http://cheaptalk.org/2012/05/29/behavioral-economics-and-the-greek-bailout/ A blog about economics, politics and the random interests of forty-something professors Thu, 23 May 2013 17:13:07 +0000 hourly 1 http://wordpress.com/ http://cheaptalk.org/2012/05/29/behavioral-economics-and-the-greek-bailout/#comment-14086 Tue, 05 Jun 2012 14:20:19 +0000 http://cheaptalk.org/?p=11528#comment-14086 I think dynamic incentives are just a theorist’s way of talking about lay persons’ fairness… Just kidding, to a point. Perhaps fairness has evolved in (great?) part as a heuristic device to allow people to conveniently cope with dynamic incentives; in the present circumstance it would appear they both could produce observationally equivalent paths. But I don’t think most Germans are really talking about dynamic incentives when they invoke fairness in this instance, I think they perceive the situation as a question of right and wrong more than one of dynamic optimality. Pure speculation on my part, to be sure.

]]> http://cheaptalk.org/2012/05/29/behavioral-economics-and-the-greek-bailout/#comment-14042 Wed, 30 May 2012 05:04:32 +0000 http://cheaptalk.org/?p=11528#comment-14042 I wouldnt really call this tradeoff between fairness and efficiency “behavioral”. I think fairness is just a lay person’s way of talking about dynamic incentives. In a simplistic view of the world where the Euro crisis is a one-shot game, fairness at the expense of efficiency would indeed not make much sense. But, just as in the ultimatum game, if you thought this situation could potentially arise again in the future, you would rather not have your opponent convinced that you’d bail him out of trouble (or accept $0).
That’s why I think the model implicit in the article is as behavioral as the idea of repeated games (and perhaps also reputation?), i.e. not really.

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