Maybe one day...

This is a commercial of the 013 Barak Telecommunications company in Israel. I hope you will enjoy it as I did.

PS: The subtitles at the very end mean: "In real life, this is still not possible. But over the internet, links like these are created on a daily basis".

The opposite...

I was talking the other day over the phone with my good friend "A", and he told me how he saw the convoy of the President of the United States passing through the streets around his office. All the streets were closed, and of course, traffic jams were all around.

So, I told him about the story I am about to tell you now, which is related to some interesting concept of how expectations can change themselves and also change behavior, as economic science suggests.

Well, it was around April 2008, and the US President - George W. Bush - came to Jerusalem in an official visit. I was living in Jerusalem then, and along to all the residents in the city, we were "warned" by the police department that a number of streets will be closed during the official visit. The recommendation was to avoid using any kind of transportation, because heavy traffic jams were expected during those days. Well, when the day came, I called my boss and told him I will work from home (lucky I of having that possibility). My office was in Kiriat Gat, a city located some 80 km distance from Jerusalem, and I thought that on my way back - around 6 or 7 pm - all the streets will collapse in traffic jams.

The day came, and what happened? Well, apparently I was not the only one with the same expectations, and the equilibrium around most of the residents of the city was the same - staying home for the day. The streets were EMPTY... It was more than perfect for those who used their cars that day.

Well, this is not the end of the story. A month later, Bush came back to celebrate the 60th Israel's Independence anniversary in May 2008. Again, all of us, Jerusalem residents, were warned: because of security reasons, most of the streets in downtown Jerusalem (where I used to live) were going to be closed during those days. So, what was the outcome? People, thought that the previous equilibrium was stable, and everybody used their cars that day (including me...). It took me about 3 hours to get from the University to my place at 6pm, when the ride usually takes about 15 minutes. It was really crazy. Everybody was in the same situation. The equilibrium was the opposite of the previous one. People expected all the other people to stay home, and take advantage of an "empty" Jerusalem, free of traffic. Expectations were adjusted to the previous outcome, and people behaved according to those expectations.

So, what is the lesson from all of this? I don't know. But what I do know is that this whole story reminds me of George Constanza when he realized that everything he decides to do is wrong, so Jerry advises him to do the following: "If every instinct you have is wrong, then the opposite would have to be right". And indeed, he goes for it, and everything seems to improve for him. Here is a scene from that episode: "The opposite". Enjoy it!

Relationships and Dominant Strategies…

Well, yes, I know what your first thoughts are. There is no way we can explain relationships with economic science. But let me tell you what I think. As in my first post, everybody acts on a rational way, seeing his own set of information, and having their own incentives to achieve a better utility… And so do men and women in relationships.

So, first of all, I want to introduce you the prisoners’ dilemma. This is a classic game theory example, in which we can see that, sometimes, when one’s outcomes are also determined by other individuals, our strategy as individuals won’t necessarily be the ones that will lead us to the highest outcome or utility.

Consider the following situation (Source: Wikipedia):

“Two suspects are arrested by the police. The police have insufficient evidence for a conviction, and, having separated both prisoners, visit each of them to offer the same deal. If one testifies ("defects") for the prosecution against the other and the other remains silent, the betrayer goes free and the silent accomplice receives the full 10-year sentence. If both remain silent, both prisoners are sentenced to only six months in jail for a minor charge. If each betrays the other, each receives a five-year sentence. Each prisoner must choose to betray the other or to remain silent. Each one is assured that the other would not know about the betrayal before the end of the investigation. How should the prisoners act?”

What do you think? The most ‘rational’ thing to do is that both of them remain silent, and they will serve 6 months each, and we are done. However, if prisoner A stays silent, then prisoner B can testify, and he will go free, while A will be sentenced to 10 years in jail. So A cannot take that risk, he will prefer to betray B, even though he will be better off if both A and B remain silent. So the dominant strategy will be ‘mutual betrayal’, and each of them receiving a five-years sentence, which is clearly not the best outcome they could have achieved if they would have agreed beforehand.

This is similar to women and men behaviors in relationships. When a man starts dating a woman, and they happen to like each other, they will probably want, at least at the beginning, to talk over the phone all the time, or see each other all the time. In many cases this indeed happens, and they are a happy couple – the happiest they can be.

However, this is probably not the common case. Why? Well, if the girl starts calling the guy too much, or vice-versa, then they will be giving a signal to the other that they are “easy to catch”. But usually, in relationships you don’t want this to happen. Girls want to be seduced, and see the man working hard to achieve that. Similarly, men don’t want girls to think that they are too crazy about her or that they don’t have other girls that they can invite as well. Both men and women choose a strategy, the "hard to get" strategy, in which they don’t pay too much attention to the other one…

So what does this have to do with game theory? Well, this is a game. Both the man and the woman will be better-off by avoiding all these “hard to get” games. They will be able to save some time, and avoid uncomfortable situations. But in any case, the equilibrium is to play it the hard way.

Why? Imagine player one stops playing the “hard to get” strategy – and say starts calling more or caring more than usual for the other. Then player two can play two strategies. He/She can respond in the same way, and if they both keep playing that strategy without deviating, they might reach a better outcome. However, if player two decides to play back the “cooperative” strategy, but player one in response starts playing the “hard to get” strategy, then player two will look like an idiot… Player two will be calling and inviting player one, while player one will be indifferent and rejecting some of the invitations at a certain rate. Player two will feel bad about it, and will understand that player one is playing “hard to get”. What is the only response to that? Choosing as your optimal strategy the “hard to get” one.

We finally reach an equilibrium in which men and women choose to play a “hard-to-get” strategy being this one the dominant strategy. And sometimes, even though this can have a positive outcome, it won’t be as high as the other equilibrium (both playing the “cooperative” strategy)… at least in terms of time and avoiding uncomfortable moments.

So, you see... people are rational...

Poverty Traps...

Economists often refer to an equilibrium called 'Poverty Trap' - which is an scenario in which people experience poverty because of facts that are out of their control - thus, staying poor forever.

Without getting too much into the economics, I wanted to share with you an 'alternative' explanation of this phenomenon, which I saw in 'Mafalda' - a very popular Argentinian comic strip during the sixties and seventies.



Susanita, the character at the left, says:
-"C'mon! Don't you understand that they are poor because they want to? Use your brain... use your brain!"
Mafalda replies:
-"Ohh, my god!"
Then Susanita talks again:
- "Think about the hovels they live in, the bad and ugly furniture they have, the clothes they use! Don't you understand that if they already earn too little money, and besides that they have the guts of spending it in bad quality products, they will stay poor forever?"
Then when Mafalda leaves she thinks to herself:
-"There is nothing to do with people who don't think enough..."

PS: Just for the record, the purpose is only to understand what a poverty trap is... Not to learn about policy making from Susanita...