JMeganSnow Posted February 17, 2005 Report Share Posted February 17, 2005 Something short and informative you can read about economics is Frederic Bastiat's "That which is seen and that which is not seen", free at this site. I read it and it's quite interesting. Quote Link to comment Share on other sites More sharing options...
Hal Posted February 17, 2005 Report Share Posted February 17, 2005 (edited) This just irked the hell out of me. In what situation of justice would this EVER be a realistic scenerio? Why is the punishment determined by the confession, as opposed to the evidence? Why do we compare a bank robbery to a business strategy when one is a destruction of value through taking of the unearned, and the other is the creation of value? This damn prisoner's dilemna just keeps coming up. Economics classes have so many problems and I'd be interested to hear from anyone with more of a background in econ - since I am just beginning to study it. Any guidelines for getting through the introductory courses (Macro and Micro) as well as any reading suggestions would be great. Thanks! The PD is an interpretation of a payoff matrix where a nash equilibrium (the state which occurs when both parties make the best move possible, taking their opponents possibilites into account) results in an outcome which isnt pareto optimal (the best outcome for either party). You're perfectly free to invent your own interpretation if you like. There's hundreds of examples you can choose from which have more application to real life, including these: 1) In a busy city, the amount of traffic on the road generally means it takes a long time to get to work in the morning. If everyone 'cooperated' took public transport instead of driving then most people would get to work quicker, since the roads would no longer be congested. But, then it would be in people's advantage to drive because there wouldnt be much traffic. So everyone would 'cheat' and go back to driving, meaning the congestion would return and it would take ages to get into work again. Driving is always the best option for each individal (using a minimax analysis), but because of this, you will end up with a worse result than if everyone collectively picked the inferior option of driving to work. 2) Two companies are competiting in the same market. If one lowers its price on an item then it gets more customers. But then the other company will also lower its price, meaning that they both end up selling the item for a lower price than they would have if they both 'cooperated' and maintained the original price, hence they make less profit. It is also especially relevant to most "free rider" problems, and it will come up in any debate involving a society which funds the military/police through voluntary financing rather than taxation. Here, the 'best result' for any individual person would be if everyone else paid while he doesnt, since then he will then receive the benefits of the services in question for free. But if everyone thinks this way and makes this choice, there will not be enough money for the police/army to exist, and everyone ends up worse off. There are obvious counter arguments (social stigma etc), but the PD idea is certainly relevant. Edited February 17, 2005 by Hal Quote Link to comment Share on other sites More sharing options...
Bryan Posted February 17, 2005 Report Share Posted February 17, 2005 The first time I came across the prisoner's dilemma was in my Artificial Intelligence class. It was used to illustrate the Min-Max algorithm. Basically, the Min-Max algorithm is used in AI to make the best choice given all the possible alternatives, and all the possible decisions that your opponent can make. The prisoner's dilemma is a very simple example to illustrate game theory, and not something I would take too literally. Quote Link to comment Share on other sites More sharing options...
Currence Posted February 17, 2005 Report Share Posted February 17, 2005 JMeganSnow: Insofar that the chief goal of such PD problems is to analyze the actual process of decision making, rather than the specific nature of the decisions themselves, there is no context dropping. The PD is merely a conceptual tool (when used properly) that can be useful in analyses; similar to a proper thought experiment, where the details insignificant to the subject under analysis are dropped and only the essentials remain. Hal is right, similar PD situations are used when discussing free-rider and "commons" scenario. Most fresh in my mind are the questions concerning a cost-benefit analysis of environmental pollution. Of course, in that case, the proper solution is to eliminate the commons (public property) and any purported dilemma dissolves. Quote Link to comment Share on other sites More sharing options...
Toolboxnj Posted February 17, 2005 Report Share Posted February 17, 2005 PD can also be applied to theories of international relations. Right now, the hottest theories for the post-Cold War era are Rational Choice and Game Theory, which employs models like Prisoners Dilemma (for worse, more than better). Quote Link to comment Share on other sites More sharing options...
Elle Posted February 17, 2005 Report Share Posted February 17, 2005 This is not the version of the Prisoner's dilemma that's familiar to me. The one I've heard goes something like this: You and a friend are in prison for a crime and receive a certain median treatment. If one of you rats on the other, the rat receives better treatment and the ratee receives worse. If you both rat, you both receive worse treatment. It's essentially similar, though. And equally stupid. Catch 22 works only if you drop context, forgetting that there are OTHER options. I love these idiot "ethics" problems, they're so dumb. Yeah I have heard many versions but I copied down the one she presented word-for-word last night and that's what I posted. Grrr... I guess this post doesn't accomplish much except to say "if you're taking economics watch out for this one!" Quote Link to comment Share on other sites More sharing options...
