Category: O’Neil-Chapter 1

Deal or no deal and rational choice theory

As my students are aware, I have been under the weather since the beginning of January and am finally feeling somewhat like a human being again. During my down time, I took some rest and had time to do some non-school-related activities, one of which was trying out the Deal or No Deal app on my smartphone. You do remember the TV show hosted by Howie Mandel, right?

Deal or No Deal and Rational Choice Theory
Deal or No Deal and Rational Choice Theory

Anyway, the basic idea of the show is this:

  • There are 26 suitcases on state, each with a card containing a dollar amount between $1 and $1 Million.
  • The game begins when the contestant chooses one of the 26 suitcases as “their” suitcase. If the contestant keeps the suitcase until the end of play, they win the dollar amount written on the card inside the suitcase.
  • The contestant must begin opening a certain amount of suitcases during each round of play–5 the first round, 4 the next, etc.
  • After each round, the game pauses and the contestant receives an offer from the mysterious banker via telephone with Howie as the intermediary.
  • The contestant is then asked whether there is a “deal, or no deal.” The contestant may accept the banker’s offer or continue. [There is where the drama gets ramped up to 11!]
  • If you have watched the show, you’ll notice that the banker’s offer depends upon which dollar amounts have been revealed. If the contestant reveals many high-value suitcases, it becomes like likely (probable) that the suitcase s/he chose at the beginning is a high-value suitcase.

The smartphone version is slightly different from the TV show in that the suitcases do not have dollar amounts attached but point multiples (that is, you win 1X, 2X, 3x, etc. 1000X the pot).

Take a look at the images above screenshot (is that the past participle?) from my smartphone. What do you notice about the banker’s offer? What’s of importance here is the red boxes in each picture. These are two separate games, btw.

These are two separate games. In the top game, there are only two suitcases left–one of them is the 20X and the 200X, Therefore, I have either the 20X or the 200X. That’s quite a big difference in winnings–ten times. So, what would you do? What would a rational choice theorist say you should do? Are the bankers offers rational in each case? Why or why not?

CO2 Emissions in China Increasing Faster than Previously Believed

In intro to comparative, we have generally compared spatially across countries (or states). There is a lot of explanatory power, however, that can be achieved by modeling and comparing political phenomena at the sub-national level. Maximilian Auffhammer and Richard Carson–two economists–have done this by modeling the rise in Chinese CO2 emissions, using a panel data set at the provincial level in China. Their data set includes 30 provincial-level entities (or provinces) analyzed between 1985 and 2004. See a post I made on China’s pollution problems and economic growth here. I’ve reproduced a slide show from the post below. Here’s a snippet from their paper, which can be accessed here:

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The People’s Republic of China (PRC) has long been seen as the key future participant to an effective agreement limiting the adverse impacts of climate change. It is currently the number two emitter of carbon dioxide (CO2) and is about to overtake the United States, who has held this position since 1890, as the leading emitter. Further, the United States has long preconditioned its adherence to any international agreement such as the Kyoto Protocol on China’s formal concurrence that it would also undertake substantial CO2 reductions. Efforts to reach such an agreement failed in the late 1990’s during the Clinton administration and the Bush administration decided not to pursue policies that would allow it to sign the treaty and have it rati¯ed by the U.S. Senate.

This paper presents econometric forecasts that strongly suggest that the short to medium term path of Chinese CO2 emissions has increased by a factor of two or more since that time. Our best forecast has China’s CO2 emissions surpassing the United States before the year 2010 rather than 2020 as previously anticipated (Intergovernmental Panel on Climate Change, 2000; Siddiqi, Streets, Wu and He, 1994; Panayotou, Sachs and Zwane, 2002). Our focus in this paper is on exploring alternative econometric specifications for forecasting China’s CO2 emissions using a rich new panel dataset from 1985 to 2004 at the provincial level. The prediction of a dramatic recent increase in the predicted path of China’s CO2 emissions over the short to medium term horizon is shown to be robust to a wide range of alternative specifications. We show, however, that it is possible to strongly reject both the standard engineering specifications that appear in the Intergovernmental Panel on Climate Change (2000), and the recent Stern Report (2006) as well as the popular environmental Kuznets curve specification. All of the “best” models are dynamic in nature employing some type of lag structure, which is consistent with the nature of an installed durable capital stock.