I’ll close my blogging for the day with another pair of videos illustrating game theory concepts.   UC-Berkeley economist David Zetland illustrates a particularly interesting application of the all-pay auction to the analysis of “The Political Economy of Lobbying”:

 

Finally, I conclude with a video that illustrates the ultimatum game.  In this video, pairs of seven and eight year olds share a stash of ten chocolate coins. One child decides on how the chocolate coins are split, and it is up to the other child to decide whether the split is fair. If the other child refuses the offer, then both children go away empty-handed.  In a one-shot ultimatum, one would fully expect low offers to be accepted. But not so in a repeated game. In this experiment, the children likely do better by rejecting the offer in the first game and getting an even split in the second (netting say 5 chips) than they would have been by accepting two sets of low offers (netting say 2 chips). Enjoy!:

 

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