No One Man Should Have All That Power

As I read through chapter 12 and thought about power, Nash bargaining equilibrium, and the Ultimatum Game I couldn’t help but to immediately think about 50 Cent’s TV series on SHOWTIME Power and also the popular HBO series “The Wire.” In the spirit of economics I’ll begin with some assumptions that are generalizations and more than likely will have some holes, but for the sake of the post and making sure every reader understands bear with me! First assumption, none of the readers have seen Power, my second assumption, only a few of you watched “The Wire.” Consequently, I’ll give a brief overview. Power- a drug dealer in attempts to launder his money opens a club in New York. As his club becomes more successful he sees this as a way to get out of the drug game and puts more efforts into making the club profitable much to the dismay of his wife and close friends. A shooting in his club at the end of the first season forces him to focus on selling drugs as a main source of income. The Wire – A show that focuses on Baltimore drug dealers and the relationship with the city’s infrastructure (police, unions, school district, politics, and newspaper/media). In essence, both shows have a focus on drugs and crime, but economically speaking black markets.

In regards to bargaining and power in networks, there is one scene in The Wire that I found to be hilarious and entertaining and explains power. In the final season, Marlo Stanfield replaces Avon Barksdale as the West Side of Baltimore’s major drug kingpin as Barksdale has been indicted and sentenced to a long jail sentence (however, prior to going to jail Marlo was beginning to overtake Barksdale). As Marlo is rising in the ranks he joins a co-op featuring all of the prominent Baltimore drug dealers. In this co-op the drug dealers work together with their drug connect named who is able to supply the dealers who control various sections of Baltimore with a low price in bulk, while the drug dealers are able to keep the police off of them because they are keeping murders down by working together. Initially, Marlo resisted joining the co-op as he saw all forms of competition as his enemy and reluctantly joined solely because of guarantees of lower prices as he gained more of Barksdale’s territory. However, when Barksdale (who also hated the co-op) is in jail, Marlo pays (literally and pun intended just wait for it) Barksdale a visit in hopes of getting his connect who supplied him with drugs. After Marlo agrees to pay Barksdale’s mom 100,000, Barksdale arranges a meeting between Marlo and his supplier named “The Greek.” After numerous meetings and payments, Marlo gains the trust the Greek and has a direct connection to a supplier who will sell him large quantities of drugs at a wholesale price, thus Marlo no longer needs the co-op. Still, the co-op has a separate connect, but only one man Proposition Joe has the relationship which allows for all of the drug dealers to get the wholesale price. Unsurprisingly, Marlo then kills Proposition Joe calls the co-op to meet in which he informs the other dealers he has killed Joe and has a new connect, so in order to get drugs you must come through him. You can see the exact scene here Marlo is the guy in the black shirt controlling the meeting https://www.youtube.com/watch?v=aT7TxMaZ4eM .

While the majority of my post explained Power and the Wire, the underlying factor I found interesting is the importance of power in black markets where relationships negotiations on “who” to know are equally as important as the good being sold. These networks are contingent upon bridges connecting components as we discussed a the beginning of the year. Until this chapter I had not truly considered the power aspect or the dependence and exclusion that are brought up in chapter 12. If this clip interests you I suggest watching the entire series!

Apple is King

As some of you Apple enthusiasts may know, the Apple Watch is coming out in precisely one month. When you head to the Apple store to check out the watch, it could be interesting to also observe the store location and the crowd it draws and their shopping bags. I frequent the Cherry Hill Mall where there is an Apple store. In the article I read, the Apple stores being so popular have the power to “negotiate lower terms for rent [because they] increase overall mall traffic and sales”. People can purchase Apple products online, but who doesn’t love to check out and play with expensive toys first and, of course, chat up the Genius folks.

The downside to this is for smaller retailers who often have to pay higher rent even though they do not benefit from Apple’s traffic. The terms in the lease for stores in malls consists of the size of the space and the expected sales. I learned that big department stores do not pay rent (if they did not already own the space) because they bring in a lot of traffic; they only have to pay a fee to maintain the space. Because Apple stores are able to attract a lot of shoppers, Apple have the “bargaining power to pay no more than 2% of its sales a square foot in rent,” and they do not have to pay extra rent if sales exceed expected sales unlike other small stores.

