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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In many ways economics is the study of incentives. An incentive is any factor (financial or non-financial) that enables or motivates a particular course of action, or counts as a reason for preferring one choice to the alternatives.

In English, Incentives make you want to do something you otherwise wouldn’t want to do. Today let’s talk about an incentive which is in the media at the moment, the oft criticised, proposed marriage tax break. (more…)

Priceless? Free? Surely it differs on what you buy your true love? And why would you try to put a price on it?

Photo by spud on Flickr

The 12 days of Christmas, a popular Christmas song, begins with the line ‘On the first day of Christmas my true love sent to me’. An American investment group PNC Wealth Management compile a Christmas Price Index (CPI) every year. Taking the meaning of the song quite literally they calculate the cost of true love.

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In the latest of a series of interviews from the Royal Economic Society Conference 2007, Romesh Vaitilingam talks to Kerry Papps the effect of divorce on women and work.

Married women work more hours in the labour market when they face a high likelihood of divorce: for example, a woman who is unhappy with her marriage will work on average 283 hours more in the following year than a woman who is very happy with her marriage. In contrast, married men are unaffected by the probability of divorce.

These are among the findings of new research by Kerry Papps. The study also finds that both single men and single women work more when they have a high chance of marrying in the near future.

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Human beings ability to cooperate with each other lies behind our success as a species. But since the skills of coalition-building are essentially for masculine activities notably hunting and warfare they have also been the key to mens subjugation of women.

That was the central message of Professor Paul Seabright when he delivered the 2005 Royal Economic Society Public Lecture on Thursday 8 December in Edinburgh and again on Friday 9 December in London.

Professor Seabrights lecture took his audience through a tour of the many ingenious strategies that males and females have used to manipulate their partners and rivals, from primates to prehistoric humans to modern men and women. He concludes:

Cooperative man was the key to our civilisation but he has used his success to isolate, confine and control the women in his life.

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