Bastiat's Bastions

I figure if Dr. Turner can post an article about a game show about money in a bunch of suitcases, I can have my turn about unanimous agreement. Fox has a new show called “Unan1mous” which is a clever variation on a game of coordination that is mentioned when economists discuss “tacit collusion.” The story economists tell is how firms or rival/cooperators can agree to fix high prices without actually communicating with one another, using something called “Schelling points” or sometimes “focal points.” A Schelling point or a “focal point” is some obvious point of agreement that people can come up with even without openly discussing it, named after Thomas Schelling, a noted economist and game theorist.

Here is the “Schelling point” story. Suppose I showed up to class one day with an armed guard and a suitcase that I told everyone contained $1,000,000 (do you think I would walk around with a million bucks without the armed guard?). The people in the class of 20 students could have the million bucks if they unanimously agreed upon the way to split the money and all wrote down the same splitting arrangements. And they have to do this without speaking or communicating with one another. If you notice, this is almost like Fox’s “Unan1mous.” The big difference is that in Fox’s version, all the money goes to one person and it is $1.5 million instead of $1 million.

Well, you should notice that my Schelling point game is easier for people to win than Fox’s version. The “Schelling point” is the obvious splitting arrangement, with each person getting 1/20^th of the pot (or suitcase), a nice $50,000 each. In the Fox version, there is no splitting the money, it all has to go to one person. To make things worse, if just one person leaves their underground bunker voluntarily, the prize falls to $750,000. Last night they had a quick vote, with one guy named “Steve” getting three votes, a couple of women getting two votes each and several with one vote each. They then played some game called “who has the worst secret” to boot one person out (but this was not the voluntary escape that would halve the prize). One other factor, no one can vote for themselves, but if everyone else votes for someone, a person’s own vote doesn’t count against that person.

At the end of the program, they added another twist to make things a bit more interesting. A clock started ticking and with each tick, the sum for the winner started going down. The longer they take to decide, the smaller the prize.

This is very much like the story in an article by one of my former colleagues from Marshall University, Wendell Sweetser and his co-author, Roger Congleton of George Mason. Their 1993 article, “Political Deadlocks and Distributional Information: The Value of the Veil,” in Public Choice was about how a bill in Congress kept getting amended and could not get passed. The problem was that the bill was about how to divide some funds across the states in something called “revenue sharing,” where the federal government gave some tax money back to the states. Congress could not agree on a formula to divide the funds. Every day that Congress could not decide delayed the funds to the states, effectively decreasing the value of the funds.

The factor that kept them from deciding on a funding formula was that the Congressional Budget Office (CBO) could run every formula and tell every Congressman the effect of the formula on their state and on other states. Many Congressmen were holding out for a formula that gave their state more at the expense of other states. Congress actually had too much information, because the knowledge of how the money would affect their state and other states caused deadlock. But with every tick of the clock, the expected prize fell. Congress finally passed the revenue-sharing bill, but only when the CBO came across a formula they could not run because they didn’t yet have all the data to run the formula (the data was going to come out soon, though). When Congressmen didn’t know exactly what the effect on their state or any other state was going to be, they passed the bill.

Do you think that the people on “Unan1mous” can figure out how to hide the outcomes from themselves? Probably not, since the vote has to be for a particular person. The amount that that person wins will also be well known.

Do you think that people will let the prize dwindle down to nothing? Also, probably not. What factors will be involved when they do start picking a winner who is not themselves?

Morris Coats

This entry was posted on Monday, March 27th, 2006 at 5:48 pm and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.