September 19, 2009

How Are Bonnie and Clyde Related to Economics

Game Saturday!  So today I'd like to refer to the importance of "game theory".
There are various problems that people (firms/individuals) face when cooperation is desirable but difficult.  Game theory is the study of how people behave in strategic situations.

By Strategic in Micro-economics we mean  a situation in which each person, in deciding what actions to take, must consider how others might respond to that action.
A particularly important "game" is called the  prisoner's dilemma.  This game provides insight into the difficulty of maintaining cooperation. Many times in life, people fail to cooperate with one another even when cooperation would make them all better off.

The story of the prisoner's dilemma, is a story about two criminals who have been captured by the police.
Let's call them Bonnie and Clyde. The police have enough evidence to convict Bonnie and Clyde of the minor crime of carrying an unregistered gun, so that each would spend a year in jail.
The police also suspect that the two criminals have committed a bank robbery together, but they lack hard evidence to convict them of this major crime.

The police question Bonnie and Clyde in separate rooms, and they offer each of them the following deal:
"Right now, we can lock you up for 1 year. If you confess to the bank robbery and implicate your partner, however, we'll give you immunity, and you can go free. Your partner will get 20 years in jail. But if you both confess to the crime, we won't need your testimony and we can avoid the cost of a trial, so you will each get an intermediate sentence of 8 years."

If Bonnie and Clyde, bank robbers that they are, care only about their own sentences, what would you expect them to do? Would they confess or remain silent? Each prisoner has two strategies: confess or remain silent. The sentence each prisoner gets depends on the strategy he or she chooses and the strategy chosen by his or her partner in crime.
Consider first Bonnie's decision. She reasons as follows: "I don't know what Clyde is going to do. If he remains silent, my best strategy is to confess, since then I'll go free rather than spending a year in jail. If he confesses, my best strategy is still to confess, since then I'll spend 8 years in jail rather than 20.
So, regardless of what Clyde does, I am better off confessing."

In the language of game theory, a strategy is called a dominant strategy, if it's the best strategy for a player to follow regardless of the strategies pursued by other players.
In this case, confessing is a dominant strategy for Bonnie. xx

45 comments:

Steven Anthony said...

very interesting...

peace and happiness this weekend to you my friend;)

Lynette said...

Okay...now I would never have figured that out:)

Have a great weekend!

athina said...

Very clever theory!!!The conclusion can teach us also how to behave in our lives.

Naveen kumar said...

interesting theory!

chicamom85 said...

That is well written and very interesting. Thank you for the lesson.
Anne

dannyd said...

This is a very cool introduction to the classic prisoner's dilemma. I wonder what Clyde's dominant strategy would be? Maybe he wouldn't love Bonnie after all...lol!

Hope that you can come over and see this latest chapter in my story, since I always love your comments:

http://dannysignifyingnothing.blogspot.com/2009/09/signoth-story-1-google-yahoo-merger_19.html

ritsa said...

A very interesting introduction to ecomomics!
Have a great Sunday!

PeterZ said...

So interesting lesson!

PopisK said...

Back to college? I love it.
Have a great Sunday!

michael said...

Another surprising post.
I loved it. I loved the movie as well.

Ted said...

I would never figure that out.
Have a wonderful Sunday!

alexandros said...

Your topic is great. Thank you for the lesson. Well written.

Nelly said...

How interesting! Have a nice Sunday!

sonia said...

I have been taught a lot, today.
Thanks.
Have a great Sunday!

Despina said...

What an interesting post!
Have a wonderful Sunday!

Mari said...

That was very interesting. Now I'm wondering about Clyde's strategy!

Georgia said...

Thanks for your interesting post.
OMG I would never have figured that out.
Have a happy Sunday!

Betty Manousos:cutand-dry.blogspot.com said...

Mari: I loved that " Clyde thinking" I'm wondering ,too.

athina said...

Betty:My favourite theory!

liz.blog said...

I'm confused. If they loved each other wouldn't the dominant strategy be for each to keep silent,they both only do one year and get out to live happily ever after together? Maybe this is why I'm so bad at economics!