Elle Posted February 17, 2005 Report Share Posted February 17, 2005 The PD is an interpretation of a payoff matrix where a nash equilibrium (the state which occurs when both parties make the best move possible, taking their opponents possibilites into account) results in an outcome which isnt pareto optimal (the best outcome for either party). You're perfectly free to invent your own interpretation if you like. There's hundreds of examples you can choose from which have more application to real life, including these: 1) In a busy city, the amount of traffic on the road generally means it takes a long time to get to work in the morning. If everyone 'cooperated' took public transport instead of driving then most people would get to work quicker, since the roads would no longer be congested. But, then it would be in people's advantage to drive because there wouldnt be much traffic. So everyone would 'cheat' and go back to driving, meaning the congestion would return and it would take ages to get into work again. Driving is always the best option for each individal (using a minimax analysis), but because of this, you will end up with a worse result than if everyone collectively picked the inferior option of driving to work. 2) Two companies are competiting in the same market. If one lowers its price on an item then it gets more customers. But then the other company will also lower its price, meaning that they both end up selling the item for a lower price than they would have if they both 'cooperated' and maintained the original price, hence they make less profit. It is also especially relevant to most "free rider" problems, and it will come up in any debate involving a society which funds the military/police through voluntary financing rather than taxation. Here, the 'best result' for any individual person would be if everyone else paid while he doesnt, since then he will then receive the benefits of the services in question for free. But if everyone thinks this way and makes this choice, there will not be enough money for the police/army to exist, and everyone ends up worse off. There are obvious counter arguments (social stigma etc), but the PD idea is certainly relevant. So doesn't this contradict the idea that there is no conflict of interest between rational men? For example, if every individual determines that it is in his self-interest to travel by car then why not build wider highways, smaller cars, etc since this decision will create a market and demand for these things? Also, it seems strange to suggest a system in which the "free-rider" will get the greatest benefit. I didn't understand the exact nature of Nash's equilibrium in the film A Beautiful Mind beyond the monstrosity of passing up the best for the mediocre - but using a model like this for trade and foreign policy is a lot worse then applying it to dating (as was done in the film)! Quote Link to comment Share on other sites More sharing options...
JMeganSnow Posted February 18, 2005 Report Share Posted February 18, 2005 So doesn't this contradict the idea that there is no conflict of interest between rational men? For example, if every individual determines that it is in his self-interest to travel by car then why not build wider highways, smaller cars, etc since this decision will create a market and demand for these things? All the examples given continue to drop context as well. 1.) Not everyone can afford a car. Not all of those who can choose to drive one. The most likely result of this situation is that people will achieve some kind of functional balance between riding public transportation and driving. Not to mention other options like telecommuting, staggering your hours so you're not driving during rush hour . . . 2.) Price-fixing is illegal . . . and this assumes that people will buy an equal number of higher-priced units; they will not. Attempting a scheme of this nature only means a third competitor will come in, offering a price that is closer to the one a free market would determine, and the price-fixers will either have to recruit this competitor (using violence if he has any morals at all) or lower their prices. I understand min-maxing and I apologize if my grasp of economics is largely intuitive (i.e. common-sense-based), but I still think that, taken as-is, the PD is simply an exercise in context-dropping. There really are no conflicts of interests between rational men . . . if you don't expect everyone to "cooperate" to benefit YOU for some reason you come to see that. The general principle behind economics (capitalist economics especially) is not "cooperation" but trade. If you recognize that the purpose of an individual trading is not to acheive a maximum reward for the group but the best reward for himself (the best rational reward) it ceases to be mystifying. Quote Link to comment Share on other sites More sharing options...
Capitalism Forever Posted February 18, 2005 Report Share Posted February 18, 2005 Search is our friend ... http://forum.ObjectivismOnline.com/index.php?showtopic=686 Quote Link to comment Share on other sites More sharing options...
JMeganSnow Posted February 18, 2005 Report Share Posted February 18, 2005 Search is our friend ... http://forum.ObjectivismOnline.com/index.php?showtopic=686 Apparently so. Thanks! Quote Link to comment Share on other sites More sharing options...
Durandal Posted February 18, 2005 Report Share Posted February 18, 2005 I personally don't see the conflict between Nash Equilibrium and Objectivism. I am an economics major, and so far I've found game theory to be quite relevant. In fact, I can give you a rather undesirable consequence of the Nash Equilibrium being disobeyed: OPEC. The prisoner's dillemma is one of the things that protects competition and discourages collusion. If this theory were invalid, groups of companies would simply join forces and fix prices at an artificially high level. However, the threat that any of those companies might "cheat" on the agreement, lower their prices and take the market share is what keeps everyone acting in their own self-interest. As I see it, the prisoner's dillemma is in fact, very Objective Quote Link to comment Share on other sites More sharing options...
