4 ms·

There is math model Prisoners dilemma that says that both sides is better of cooperating. So unless Chinas industrial subsidies was a defeat move and the Us tra

by acd 8y ago

There is math model Prisoners dilemma that says that both sides is better of cooperating. So unless Chinas industrial subsidies was a defeat move and the Us trade tariffs is an answer move everyone both Us and China will be worse off after the customs tariffs. There is chance that the tarrifs will lead to higher consumer prices as economic production will not be optimally allocated. Inflation will follow higher consumer prices. Central banks have already used zero interest policy to stimulate the economy so we cannot use that as a tool. Something better will emerge after this but it might be a rough ride until it’s sorted. Prisoners dilemma game theory https://en.m.wikipedia.org/wiki/Prisoner%27s_dilemma https://en.m.wikipedia.org/wiki/Prisoner%27s_dilemma

genericid 8y ago
Game theory is about rational people, I don't think it applies here.
- acd 8y ago
  I think it can apply see Wikipedia Game theory # Real world examples. Why would Game theory not apply for world trade?
  - genericid 8y ago
    It does not apply to Trump.
    - OscarCunningham 8y ago
      It doesn't apply to China either.
      - baybal2 8y ago
        Game theory does not apply to real world in general and has nothing to do with serious economics studies.
        deleted 8y ago
        [deleted]
- waterhouse 8y ago
  One of the basic conclusions of game theory about non-cooperative games is that the ability to make yourself irrational is useful. For example, if the expected outcome of me fighting you is a moderate negative to both of us (let's say roughly 50% chance of getting injured, 50% chance of feeling pleased to win the fight), then it's never rational for me to seek you out and fight you. However, if I can manage to convince you that, if you take my stuff, then I will seek you out and fight you, then this might succeed in convincing you not to take my stuff. The difficulty is in making this threat credible—it's never in my interest to carry it out. So if I give my brain the propensity to feel angry at offenses like that, and demonstrate on other occasions that I do go fight people when they make me angry, then this is a way to make the threat credible. The more irrationally angry I am known to get, the stronger the threat becomes. This can be useful as a negotiating tactic, though obviously it can be risky if someone calls your bluff or acts "more irrational". There's a nice Star Trek episode, "Chain of Command", in which acting captain Jellico raises his voice with some Cardassians he's negotiating with, and I think throws them out of the conference room, at which point he immediately starts speaking calmly to his officers. As I recall, he tells them to wait ten minutes and then go out to the Cardassians, saying that Jellico's a "loose cannon" and they've managed to calm him down and he's ready to resume the meeting but the Cardassians will have to be ready to concede some items. It's a negotiating tactic, and in the episode it works. Since someone mentioned Trump: it might be to his advantage to encourage a reputation for being dangerously excitable and willing to pull the trigger. (I just hope no one calls his bluff.)
- coldtea 8y ago
  Game theory applies to all scenaria that fit its simplistic model and few parameters and leeway, regardless to whether the people involved are rational or not. The problem is that complex real world behavior doesn't reduce well to game-theoretical approaches.
cinquemb 8y ago
The thing is, even before the tariffs were even talked about, things were already not looking good on the outlook of the global economy ("L" shaped recovery) and even in how the markets are trading on what volumes compared to the avg (at least looking at long ETFs, short/inverse etfs seem to be increasing their volumes over avg and notional outstanding). I'm unsure if we'll see things change that much even after we see a correction (and back to higher trading volumes), unless I start seeing other modes of resource allocation successfully obsoleting presently entrenched modes.
Hydraulix989 8y ago
The Nash equilibrium strategy is mutually defecting -- not cooperating -- for Prisoner's Dilemma. This is the so-called Tragedy of the Commons.
- OscarCunningham 8y ago
  The Tragedy of the Commons has the same payoff matrix as the Prisoner's Dilemma. Its Nash equilibrium is also defecting (otherwise it wouldn't be a tragedy). But when it cones to Trade, the Nash equilibrium for the people of the countries really is cooperation. The problem is just that the incentives of the decision makers aren't aligned with what's best for their countries.
OscarCunningham 8y ago
Trade isn't a Prisoner's Dilemma though. Moving from Tariffs to No Tariffs increases your country's utility even when your opponent is playing Tariffs. So the Nash equilibrium is free trade, even though cooperation actually isn't the equilibrium in the Prisoner's Dilemma.
- james1071 8y ago
  That's not correct. See 'second best'.
  - OscarCunningham 8y ago
    Can you explain how that applies here? Are you saying that in the situation where China has tariffs it's optimal for the US to also have tariffs? That's just not true. If the US government doesn't set tariffs then all the gains from trade on the US side go to the US traders. Since these people also set the price they will set it so as to maximise gains to (themselves and therefore) the US. So a US tariff can only hurt the US as a whole. This argument applies whether or not China has tariffs.
    - waterhouse 8y ago
      If we imagine both governments are controlled by special interests, specifically the producers of the goods whose foreign competition is to be tariffed, then it's prisoner's dilemma for those that are making decisions. (The domestic buyers of the tariffed goods suffer, but I guess we don't care about them.) I'm not entirely sure if this is what the others in this thread mean, though.
      - coldtea 8y ago
        >The domestic buyers of the tariffed goods suffer, but I guess we don't care about them. Only if we consider the first order effects -- and only if we consider them simplistically as mere consumers. Because the wider view is that those "consumers", are also workers, and the "race to the bottom" effect of modern global trade with the developing world hurts their bottom line, and leaves them without money to be consumers anyway. The US, and other western countries, have used tariffs to great effect throughout their capitalistic development.
baybal2 8y ago
Game theory is not a tool to describe economy, and moreover a war. Time and time again, wars of mutual annihilation were fought and lost by both sides. Modern economists are simply wrong on this point, plainly and simple.
coldtea 8y ago
>There is math model Prisoners dilemma that says that both sides is better of cooperating. Prisoners dilemma is a contrived example though, within a contrived scenario. There are not just 2 parties but 100s of parties (countries) they can cooperate or not with, and lots of leeway and secondary factors, not just some binary prisoner's style dilemma.