We can look at this as a network of landlord and tenants, small retailers as a node, landlord as another node, and the Apple store as the most powerful node. As people continue to shop more online, mall owners need stores like Apple to not only draw in customers but give them leverage when negotiating lease terms with other retailers. Likewise, smaller retailers do benefit from Apple stores because they can expect more traffic than if they were to open shop in a mall without an Apple store. Apple is independent; it can basically choose any location and loyal fans will find them.

http://www.wsj.com/articles/apple-gets-sweet-deals-from-mall-operators-1426007804

al-Abadi’s Ultimatum to the Sunni Fighters

Iraqi prime minister Haider al-Abadi offered a final ultimatum towards Sunni tribal fighters to abandon the Islamic State group by March 8^th, before the planned attack on the hometown of the late dictator Saddam Hussein (Tikrit). The city was overtaken by the Islamic State last summer, but the planned offensive has begun stationing Shiite militias and Iraqi security forces around the city in preparation for the city’s “return to its people”. It is predicted that sending Shiite militias into the Sunni city may result in extreme bloodshed, such as the insurgent battles that followed the U.S’s 2003 invasion. To prevent this from happening al-Abadi made a final attempt to pardon the Sunni tribal fighters, “I call upon those who have been misled or committed a mistake to lay down arms and join their people and security forces in order to liberate their cities”, this appeal to the fighters is an attempt to remove some of the support to the Islamic State.

It will be interesting to see how many Sunni fighters take al-Abadi’s offer because if the pressure of the encroaching Iraqi government (and allies) provides enough intimidation to warrant the Sunni fighters’ acceptance of the offered ultimatum then the positive gain of being pardoned for their crimes outweighs the religious/political reasons justifying their actions, but on the other hand if the Sunni fighters’ have enough faith in the strength and goals of the Islamic State then the pressure and incentives that the government is offering/applying may not be enough to force the Sunni fighters to abandon Tikrit. If they believe in the strength and political/religious/moral justification of the Islamic State in relation to their own cause then the ‘ultimatum’ proposed by the government may not be an ultimatum after all; an ultimatum must be presented by the one in power, if the rebel groups do not think that the government possesses the power that it is implying it has then there is no true ultimatum.

http://www.usnews.com/news/world/articles/2015/03/01/un-iraq-violence-kills-at-least-1-100-in-february

The Ultimatum Game Theory

Hello Class,

I have recently came across this show called “Numb3rs” ,(Numbers), and one of the episodes discusses the same thing we discuss in class, The Ultimatum Game Theory. In the show they talk about how humans think irrationally and they should accept any free/positive payout they receive. Essentially, any positive payout that was unprecedented or a such payout that one did not work for would be the type of scenario in which that same individual would accept a payment. The way in which this show relates to our text is when in the show states that game theory suggest that if an individual finds themselves in a situation where they feel like they lost in a deal or some sort of transaction, (in this scenario it is the situation where a stranger on a street tells them to divide $100 amongst themselves any way they want) they think irrationally. And the reason why they think irrationally is because if Person A ( the man in the show) gets $30, and Person B ( the woman) gets $70, – >Person A, shouldn’t, but may reject the deal because they are getting the short end of the deal. This is due to individuals/ players acting impulsively and irrationally. So basic theory suggests that we should always think rationally and think these types of situations through. This is exactly what we were talking about in class about how peoples behavior go against what game theory suggests should occur, and therefore game theory does not purely hold in this type of game.

Here is the link to the video->  https://www.youtube.com/watch?v=BfE4ZL08twA

Let me know you think.

Greece’s Game

http://dealbook.nytimes.com/2015/02/12/greek-debt-standoff-awaits-a-decisive-move/?_r=0

The simplified outcomes are either EU bails Greece out or Greece threatens the stability of the EU by defaulting on their debt.

