Interaction Models


in Schelling's Game Theory

Published in print February 2012 | ISBN: 9780199857203
Published online May 2012 | e-ISBN: 9780199932597 | DOI:
Interaction Models

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This chapter begins with a section on social constructs called models. Models simplify situations by embodying relationships involved in some transparent manner that makes the phenomenon that is taking place more recognizable, and encourages the right sort of questions to be asked. The first model presented is the thermostat, which models cyclical behavior, and has characteristics of lag time and accumulated inventory. A well-known model is that of the self-fulfilling prophecy, where expectations sometimes induce behavior that causes the expectation to be fulfilled. Schelling's variations on this model that are considered are the “self-displacing prophecy” and “self-negating prophecy.” The concept of “lemons” is examined. This is Akerloff's model based on asymmetrical information, and the “lemon” is a poor quality used car. Lemons will be offered on the market, while good quality used cars will not, and the seller knows what he has. Markets can be destroyed. This is the reason why there are copyright and patent laws. Examples are given for all the models. The chapter includes a supplement—a 1991 homework assignment describing a lemon situation, followed by an e-mail, sent eighteen years later, when the same student was traveling through Vietnam, and discovered an identical situation that actually existed, but with dragon fruit.

Keywords: game theory models; lemons; self-fulfilling prophecy; asymmetrical information; Akerloff; patent laws

Chapter.  6477 words. 

Subjects: Economics

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