Current Economic Phenomena

Current Economic Phenomena

In Econ 404W, Current Issues, we studied and tested many economic phenomena. From tipping waiters to insurance issues, to lemon laws, several themes came up time and time again, each one contributing to the next.   Asymmetric information, free riding, moral hazard, game theory, and rationality all made appearances time and time again.  
From the very first day of class, asymmetric information was a problem we encountered in the hotel game.   Nobody knew what other people had, and what was scarce, so determining what to barter was a problem.   Other examples of asymmetrical information occurred during the lemon game, when the buyer was not fully informed as to what grade they were purchasing, and couldn’t make completely informed decisions, as well as the “what makes workers work” problem, whereby the principal would not know how much the agent would give at any point in time.  
Asymmetrical information can create incentives to free ride.   In what makes workers work game, it was especially clear that without monitoring, some workers would give less effort and reap the benefits of those who gave more, as the principal would never know one way or the other who was doing what.   Free riding was evident in many other tests as well.   In the allocation of public goods, some people would not donate anything, and still benefit from other peoples donations, as a public good is non excludable.   In the tipping experiment, it was suggested that when unmonitored, there could be a greater chance of someone free riding off a partners tip contribution, if donations remained anonymous, even though our results showed the contrary.   However, with free riding, it is important to note that while it may be a completely rational behavior, if everyone did it, no one would benefit.
Rationality implies that people are looking out for themselves and are trying to get their own optimal outcome.   In the prisoners dilemma, which we mocked with a axelrod tournament, it is rational to always...