Drahdrah said...

Oh my goodness, this is beyond my brain capacities at this moment ! Thanks for stopping by drahdrahsplace.blogspot.com
Happy Sunday !

Alice in Wonderland said...

WOW! It would be interesting to find out Clydes' theory on this!
It's like all those Game Shows, where the two battle it out at the end to see if they will either share the winnings or one of them will take the lot!
Very interesting and thought provoking post!
What would you do in this situation?

Samantha said...

I remember little lessons like this from my economics classes in college. Funny how you can apply it to so many different aspects of life.

Thanks for visiting my blog today! I'll be back to yours!

Naqvee said...

thanks for enlightening us on this point, never thought of that b4.

Betty Manousos:cutand-dry.blogspot.com said...

Liz:I think you are very good at economics. The police question them in seperate rooms and apparently they don't know which strategy will be chosen by each of them.So, each of them has to choose the best strategy possible.
:)

Betty Manousos:cutand-dry.blogspot.com said...

Alice: Difficult! I think I would remain silent. How about you.
:)

Lisa Anne said...

I'm not smart enough for this. lol

Benikos place said...

Γεια σου Μπετυ πατριδα!!Greetings from Berlin

Vodka Logic said...

I would stay quiet, Clyde owns a gun..

ΓΑΣΤΕΡΟΠΛΗΞ said...

εγώ με οικονομικά, ισολογισμούς, και αριθμούς παθαίνω μέχρι εγκεφαλικό, σε φαγάκι γλυκάκι και παρέα με πολυλογία έχω μάστερ!!! χαχα, γειά σου πατρίδα

Teresha@Marlie and Me said...

You explain game theory better than they did in that movie A Beautiful Mind. I have always liked economics. It has a lot of real life applications :-)
Thanks for visiting Marlie and Me today!

Betty Manousos:cutand-dry.blogspot.com said...

MARLIE AND ME:Really? I didn't know the existance of that moovie.

ηλακάτη said...

καλώς σε βρήκα, είδες πόσα πατριωτάκια κατέφθασαν μόλις ζήτησες νέες φιλίες;
στο δικό μου μπλογκ φιλοσοφούμε και δημιουργούμε, όταν κλέψουμε λίγο χρόνο, η ηλακάτη είναι η άλλη όψη της γαστερόπληκτης, δύο σε ένα, κάτι σα διχασμένη προσωπικότητα

Tater Tot Mom said...

So interesting! I love learning new things.

Nikki said...

that is so interesting! Thats happened before in the office I work in, where something will happen and someone will blame someone else or confess or just remain silent, its interesting how easily things go when someone just confesses! I'm sure during internships when I was younger I remained silent many times if I mistakenly did something just because of fear of what would happen, but its funny to now realize that I was actually afraid of the "team" I was working with, (which seems to be so contradictory!) great blog!

KikiM said...

That was a wonderful lesson for me.
thanks.

Betty's Cuisine said...

Γειά σου συνονόματη! Δυστυχώς από οικονομικά έχω μαύρα μεσάνυχτα, θα κάνω παρέα με την Γαστεροπλήξ στο φαγοπότι... Έρχεσαι παρέα μας;

SPEAKING FROM THE CRIB said...

whoa - okay i should've had like three diet cokes before i read that - now my brain is scrambled mush!

thx for your comments on my blog!

blog love back at ya!

Maria B. said...

καλησπέρα Μπετούλα !!!

φιλια πολλά

SPEAKING FROM THE CRIB said...

yes i did notice and thanks for the linky dink!

The pale observer said...

Where were your lessons in Economics 101? Great theory. Great blog.

Found you through Miss Footloose. I'm your newest follower! :)

The Peach Tart said...

This was a clever post

Laura said...

I would never have figured that out,and was suprising me.

kiwimeg said...

Finally Game Theory makes some sense to me! The best and simplest explanation I've come across so far!

Happy SITS Saturday Sharefest :)

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