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Test 5
Game Theory, Market inefficiencies, Market efficieny, systematic Bias
30
Economics
Undergraduate 2
04/24/2014
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Term
Players
 Definition
The Decision makers
Term
Actions
 Definition
Moves the Players Make
Term
Strategy
 Definition
Rules that determine the moves
Term
Payoff
 Definition
Outcome of the Actions Chosen
Term
Static Game
 Definition
Both players move Simultaneously
Term
Dynamic Game
 Definition
Players alternative moves
Term
Zero-Sum Game
 Definition
one person’s gain is equivalent to another's loss, so the net change in wealth or benefit is zero
Term
Information
 Definition
Knowledge between players
Term
Nature
 Definition
non-players that influence the game
Term
Nash Equilibrium
 Definition
Doing the best I can with what my competitor is doing
Term
Dominant Strategy
 Definition
A winning strategy for a player, regardless of her opponent's strategies
Term
Prisoner's Dilemma
 Definition
The Nash equilibrium outcome is worse for all involved then another outcome
Term
Sequential Game
 Definition
One player goes first
Term
Perfect information
 Definition
seeing how your opponent will move
Term
Pareto Efficient
 Definition
Allocation of goods in which goods can't be reallocated without making @ least 1 person worse off
Term
Progressive Tax Structure
 Definition
Avg. Tax rate ↑ as taxable income ↑
Term
Proportional Tax Structure
 Definition
Avg. Tax rate ↔ as income ↑↓
Term
Regressive Tax Structure
 Definition
Avg. Tax rate ↓ as income ↑
Term
Market Failures
 Definition

1.) Concentration in Business

2.) Income Concentration

3.) Externalities

4.) Public Good Provision

5.) Instability
Term
Role of Gov't
 Definition

1.) Business Concentration

  • Maintain Competition

2.) Income Concentration

  • Redistrubute Income

3.) Externalities

  • Control

4.)Public Goods

  • Produce

5.)Instabilitiy

  • Stabilize

 

 
Term
Control
 Definition
Optimal Quantity Analysis
-Basic Intuitive
Term
Produce
 Definition
Calculation of Loss
-Int.->Math
Term
Externalities
 Definition
Negative Externality
-External Cost
Positive Externality
-External Benefits
The Market Doesn't produce the amount we want
Term
External Cost
 Definition
  1. Decrease supply
    1. Tax
      1. Pigouvian tax
  2. Decrease Demand
    1. Moral Suasion
  3. Legislate
Term
Examples
 Definition

1.) Concentration in Business

  • Anti-trust laws

2.) Income Concentration

  • Transfer Payments
  • Market Intervention
  • Taxing
    • Progressive Taxing

3.) Externalities

  • Control

4.) Inability to Produce public goods

  • Fiscal Policy

5.) Instability

  • Monetary Policy
Term
External Benefit
 Definition
  1. Increase supply
    1. Subisidize
  2. Increase Demand
    1. Subsidize
    2. Moral Suasion
  3. Legislate
Term
Asymmetric Information
 Definition
  1. Lemon's Problem
    1. The seller knows more than the buyer
      1. ex.) Used Cars
      2. Good Products aka Plums
        1. Willing to pay $10,000 for Plums
      3. Bad Products aka Lemons
        1. Willing to pay $5,000 for Lemon
    2. Adverse Selection
      1. Market characterisitc that leads to low quality goods
    3. Dealing w/ Lemons
      1. Reduce Asymmetric
        1. Carfax
        2. Test Drive
      2. Legal
        1. Laws against Lemons
      3. Reputation
        1. Angie's List
Term
Moral Hazard
 Definition
  • Whenever one party cannot observe the other parties behavior
    • Insurence
    • Machanics
  • In Labor Market
    • Principle-Agent Problem
      • Firm owner's hires managers. The owner has different objectives
        • Owners want to maximize profit
        • Managers want to maxmize Utility
Term
Optimal Quantity Analysis
 Definition
  1. Supply
  2. Demand
  3. Legislate
Term
Systematic Bias
 Definition
  1. Overconfidence
  2. Self Control Problems
    1. "Myopia"
  3. Framing "Context" Matters
    1. Endowment Effect
      1. Possesing a good ↑ its value
    2. Loss Aversion
      1. Losing a good hurts more than getting
  4. Sunk Cost Influence
  5. Generosity
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