Showing posts from 2018

Dollar auction game by game theory pioneer Martin Shubik

The dollar auction is a non-zero sum sequential game designed by economist Martin Shubik, a pioneer of game theory,  to illustrate a paradox brought about by traditional rational choice theory in which players are compelled to make an ultimately irrational decision based completely on a sequence of apparently rational choices made throughout the game, also known as "escalation of commitment"
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A one dollar bill is put up for auction with the following rule: the bill goes to the winner, however the second bidder also loses the amount that he bids.

The winner can get a dollar for a mere 5 cents, but only if no one else enters into the bidding war. The second-highest bidder is the biggest loser by paying the top amount they bid without getting anything back. The game begins with one of the players bidding 5 cents (the minimum), hoping to make a 95-cent profit. They can be outbid by another player bidding 10 cents, as a 90-cent profit is still desirable. Similarly, anoth…

A Pizza slice and the NY subway fare connection

The Pizza Principle, or the Pizza-Subway Connection, in New York City, is a humorous but generally historically accurate "economic law" proposed by native New Yorker Eric M. Bram.

He noted, as reported by The New York Times in 1980, that from the early 1960s "the price of a slice of a plain, cheese or regular pizza has matched, with uncanny precision, the cost of a New York subway ride."

In 1985, the late writer, historian, and film critic George Fasel learned of the correlation and wrote about it in an op-ed for The New York Times. The term "Pizza Connection" referring to this phenomenon was coined in 2002 by New York Times columnist Clyde Haberman, who commented on the two earlier publications of the theory in the Times, and predicted a rise in subway fare.

In May 2003, The New Yorker magazine proclaimed the validity of the Pizza Connection (now called the pizza principle) in accurately predicting the rise of the subway (and bus) fare to $2.00 the week…

When Good intentions go bad

In his book, Breaking Bad Habits: Defy Industry Norms and Reinvigorate Your Business, author Frank Vermeulen cites a case where the good intentions of the government actually fell flat on its face.

The UK government had mandated all IVF clinics to publish their success rates which went up on a Government website. People then started treating this database as a ranking. The website was the government's good intention to implement transparency to empower patients and help them in decision making.

What the government failed to factor in was that a clinic's success rate wasn't just dependent on their competency but also affected by the quality of the women. Younger women would probably have a higher chance of getting pregnant over someone who is 40 plus.

However, what this resulted in was that clinic's started favoring patients who were most likely to get pregnant and rejected difficult cases. On the other hand, clinics who had expertise in treating difficult cases would …