by acd 8y ago

genericid 8y ago

Game theory is about rational people, I don't think it applies here.

acd 8y ago
I think it can apply see Wikipedia Game theory # Real world examples. Why would Game theory not apply for world trade?
- genericid 8y ago
  It does not apply to Trump.
  - OscarCunningham 8y ago
    It doesn't apply to China either.
    - baybal2 8y ago
      Game theory does not apply to real world in general and has nothing to do with serious economics studies.
      - deleted 8y ago
        [deleted]
waterhouse 8y ago
One of the basic conclusions of game theory about non-cooperative games is that the ability to make yourself irrational is useful. For example, if the expected outcome of me fighting you is a moderate negative to both of us (let's say roughly 50% chance of getting injured, 50% chance of feeling pleased to win the fight), then it's never rational for me to seek you out and fight you. However, if I can manage to convince you that, if you take my stuff, then I will seek you out and fight you, then this might succeed in convincing you not to take my stuff. The difficulty is in making this threat credible—it's never in my interest to carry it out. So if I give my brain the propensity to feel angry at offenses like that, and demonstrate on other occasions that I do go fight people when they make me angry, then this is a way to make the threat credible. The more irrationally angry I am known to get, the stronger the threat becomes. This can be useful as a negotiating tactic, though obviously it can be risky if someone calls your bluff or acts "more irrational". There's a nice Star Trek episode, "Chain of Command", in which acting captain Jellico raises his voice with some Cardassians he's negotiating with, and I think throws them out of the conference room, at which point he immediately starts speaking calmly to his officers. As I recall, he tells them to wait ten minutes and then go out to the Cardassians, saying that Jellico's a "loose cannon" and they've managed to calm him down and he's ready to resume the meeting but the Cardassians will have to be ready to concede some items. It's a negotiating tactic, and in the episode it works. Since someone mentioned Trump: it might be to his advantage to encourage a reputation for being dangerously excitable and willing to pull the trigger. (I just hope no one calls his bluff.)
coldtea 8y ago
Game theory applies to all scenaria that fit its simplistic model and few parameters and leeway, regardless to whether the people involved are rational or not. The problem is that complex real world behavior doesn't reduce well to game-theoretical approaches.

cinquemb 8y ago

The thing is, even before the tariffs were even talked about, things were already not looking good on the outlook of the global economy ("L" shaped recovery) and even in how the markets are trading on what volumes compared to the avg (at least looking at long ETFs, short/inverse etfs seem to be increasing their volumes over avg and notional outstanding). I'm unsure if we'll see things change that much even after we see a correction (and back to higher trading volumes), unless I start seeing other modes of resource allocation successfully obsoleting presently entrenched modes.

Hydraulix989 8y ago

The Nash equilibrium strategy is mutually defecting -- not cooperating -- for Prisoner's Dilemma. This is the so-called Tragedy of the Commons.

OscarCunningham 8y ago
The Tragedy of the Commons has the same payoff matrix as the Prisoner's Dilemma. Its Nash equilibrium is also defecting (otherwise it wouldn't be a tragedy). But when it cones to Trade, the Nash equilibrium for the people of the countries really is cooperation. The problem is just that the incentives of the decision makers aren't aligned with what's best for their countries.

OscarCunningham 8y ago

Trade isn't a Prisoner's Dilemma though. Moving from Tariffs to No Tariffs increases your country's utility even when your opponent is playing Tariffs. So the Nash equilibrium is free trade, even though cooperation actually isn't the equilibrium in the Prisoner's Dilemma.

james1071 8y ago
That's not correct. See 'second best'.
- OscarCunningham 8y ago
  Can you explain how that applies here? Are you saying that in the situation where China has tariffs it's optimal for the US to also have tariffs? That's just not true. If the US government doesn't set tariffs then all the gains from trade on the US side go to the US traders. Since these people also set the price they will set it so as to maximise gains to (themselves and therefore) the US. So a US tariff can only hurt the US as a whole. This argument applies whether or not China has tariffs.
  - waterhouse 8y ago
    If we imagine both governments are controlled by special interests, specifically the producers of the goods whose foreign competition is to be tariffed, then it's prisoner's dilemma for those that are making decisions. (The domestic buyers of the tariffed goods suffer, but I guess we don't care about them.) I'm not entirely sure if this is what the others in this thread mean, though.
    - coldtea 8y ago
      >The domestic buyers of the tariffed goods suffer, but I guess we don't care about them. Only if we consider the first order effects -- and only if we consider them simplistically as mere consumers. Because the wider view is that those "consumers", are also workers, and the "race to the bottom" effect of modern global trade with the developing world hurts their bottom line, and leaves them without money to be consumers anyway. The US, and other western countries, have used tariffs to great effect throughout their capitalistic development.

baybal2 8y ago

Game theory is not a tool to describe economy, and moreover a war. Time and time again, wars of mutual annihilation were fought and lost by both sides. Modern economists are simply wrong on this point, plainly and simple.

coldtea 8y ago

>There is math model Prisoners dilemma that says that both sides is better of cooperating. Prisoners dilemma is a contrived example though, within a contrived scenario. There are not just 2 parties but 100s of parties (countries) they can cooperate or not with, and lots of leeway and secondary factors, not just some binary prisoner's style dilemma.