the prisoners dilemna

Hi,

This is a famous dilemma, invented by Albert Tucker, shows the paradox between self-interest and working for a mutual benefit. It goes thus:

A policeman arrests two suspects and puts them in separate cells and confesses to them that he has no evidence against them. Instead he offers them a few alternatives; If one confesses, then he will go free whilst the other will get a 10 year sentence. If both confess, then they will get a lighter punishment of 7 years. If neither confesses, then both go to prison for 1 year on trumped up charges.

The prisoner deduces the following: If his partner confesses, then he gets 7 years if he too confesses or 10 years if he remains silent. If his partner doesn't confess, then he goes free if he confesses, whilst going to prison for a year if he doesn't confess. Whatever his partner does, it is better for him if he confesses, so he does. They both go to prison for 7 years.

The dilemma seems an innocuous at first glance, but its results are significant. as John Kay (Economist and author) puts it "The self-interested benefits of cooperation are not enough to persuade the self-interested people to achieve them."

We generally work best in teams, we are genetically communal animals, with the best teams consisting of people who complement each other and have a mix of relative strengths.

This however all breaks down in the dilemma, where mutual suspicions drive people to make sure their own fate is not worse than their partners. The separate cells element is also very important as this produces information asymmetry (lack of information) for the prisoners about what their partner is doing. If they were in the same room, then chances are they would both remain silent until the last moment of the allocated time given to confess, and then confess, in an attempt to undercut each other, with the result being the same.

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The causes of unemployment

Unemployment is a very basic problem faced by all economies, with varying degrees of intensity. There are many different causes of unemployment, and I think the best way to understand them is to look at the unemployed and their reasons for being so:
1. Disincentive to work, i.e. the government pays their keep, they are better off unemployed than having a low-paying job and pay taxes and still be in the same economic state.
2. Drop in demand of their product. So for example big British industries such as the chemicals and steel industry have declined, so people have been laid off because the output required needs few workers.
3. Similarly the rise of new technology means that many peoples jobs have been taken over by machines, for example the farmhand has been replaced by the combine harvester and cow milking machine etc.
4. The trade unions have forced up the wages of their members, creating an unnatural strain on a companies finances, meaning they will have to lay off some of their workers.
5. People in transition from one job to another, so people like newly graduated people etc.

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$100 barrels of oil...or just a shot at fame

In recent days the news websites' business sections are having field days, I mean lets face it, disaster and doom make for good material to report on. You can take your pick really from: mortgages going bad, political unrest, falling house prices...and expensive oil. Now here is an interesting story from the BBC:
http://news.bbc.co.uk/1/hi/business/7169543.stm

basically some market analysts claim that the actual raising of the oil prices to $100 per barrel was actually caused by a rich trader who lost $600 to be the first one ever to buy $100 oil. So that's that crisis sorted out then, next we'll find out that the world economy slowing down is down to the fact that a random guy in America failed to honour his mortgage payments and this meant that the economy had reached a critical mass and suddenly the world economy collapsed....because of this random guy.

The truth is, that all of these crises are always going to have a build-up and then finally something is going to flick that last domino. Its not the fault of the last domino, it is the fault of the ones who set up the line of domino's such that it would cause a mass collapse, i.e. the financial market's recklessness and their intent on basing the entire system on interest-loans, or in other words solely for their own benefit.

Now here's an interesting suggestion: The banks bleed the masses dry, then as the masses don't have anything else to be relieved of, the banks experience "The Credit Crunch" etc, and allow the masses to develop some blubber (MPC and Fed cut interest-rates), which in a short while allow the banks renewed targets to feast on. The boom and bust cycle in reality.

Any cycle that busts so often can surely be said to be intrinsically flawed. It seems that even the booms are only a reflection of condition of the top of the pile, not to the overall well-being of society as a whole. Whats the point of a booming economy if the people still live in filth.

Why after all does the number of poor increase all the time, kids die of lack of clean water and people get AIDS - all more or less unrelated to the economic cycle? Because the entire system is flawed, self-centred with little scope for caring for the community as a whole.

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