The Game that is the Economy

So this week I visited the Institue of Child Health, one of the many medical departments of University College London. This had nothing to do with health though apart from I suppose the health of the economy.

The keynote speakers can be seen here.

This was a chance to get a thoroughly academic view on the state of finances within each of the international economies. The conference started with a look into the 'traditional' theories surrounding microeconomics, involving several of the games that agents are known to play in abstracted economic thought experiments.

Agents in economics are elemental actors within the economic space, often individuals with some kind of (usually liquid) capital. Agents interact with each other creating transactions. Within micro-economics agents are more individualistic although the size of agents can be treated in a more macroscopic view when dealing with macroeconomics instead.

The emphasis on textbook economics and econometrics is based on the assumtption of rational gain, whereby agents are treated as fundamentally greedy and self-interested.

This view leads to problems. The difficulties here were most obviously exposed during and in the aftermath of the financial crisis...

This paper highlights the emerging economic thought over 'traditional' micro-economics of self interest.

The talks were a mix between these macro- and microeconomics perspectives. The first, from Dr Pete Lunn, was about behavioural economics and neuroscience, given his background. He seemed to be suggesting that decisions were based on thresholds of acceptance rather than simple self-interest and absolute 50:50 rationality (viz. 'traditional' economic theory). These thresholds were later shown to be based on many cultural and psychological factors involving the degrees to which people are willing to accept offers made to them.

The over-arching 'game' introduced during the talks was called the Ultimatum Game. This game involves two agents acting out an economic scenario. The first agent has for example £100. Now they can only keep any of that money if the second agent allows them to by her coming to an agreement about how to split the total. If the first agent suggests say £50 then the second is almost certainly going to accept. Several studies have shown that if the offer is below £20 then most people will reject doing a deal.

The £20 figure is what varies across cultures and amongst differing psychological profiles.

More to follow...