Greece’s and the EU’s payoffs seem to be all or nothing. If that is the case than there seems to be a coordination problem and of course an Ultimatum game. There is clearly a power imbalance.

“It’s a madman’s game theory,” said Stavros Zenios, an economist and member of the board at the central bank of Cyprus. “Don’t press us too much or we will jump off a cliff and take everyone with us.””

As Mr. Varoufakis, a trained economist, has written, “it may be rational to act irrationally.” I interpreted Mr. Varoufakis’ statement to mean that Greece actually does have power and influence over the EU so why should Greece succumb to EU demands? (Aside from threatening the stability of the Eurozone)

A Cross-Cultural Look at The Ultimatum Game

As we discussed in class, the previous school of thought regarding economic behavior and more specifically, behavior involving the ultimatum game rests on the notion that both players in the Ultimatum game are bound to act rationally and the outcome will be such that the proposer will have all but the smallest positive integer value they can offer to their opponent. This article set out to prove whether or not this economic behavior is the same across different cultures, and what other factors may be affecting the decisions of the players in these types of games. One thing that they found during this experiment was that those people in highly industrialized were less likely to play the game according to the predictions but rather, were much more likely to offer somewhere close to 50%, and just like we had discussed in class regarding the spite factor, many of these same subjects rejected offers if they were anything less than 20% of the total sum and the same findings seemed to be true for subjects of similar experiments from all around the world.

The main purpose of this study was to observe the behavioral differences of the Machiguenga (a small village in Peru), to the findings in similar Ultimatum games results. The experiment found that the Machiguenga accepted offers at around 26% of the whole, or a little less than half of the typical experimental findings.  The author points out that during post experimental discussion he noticed that the Machiguenga often saw their outcome differently than there American counterparts and welcomed any amount of money no matter how small and attributed their lower payoff to bad luck that were not chosen as the proposer. The one thing from this experiment that I think could skew the results is the way the subjects view their payoffs economically. The experimenter states that the amount of money he offered is equal to a certain amount of the subjects’ wages. I believe that the American subjects would be more likely to consider anything less than half unfair because they directly associate that amount of money with money they would expect to receive from work. The difference would then lie in the author’s language, where the wages of the LA subjects were a lot more set, the wages for the work that the Machiguenga sounds as if it isn’t so steady as the author refers to it as “occasional” work. I’m just going to go out on a limb and say that anyway who is dependent on “occasional work” for a livable wage is going to welcome any amount of money regardless of how small and likely without complaint. Though I feel there are a few shortcomings to the experiments accuracy I find them interesting nonetheless.

Click to access ult.pdf

The Organ Trail

An interesting example of a bipartite market is the potential of a market for kidneys.  According to the Wall Street Journal, 95,000 Americans are on the waiting list for kidneys, and the supply of people willing to donate their kidneys is only a tiny fraction of that.  An easy wait to lower the wait time and encourage more people to donate would be to allow for a market of organs.  That way prices could be determined using the model we learned in class. The cost of the organ would need to be absorbed by insurance companies, but allowing people to be paid for the organ they have given up would create something closer to a one-to-one buyer to seller ratio and cut the wait time way down.

Currently the wait time for a kidney is 2.9 years and many of those in need die waiting for the organ.  Creating a market for organs would increase the supply of kidneys enough that many of these patients would not need to die waiting.  In addition, the cost to keep the patient on dialysis during the time they are waiting for the kidney is $80,000.  If these patients were able to get kidneys right away, even if the market set a very high price for them, the organ would still probably cost less than the wait time for a free one.