The Wrath Posted February 18, 2005 Report Share Posted February 18, 2005 A realistic Prisoner's Dilemma scenario can be made involving two armies in separate camps...not only is this realistic, but I'm sure it has happened countless times. Army A sends a scout to army B's camp. The scout ends up killing someone from Army B. Army B retaliates and sends a scout to kill someone from army A. Lather, rinse, repeat. If the armies had mutually agreed not to pick each other off, both sides would have been better off. Quote Link to comment Share on other sites More sharing options...
Rex Little Posted February 18, 2005 Report Share Posted February 18, 2005 There'a a show on GSN called "Friend or Foe" which uses the Prisoner's Dilemma to award prize money. Teams of two people compete against other teams. At the end there's one team left and a pot of money they've built up over the course of the show. Each player now stands behind a screen and presses one of two buttons, "Friend" or "Foe". Neither player knows the other's choice until both have finished. If both pressed "Friend", the prize pot is divided between them. If one pressed "Friend" and the other "Foe", the one who pressed "Foe" gets the entire pot. If both press "Foe", neither one gets anything. The show keeps it all. (I'd imagine they both get "lovely parting gifts", but that was never stated explicitly.) I should mention that the partners don't get to pick each other, and they don't know each other prior to the show. They're assigned to each other at random. In all the episodes I've watched, the show has hardly ever had to give out any money. At least 75% of the time, both chose "Foe." BTW, it's possible this show is no longer on. I don't get GSN anymore. Quote Link to comment Share on other sites More sharing options...
The Wrath Posted February 18, 2005 Report Share Posted February 18, 2005 That's a good illustration. Because each person knows that, no matter what the other person chooses, it's better for him to pick "foe." Quote Link to comment Share on other sites More sharing options...
Capitalism Forever Posted February 18, 2005 Report Share Posted February 18, 2005 Friend or Foe That's pretty cynical! The message is that you maximize your earnings by being a foe of other people--that friendship and wealth are incompatible--that there is a constant conflict of interest between men. Of course, the fact that they needed to create an artificial situation to convey this message is proof that it isn't true in life. Quote Link to comment Share on other sites More sharing options...
Durandal Posted February 18, 2005 Report Share Posted February 18, 2005 That's pretty cynical! The message is that you maximize your earnings by being a foe of other people--that friendship and wealth are incompatible--that there is a constant conflict of interest between men. Of course, the fact that they needed to create an artificial situation to convey this message is proof that it isn't true in life. The whole point is that it is very true in economics. The Friend vs. Foe format is just that-- it's only a format. Game theory exists, whether people like it or not. And yes, it is often the way things work. Like it or not. However, it needn't be presented in such a negative light...it isn't intrinsically good or bad, it just is. Like a stone or a desk or a lampshade. Just because a game show is formatted a certain way doesn't mean that it should be taken as an incisive philosophical, economic, social, or political commentary. Just a game show, after all. Quote Link to comment Share on other sites More sharing options...
Rex Little Posted February 18, 2005 Report Share Posted February 18, 2005 If you think about it, what that show teaches (if you watch it several times and pay attention) is that it doesn't pay to try and win by being a "foe." Most of the time, the contestants walk away with nothing because they both chose that option. Quote Link to comment Share on other sites More sharing options...
LBowles Posted April 10, 2005 Report Share Posted April 10, 2005 I was actually searching for something else and came upon this thread, and thought I would add a bit of an interjection into the game theory discussion. I'm a Political Science Grad Student, and a I use game theory models quite often. The point missed in this thread (or possibly the point that I missed when reading the discussion) is the concept of iteration, or that games are played multiple times. Once again, strip all context of the PD and simply assume that you are playing a game with the payoff matrix of the PD, with no context. Of course the rational outcome is the sub-optimal non-cooperative solution. But social games are generally not played in a box, one time. They are played in an iterated format, over the course of time. Corporations play games over price over a period of time with one another, and over time, or in an iterated scenario, rational interests for cooperation converge. There is actually a famous competition run by someone named Axelrod running an iterated PD game, it's interesting if you enjoy the high math. But yeah, I've drank too much Cabernet, my point is, Rand's contentions are still compatible with iteration in mind. I won't get on this site again, any questions should go to [email protected] Quote Link to comment Share on other sites More sharing options...
Capitalism Forever Posted April 11, 2005 Report Share Posted April 11, 2005 Ha, good that the thread has been bumped because I hadn't noticed Durandal's post: The whole point is that it is very true in economics. In what way? Quote Link to comment Share on other sites More sharing options...
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