English tuition fees...

Most English universities look like they are planning to charge maximum fees.  University officials and students both seem to believe that, in this case, price is a strong signal of university quality...

Teaching the Prisoner's Dilemma...

The Prisoner's Dilemma features prominently in every undergraduate and graduate course in game theory, microeconomics, or international relations. Having had the good fortune to sit through multiple presentations of the Prisoner's Dilemma to a number of different audiences (academic audiences in both undergrad and grad school, private industry, government, etc) I have noticed that the game just doesn't make much sense to people when it is first explained. The audience typically has a hard time understanding why defecting is clearly the dominant strategy...

This is a very rough first draft of notes on the Prisoner's Dilemma that I am hoping to expand into a self contained teaching module at some point...my plan is to develop the module using Joshua Epstein's computational model and ASCAPE software as the major teaching tools.  Robert Axtell's The Evolution of Cooperation: Revised Edition is also a major influence.

I think it would help if the initial presentation did not focus so much on the one-shot version of the game.  Prisoner Dilemma games can be divided into four distinct classes:

1. The One-Shot Version: This is the version emphasized in introductory level courses.  In this version the dominant strategy is for both players to defect.
2. Repeated Game Version #1: In this version of the Prisoner's Dilemma the players will play the game for an a priori known, finite number of rounds.  The result...since the last round is in essence a one-shot game, mutual defection is the dominant strategy. Since both players know this, they will find it optimal to defect in the next to last round, this dynamic devolves all the way back to the beginning.  The strategy of mutually defection still rules in this version.
3. Repeated Game Version #2: In this version of the Prisoner's Dilemma the players will play the game for an infinite number of rounds! In this version mutual cooperation can be sustained as an equilibrium as long as the players care a sufficient amount about future rounds of the game (i.e., their discount factors are not too low).
4. Repeated Game Version #3: In this version of the Prisoner's Dilemma the players will play the game for an unknown but finite number of rounds.  In this world, which to me is the one that most closely resembles reality, the backwards induction argument used in repeated game version #1 doesn't work.  Computational simulations can be explored to understand what ingredients are necessary/sufficient for cooperation to be sustained in the population and in what situations where defectors are able to invade the population.    

As mentioned above...this is just an idea I am playing around with...comments/suggestions/constructive criticism would be appreciated...

Overfitted Models and Overly Complicated Regulation...

Governments are always legislating the last crisis (whether economic or security related).  I would argue that one of the reasons that they persist in doing this is that they always seem to craft overly complicated and excessively precise legislation.  This legislation seems to focus on patching specific "holes" in the existing regulation regime that were identified ex post as that the "causes" of the crisis.

As a result of the high levels of complexity and precision, such legislation is likely to be brittle/fragile and will likely result in unintended consequences.  In a sense, such legislation suffers from problems similar to those of an over-fitted statistical model.  A good model will capture key drivers of the underlying process while allowing for some (perhaps even significant variation) between the estimated and observed values.   Because it has captured key drivers of the underlying process, a good model will be very robust when used to predict future values.  An over-fitted model, on the other hand, will be crafted to fit the historical data with very high precision, but because of this high level of historical precision the model can be very brittle when used to predict future values.  Instead of capturing key drivers of the underlying process, an over-fitted model simply reproduces the historical data with high accuracy...who knows what it might produce when used to predict future values.

How does this relate to government legislation/regulation? Good legislation/regulation should capture in broad strokes the key factors associated with a crisis or socio-economic process that the government legislation is designed to target.  Now clearly this is easier said than done as what actually constitutes a "key factor" in the real world of politics is just as debatable as what constitutes a "key driver" in the real world of economic modeling. 

Nonetheless, I think it would be useful if more people new the difference between an over-fitted model and a good model...      

On Privatizing the Education System...

For some reason, and I have no idea why, I spent some time today thinking about the implications of privatizing the education system (by privatizing the education system, I mean totally eliminating the role of the federal, state, and local governments in K-12 and university level education and leaving education to be sorted out by the "market forces"). This is not something that I have given much thought to before, so I apologize if my thoughts seem a bit simplistic.  I assume based on no metric (other than intuition) that the current status quo has government (at all levels) more involved in K-12 education than in unversity level education (in the U.S.)  My initial thoughts...

Clearly the average quality of education at the K-12 level in the U.S. leaves much to be desired.  Ardent supporters of privitization would argue that if education was left up to the "market," then the quality of education would improve (perhaps dramatically).  Implicitly I suppose they mean that, if left up to the market, the quality of education would improve on average.  I wonder though what would happen to the variance (i.e., the spread) of education quality?  What would happen to the gap between the average quality of education and the median quality of education?

At this point I would be willing to concede that the average quality of education might increase, but I am almost certain that the variance/spread of education quality would increase substantially if the education system were privatized.  I would also be willing to bet that the gap between the average quality of education and the median quality of education would increase substantially. 

For a more concrete example, think of the wealth distribution in the U.S.  The average income is very high, but the disribution is also highly skewed (i.e. unequal, average income is higher than median income, etc).  The distribution of income is a particular stark example of a skewed disribution.  But it is also an example of a distribution whose shape is determined by "market forces" and if we are going to ration education by ability to pay (i.e., by the market...and note that I did not say willingness to pay...in the real world willingness to pay and ability to pay are NOT the same thing) then the shape of the income distribution would seem to be relevant.

I haven't yet touched on issues related to market competition.  Advocates of privitization frequently argue that privitizing the education system would allow "market forces" to bid the price of education down.  The problem is that in no way, shape, or form would there exist anything approach perfect competition in the market for education.  At a minimum, options for K-12 education would still be significantly constrained by the physical residence of the parents.  I will try to elaborate on competition related issues in a follow-up post...