http://www.wsj.com/articles/SB10001424052702304149404579322560004817176

Lowballing That Offer? That’s Going to Stress You Out

Research from Queensland University of Technology in Brisbane Australia has now shown that low balling someone in the ultimatum game can actually be detrimental to a person’s happiness. In the ultimatum game a player is given a sum of money to split up between them and another player. They will extend an offer to the second player. If they accept the offer then the game is over and they walk away with the offer, if the second player declines the offer they both walk away with nothing. It has been seen that different cultures will approach this game differently but a recent study measured how the people felt while making these offers. By testing the participant’s heart rates they found that those who offered the second player less than 40% of the money had increased heart rate variability and stress. This is interesting to think on the idea of the feelings of the player determining the offer. Usually when thinking about the Ultimatum game we only consider how the second player feels and whether they will accept the offer or not. However, this leads into more insight on why players naturally tend to offer a fair value rather than being greedy. Their specific study found that real stress was felt while offering anything less than a fair value, and offers below 20% (we can consider this unfair) were rejected half of the time. This shows the results of an unfair offer will often lead to everyone walking away with nothing but stress. So is the stress of lowballing worth it? The stress that can come from purchasing a house is an example of a situation where this could have serious implications where it would certainly be in a player’s interest to just play fair.

http://www.forbes.com/sites/kateashford/2014/10/31/lowballing-that-offer/

Miles Royer

Unlikely Best Response

http://techcrunch.com/2013/04/14/nes-robot/

This article is about computer programmer Tom Murphy.  Tom has created a computer program with artificial intelligence, which learns as it completes tasks. The task that Tom Murphy gave his program was to play and win old video games.  The computers parameters for winning the game, were set as the bytes of memory being used and not losing.  The longer the computer played the game the more bytes of memory would be used.  The idea was that as the computer played the game for longer and longer periods of time,the computer would learn best responses to the challenges in the game.  The best response being to increasing bytes used in the game, and not losing.  The computer program is using Game Theory to better complete it’s allotted task, finding the best strategies to the challenges at hand.  The computer while playing exhibited some very amazing responses.  Responses that could not be executed by humans, who are limited by motor skills.  There was however one response that was not expected.  The computer after playing some of the games determined that it’s dominant strategy was to simply not play.  It is best illustrated in the end of the video where the AI is given the task of playing Tetris.  When the game becomes too hard and the computer is about to lose the computer pauses the game.  Pausing the game satisfies the not losing parameter of the game.  It also satisfies the increasing bytes used to play the game. While the game was paused the music and screen still progressed, which increased the bytes used.  The computer would for many game simply pause the game and consider the game won because it did not lose. I believe this a good example of artificial intelligence executing its best response within a game.  The computers payoffs were either wining, which when paused the computer believed it was doing, or the payoff of 0 if it lost. The computer could acquire byte at a faster rate by playing the game, but had the possible pay off of 0.  When paused, the computer could increase bytes slowly and eliminate the possibility of a 0 payoff.   In the end the best response to loosing is to not play.

Is it Possible to Avoid the Winner’s Curse?

I found this very interesting article about how self-made millionaires are avoiding the winner’s curse.  The surprising thing is how naively simple it seems it is to avoid the winner’s curse.  The article “How Self-Made Millionaires Avoid the Winner’s Curse” explains that self-made millionaires are avoiding the winner’s curse by simply lowering their valuation of the object they are bidding on.  They lower the valuation according to how much they believe it is overvalued and other external information.  This aspect of avoiding the winner’s curse is the easy part according to the article.  The difficult part is the self-made millionaires sticking to their lowered valuation and not getting caught up in the auction.  This is actually the real strategy in avoiding the winner’s curse, because this is what is so difficult.  The winner’s curse lies in the human nature of the bidders and their desire to win the object.  During an auction human nature causes bidders to bid in a manner to ensure their victory.  But, many times this causes the winning bidder to have paid more than they wanted to and possibly more than the object was actually worth.  It is at this point that the winner’s curse sets in and the winning bidder realizes their error.  This is why taming this human nature is what really needs to occur in order to avoid the winner’s curse.  This principle being used successfully by self-made millionaires shows that human nature and the winner’s curse can be defeated.  Considering this if other individuals and corporations adopt this strategy, then maybe the winner’s curse can become something of the past.

Source:

http://www.forbes.com/sites/russalanprince/2013/10/28/how-self-made-millionaires-avoid-the-winners-curse/