You See the Apocalypse, I See a Profit Opportunity

20 December 2012 at 10:23 am 3 comments

| Peter Klein |

Game theorists often discuss finitely repeated games by asking, “What if both parties know the world ends in period T?” If the principle of backwards induction holds, then I suppose no Mayans have been able to achieve cooperation in a repeated prisoners’ dilemma game for thousands of years — both parties know the other will defect in T-1, so each defects in T-2, and so on. . . . But where beliefs about the end of the world differ, there are potential gains from trade.

download (3)

See also this Hummer commercial, one of my favorites in explaining how time preference and discount rates affect behavior.

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3 Comments Add your own

  • 1. David Croson (@ProfDC)  |  20 December 2012 at 11:01 am

    This was a popular sort of wager around Y2K — “I’ll bet you $1,000 in cold, hard cash that the economy doesn’t collapse.”

    These sorts of things are actually related to Ricardo’s famous bond trade in 1815, where losses would be paid off in devalued currency but gains would come in a strong currency — perhaps the first documented example of first-order stochastic dominance in the financial markets.

  • 2. Jim Rose  |  21 December 2012 at 12:49 am

    There is a service that will look after your pets after you go to heaven after rapture

    See http://www.aftertherapturepetcare.com/ for a really cute video of cats and kittens etc., that could be left behind without food..

    To save of infrastructure, post-rapture pet rescue volunteers travel to your house to feed your pet. This saves on building care facilities in preparation for rapture.

  • 3. jamesbailey73  |  25 December 2012 at 8:25 am

    The real question is who benefits? Y2K 1.0 (2000) then 2.0 (2001), “collapse of the world banks,” 2012…
    The winners are always companies that make and sell “must have survival gear.” We always see a run on bottle water, duct tape, 6mil plastic sheeting, dried beans, ammo and the like.

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