President Obama Learns Some Game Theory
INTRODUCTION For background, see prior post on The Limits of Negotiation . ECONOMIC NEGOTIATIONS Basic game theory works best in economic negotiations. The players have the same assumptions (act rationally, make money), enter into the negotiations voluntarily and negotiate which positive payoff matrix they will agree on. Economists usually assume that people are playing a positive sum (win – win) game. That is, how to divide up the monetary or utility gains. Game theory indicates there is a better chance at cooperation or reaching good faith agreements if the players know they will be playing the game repeatedly or if both players see an advantage to a long-term agreement. Economic rationality implies that an agent will not agree to an outcome if the individual will be worse off than not negotiating. The alternatives are not to negotiate or find another party with whom to reach a positive or better agreement. A co...