So you are presented with the following prisoner’s dilemma game. What is your choice? Most economics freshmen will have learnt that when presented with the choices of cooperation or finking, finking is the dominant strategy, and an all-fink nightmare is the only pure strategy Nash equilibrium. Against homo economicus, the cold and rational decision maker, your best bet would certainly be with finking. But against the average Joe, would you be able to assume rationality? Does the decision to cooperate necessarily imply irrationality on his behalf?
Last time, I shared with you the story of Phoebus – a 20th century cartel that sought to fix light bulb prices as well as harm product innovation with reduced longevity. Doing so would mean strong demand for replacement products, and fortified sales volumes. Since those early days though, some economic literature has surfaced to formally analyse the rationale behind planned obsolescence in imperfectly competitive markets. With this understanding in mind, we find that there are plenty of remarkable examples of planned obsolescence today.
I had the privileged opportunity to attend the David Finch lecture at the University of Melbourne two weeks ago. Amidst many academics and esteemed guests, Mr. Richard Koo from Nomura Research Institute presented his lecture about Japan’s burst asset bubble, and its lessons which are now applicable to many of today’s troubled economies. Koo asserted that the problem was unlike the textbook-typical case of recession. Instead, countries like the United States, the UK, Spain and Ireland were suffering from what he called a ‘balance sheet recession’, akin to what Japan suffered from the 1990s through to the mid-2000s.
Every now and then, the media makes a big deal out of winning the lottery. When the prize pool billows into something incredible, attention is turned to who the next multi-millionaire will be. Do these stories make you dream of living a life in the lap of luxury?