are we all going crazy together?
But it might not be up to us.
What about an imposter? Rosenbaum writes: "We know that hacker attacks, many believed to have originated from China's military, have regularly targeted the Pentagon and our nuclear control system." Indeed, in a previous post on Chinese espionage, intelligence expert David Wise told Big Think how "a few key strokes on the computer" can function as a weapon of mass destruction.
I don't feel very failsafe now.
Posted on February 9, 2012 by Barry Hughes
This picture is of a billion Mark note from Germany in the early 1920s. In 1923 it wouldn’t even buy you a loaf of bread.
Printing Money
Rudolf Havenstein was the president of the Reichsbank, the German national bank, from 1908 through the war years. After the war he was in charge of an economy struggling with burden of debt that had been used to finance the war and the need to pay reparations to the victorious countries. The government had printed money to finance the war and this had led to growing inflation. During the four years of the war there had been a four-fold increase in the amount of money in the German economy and prices had more than doubled.
Prices continued to rise rapidly until by early 1920 prices had risen five times from where they had been at the end of the war, just two years earlier. At this point inflation slowed and Havenstein, along with the rest of the German government may have thought that the worst was over.
The chance to stabilise the economy was missed and the government continued to print more money. In the middle of 1921 inflation started to rise again and within a year prices had increased by 700%. Then the problems really started…
One trillion Marks
The following year the German people started to lose confidence in the Mark and tried to move their money into real goods like diamonds or gold. As demand for these stores of money rose their price rose and to fulfil the demand for more money to pay for the goods the government continued to print more. This lead to rapidly spiralling prices, known as hyperinflation.
Workers were paid two or even three times a day and rushed to spend their money before its value dropped. People even burned bank notes to keep warm as they had become worth so little and it was cheaper than buying coal. Havenstein had the Reichsbank’s printing presses running through the night and printing larger and larger denomination notes, eventually ending up with a trillion Mark note. It was worth one dollar.
The solution
Havenstein died in November 1923 and his successor, Horace Schacht, introduced a new currency, the Rentenmark. This new currency was backed by land and industrial goods and because of this it regained the confidence of the German people and the hyperinflation was stopped.
Coordination game
The example of hyperinflation in 1920s Germany shows how people only think paper money has a value through a huge coordination game. Money is ultimately just a fancy piece of paper. It only has value if everyone else thinks it has value. The financial system requires all the players in the game to believe that the bits of paper in their wallets and purses have a value.
It only takes a few people to start to doubt whether others will accept their paper money in return for goods and the system collapses very rapidly. Once the coordination between all the players is lost then the equilibrium will very quickly unravel and the paper money becomes worthless.
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