1st class. We discussed basic economic ideas and tools. Demand, supply, the market equilibrium, efficiency. We also discussed the Coase Theorem: given no transaction costs, the parties will reach optimal allocation of goods whatever is the initial allocation of rights. We also started explaining some game theory and we played the Ultimatum Game (en.wikipedia.org/wiki/Ultimatum_game). As expected, the average proposal of the Player 1 was 57-43, so it was just a little bit above the equal share of 50-50. In 8 cases the proposal was accepted. In those 3 cases, when the Player 2 refused the deal, the avarege proposal was 70-30. In many experiments it has been found that the least profitable but still acceptable proposal for the Player 2 is 80-20. If Player 2 is getting less than 20, he would rather reject the deal altogether as unfair. Next class we will discuss the Prisoner Dilemma and we will look at crime trends.
Posted on: Tue, 07 Oct 2014 18:33:31 +0000
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