Economics in Action

Following my last post, I have been given a great article by Peter Sozou and Robert Seymour (titled “Costly but worthless gifts facilitate courtship“) about the application of game theory in relationship issues. This unconventional article on game theory shows the great power economists have to solve social problems. It is free and worth reading if you are keen on studying game theory.

And apparently, intrinsically worthless gifts (e.g. an engagement ring?) are great signals.

So, one week of micro basic game theory revision can drive you to the edge of insanity… Talking to certain people about their love problems has definitely pushed me over that edge. Here is my analysis of love as a dynamic game of imperfect information. Enjoy!

THE SETUP:

I will base my analysis on a simple two-players model, which can be extended to create love triangles, quadrangles, etc… We have players A and B, who have concave utility functions, and hence are both risk-averse (i.e. they prefer certainty over an uncertain prospect). People are risk-averse to different degrees, and this will affect the payoffs each player faces, and as a result, the way the game is played. In this game, I will assume that both players are very risk-averse (which is true in most cases). Both players are trying to maximise their payoffs.
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Here is a personal take on the situation in Iceland and the rest of Europe by our new contributor Harry Simmons:

Iceland has been the world’s whipping boy for the last few years.  The collapse of its banking system uncovered huge international systemic failures leading to the economic crisis.  The snowy nation has had a rough time of it.  But as we begin 2011, I ask the question, are they really still in that much trouble?  Figures released by the International Monetary Fund in December 2010 showed that Iceland’s GDP grew by 1.2% in the third quarter, ending the recession caused by the actions of those in its banking sector.  What about those European countries still in economic strife?
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Recently, the Centre for Economic Performance (CEP) celebrated its 21^st Birthday by holding a series of lectures at the London School of Economics and Political Science (LSE). The chief economist at the International Monetary Fund, Olivier Blanchard, gave the first lecture on the state of the world economy. Last Tuesday, the second lecture of the series was given by Professor John Van Reenen on the topic of restoring economic growth.

The Economics Network received an invitation to attend both lectures, and as a new guy on the job, I was appointed to go. However, being a second year student with a very busy schedule means I could only attend one of the lectures. Since I was doing economic growth as part of my macro course, I decided to go to the latter lecture.

I arrived in London quite late, but managed to quickly find my way to the lecture theatre in the LSE’s Old Building where the talk was held. The CEP has reserved a front row seat for me, so not only did I have the best view; I also managed to take many photos. There was a brief introduction of John Van Reenen by Stuart Corbridge before the lecture started.

John divided the lecture into three sections: (more…)

In the latest of our podcasts supporting the Royal Economic Society Conference 2008 Romesh Vaitilingam talks to Dan Anderberg about some socio-economic analysis of the effects of the MMR controversy.

Highly educated parents responded more strongly to the controversial study linking the measles, mumps and rubella (MMR) vaccine to the development of autism in children. That is the central finding of new research by Professor Dan Anderberg and colleagues presented at the Royal Economic Society’s 2008 annual conference.

Whats more, the study finds, these parents were less likely to have their children vaccinated against other diseases after the controversy, not just MMR. Since there was never any suspicion of doubt about other vaccines, this may have put the health of their children at risk.

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Crisis regulation may help avoid another Northern Rock style panic, according to research by Professors Shurojit Chatterji and Sayantan Ghosal presented at the Royal Economic Society’s 2008 annual conference.

But the authorities should not always aim to prevent bank runs on the contrary, when regulators cannot monitor banks and fine those that are behaving irresponsibly, the possibility of bank runs is needed to prevent banks from lending irresponsibly in the first place.

In September 2007, Northern Rock suffered the first bank run on a British bank in over a century. The spectacle of depositors queuing up in front of the high street branches of the Northern Rock has prompted much commentary on the stability of the financial systems and the global consequences of the subprime crisis in the United States.

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