8.11.06

PERFECT GRIEF. Perhaps I'm overanalyzing this famous scene that was a regular September or October feature in Peanuts. It is, however, a useful way of introducing several concepts in game theory.



There has to be a nasty prelim question based on this cartoon. Lucy has a thirty season history of using cheap talk to convince Charlie that she's benevolent, and each time she's come up with some rationalization for yet again pulling away the football. What must Charlie's initial belief about Lucy's cooperativeness have been, and what updating of those beliefs (probability she is cooperative given that she pulled the football away) has he followed so as to rationally be fooled yet again.

I got some questions about the relevance to economics of some of the basic games I introduced the unit with (prisoners' dilemma, matching pennies, chicken.) The relevance is coming, complete with derivatives. There might have been a variation of chicken in play with President Bush's statement last week that his Secretary of Defense would still be on the team (cheap talk: he's not swerving) coupled with his acceptance of that resignation today (reality: he swerved, which in an optimal mixed strategy is a high-probability event.) It also occurs to me that the President was once a baseball team owner. Everybody knows what happens next when the owner has "complete confidence" in the manager.

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