Simple, design schemes so that people will reveal it to you. Never assume that people will give you un-slanted information, unless they have an incentive to do so.
The Freakonomics blog takes a look at Adverse Selection.
I found the M&M example listed in this article very interesting. Adverse selection is described by Froeb as a situation in which one party is better informed than another. In this example it seems Van Halen was able to manipulate the game theory and beat his opponent by anticipating his next move. In essence, he was able to make the information asymmetry between the local promotor (about his own diligence) and himself disappear through a screening.
However, one important aspect of a critical screen is that it must not be profitable for high-risk (in this case careless) consumers to mimic the choice of low-risk consumers (p.245, Froeb). Had promotors in upcoming concerts learned about the M&M screening, they could have ensured that this one aspect of setup was taken care of, but still ignored other risks of the setup. At this point the promotors actions could be considered moral hazard, he or she would have reduced incentive to exercise care after they “proved themselves” to be diligent in the setup of the stage, audio and lighting.
Levitt, S. D. & Dubner, S. J. (2014 May 9). How to Trick the Guilty and Gullible into Revealing Themselves. Retrieved from http://www.wsj.com/articles/how-to-trick-the-guilty-and-gullible-into-revealing-themselves-1399680248?tesla=y&mod=WSJ_hp_RightTopStories&mg=reno64-wsj
I found the M&M example listed in this article very interesting. Adverse selection is described by Froeb as a situation in which one party is better informed than another. In this example it seems Van Halen was able to manipulate the game theory and beat his opponent by anticipating his next move. In essence, he was able to make the information asymmetry between the local promotor (about his own diligence) and himself disappear through a screening.
However, one important aspect of a critical screen is that it must not be profitable for high-risk (in this case careless) consumers to mimic the choice of low-risk consumers (p.245, Froeb). Had promotors in upcoming concerts learned about the M&M screening, they could have ensured that this one aspect of setup was taken care of, but still ignored other risks of the setup. At this point the promotors actions could be considered moral hazard, he or she would have reduced incentive to exercise care after they “proved themselves” to be diligent in the setup of the stage, audio and lighting.
Levitt, S. D. & Dubner, S. J. (2014 May 9). How to Trick the Guilty and Gullible into Revealing Themselves. Retrieved from http://www.wsj.com/articles/how-to-trick-the-guilty-and-gullible-into-revealing-themselves-1399680248?tesla=y&mod=WSJ_hp_RightTopStories&mg=reno64-wsj
I found the M&M example listed in this article very interesting. Adverse selection is described by Froeb as a situation in which one party is better informed than another. In this example it seems Van Halen was able to manipulate the game theory and beat his opponent by anticipating his next move. In essence, he was able to make the information asymmetry between the local promotor (about his own diligence) and himself disappear through a screening.
ReplyDeleteHowever, one important aspect of a critical screen is that it must not be profitable for high-risk (in this case careless) consumers to mimic the choice of low-risk consumers (p.245, Froeb). Had promotors in upcoming concerts learned about the M&M screening, they could have ensured that this one aspect of setup was taken care of, but still ignored other risks of the setup. At this point the promotors actions could be considered moral hazard, he or she would have reduced incentive to exercise care after they “proved themselves” to be diligent in the setup of the stage, audio and lighting.
Levitt, S. D. & Dubner, S. J. (2014 May 9). How to Trick the Guilty and Gullible into Revealing Themselves. Retrieved from http://www.wsj.com/articles/how-to-trick-the-guilty-and-gullible-into-revealing-themselves-1399680248?tesla=y&mod=WSJ_hp_RightTopStories&mg=reno64-wsj
I found the M&M example listed in this article very interesting. Adverse selection is described by Froeb as a situation in which one party is better informed than another. In this example it seems Van Halen was able to manipulate the game theory and beat his opponent by anticipating his next move. In essence, he was able to make the information asymmetry between the local promotor (about his own diligence) and himself disappear through a screening.
ReplyDeleteHowever, one important aspect of a critical screen is that it must not be profitable for high-risk (in this case careless) consumers to mimic the choice of low-risk consumers (p.245, Froeb). Had promotors in upcoming concerts learned about the M&M screening, they could have ensured that this one aspect of setup was taken care of, but still ignored other risks of the setup. At this point the promotors actions could be considered moral hazard, he or she would have reduced incentive to exercise care after they “proved themselves” to be diligent in the setup of the stage, audio and lighting.
Levitt, S. D. & Dubner, S. J. (2014 May 9). How to Trick the Guilty and Gullible into Revealing Themselves. Retrieved from http://www.wsj.com/articles/how-to-trick-the-guilty-and-gullible-into-revealing-themselves-1399680248?tesla=y&mod=WSJ_hp_RightTopStories&mg=reno64-wsj