MICROTUBE

ANIMATIONS DESIGN

Florentina ParaschivWolfgang KöhlerPavlo Blavatskyy

Christian Ewerhart

January 2008

Contract theory - Externalities, Pigou taxes,

Coase theorem -

animation

ANIMATION SCENE 2

I produce and I pollute

I produce and I pollute

Because of that, I suffer and will die.

Because of that, I suffer and will die.

An EXTERNALITY is the (positive or negative) impact of an economic decision on any party that is not involved in the decision.

ANIMATION SCENE 6

O: I compensate you. What would the damage be? 3000? 5000?

F. ULRICH: 4675 to be precise.

WELFARE THEORY: addresses a question whether the market can achieve efficient outcome and if so how?

The festival is worth more to the organizer than the damage that occurs at the farm.

- Coase I: if the organizer is allowed to make a festival, then the farmer doesn’t find it worthwhile to pay him enough such that he waives his right to organize the festival.

- Coase II: if the organizer is not allowed to make a festival unless the farmer agrees, then the organizer compensates the farmer for the damage. Regardless of what the law says:

• the outcome is the same

• the outcome is efficient

Slide appears in background or semitransparent where remainder of text appears

ANIMATION SCENE 7

COASE THEOREM when trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights.

ANIMATION SCENE 9

A sequential game is one of IMPERFECT INFORMATION if a player does not know exactly what actions other players took up to that point.

DEMONSTRATORDrivers don’t take the negative effects on others into account. When they decide whether to go by car or train, they do not think about air pollution, CO2, or noise. Hence the government should close the tunnel and force everybody to take the train.

ANIMATION SCENE 10

PIGOU TAXES Tax them. Increase the price for driving (via gasoline taxes or toll roads) such that the new price reflects all externalities.

AESounds pretty radical. But the truth is, drivers do not take the negative effects into account. So what is the solution?

Game theory- I do because he does -

animation

VINCENTIt would be great for both of companies to use the same

technology.

VINCENTIt would be great for both of companies to use the same

technology.

MARIA… So we have two choices

now: keeping using our own technology or buying

license for NEOtech.

MARIA… So we have two choices

now: keeping using our own technology or buying

license for NEOtech.

NEOPLAY

STAR

tech

NEO tech

STARDISK

STARtech

3,1

NEOtech

NORMAL FORM

STARDISK

STARte

ch

NEO

tech

EXTENSIVE FORM

VINCENTIf our technology were

chosen by both companies it would be the best thing for us…

VINCENTIf our technology were

chosen by both companies it would be the best thing for us…

MARIA… If we keep our technology, NEOPLAY would gain from

sales if they adopt our standard.

MARIA… If we keep our technology, NEOPLAY would gain from

sales if they adopt our standard.

NEOPLAY

STAR

tech

NE

O tech

NE

O tech S

TAR

tech

BORISIt’s clear now: STARDISK

launched their product. They use their own technology.

BORISIt’s clear now: STARDISK

launched their product. They use their own technology.

DYNAMIC GAME WITH COMPLETE INFORMATION

PURE STRATEGIES NASH EQUILIBRIUM

If a player chooses to take one action with probability 1 then that player is playing a PURE STRATEGY .

NASH EQUILIBRIUM: best action for you given what the others did.

COMPLETE INFORMATION: you know which actions can the other player take and what her payoffs are.SUBGAME PERFECTION: when you choose an action, you anticipate what future player will do.

GLYGOR…STARDISK will make the

first step on the market… but we are also coming!

GLYGOR…STARDISK will make the

first step on the market… but we are also coming!

NEOPLAY

VINCENTWe will launch the product

first

VINCENTWe will launch the product

first

DYNAMIC GAME: players move one after the other.NORMAL FORM: representing the game with a matrix.

BORIS… What’s good for us is

to adopt the same technology as STARDISK!

BORIS… What’s good for us is

to adopt the same technology as STARDISK!

0,0

0,0

COMPLETE INFORMATION: you know which actions can the other player take and what her payoffs are.

(3,1) (0,0) (0,0) (1,3)

3,1

1,3

Game theory- Battle of sexes -

animation

Alex

Opera Soccer

Eliana

Opera 3,1 0,0

Soccer 0,0 1,3

MIXED STRATEGY NASH EQUILIBRIUM: best mixing of actions given what the others mix.

A MIXED STRATEGY is a strategy when a player randomizes among several actions.

(3/4)

(1/4)

(1/4) (3/4)

I would like to go to soccer but I think she

would prefer to go to the Opera…

I would like to go to soccer but I think she

would prefer to go to the Opera…

Well… I’ll toss two coins

Well… I’ll toss two coins

Life is actually simple if we randomize… let’s toss these coins: for head-head I will buy tickets to the

Opera.

Life is actually simple if we randomize… let’s toss these coins: for head-head I will buy tickets to the

Opera.

.

In the first case, we have the first-move advantage. STARDISK moves first. In this case we have a pure strategy Nash Equilibrium. In the second case, we have a simultaneous-move game and we have a mixed strategy Nash Equilibrium.

ANIMATION SCENE III

Game theory- Focal point -

animation

Eliana

Mensa Park

Alex

Mensa

Park

1,1

1,1

0,0

0,0

Focal point

FOCAL POINT: is an equilibrium more likely to be chosen by the players because it seems special, natural or relevant to them.

“It’s almost lunch time and he could go now to the mensa or… maybe in the park… !”

“However I’ll stay here waiting for her… In fact most of the students choose mensa for lunch !”

Decision theory- Selling a chance -

animation

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Imagine that you would have the chance to play a game: if you extract a red candy you get 5000 SFR and for a black one you get 0. How much would you ask for this chance?

Imagine that you would have the chance to play a game: if you extract a red candy you get 5000 SFR and for a black one you get 0. How much would you ask for this chance?Let’s see… I think I wouldn’t

ask more than 3000…What about you? How much would you ask?

Let’s see… I think I wouldn’t ask more than 3000…What about you? How much would you ask?

For 80% red candies… no less than 4500 francs.

For 80% red candies… no less than 4500 francs.

What if the box would contain 50% red and 50% black candies?

What if the box would contain 50% red and 50% black candies?

In this case I think I would ask 3500 francs. What about you?

In this case I think I would ask 3500 francs. What about you?

Well… with 50% chance to extract a black candy… Better

1500 Francs than nothing!

Well… with 50% chance to extract a black candy… Better

1500 Francs than nothing!Oh… you don’t ask too much. I would ask 2000 for 25% red candies in the box!

Oh… you don’t ask too much. I would ask 2000 for 25% red candies in the box!

25% red? That’s not too much. I wouldn’t ask more

than 500 francs.

25% red? That’s not too much. I wouldn’t ask more

than 500 francs.

ANIMATION SCENE 1

BERNOULLI UTILITY FUNCTION: tells you how good a certain amount of money feels.

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ANIMATION SCENE 2

• Dialog between Daniel and the Mascot.

• Daniel and the Mascot will show up on full screen. Oh! I’m a risk

seeker!

Oh! I’m a risk seeker!

RISK SEEKER: Loving the risk. *** RISK AVERSE: Avoiding the risk.

- Buying insurance -

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So… plan A and plan B… What’s the probability of getting

sick in the next 6 months?

So… plan A and plan B… What’s the probability of getting

sick in the next 6 months?

I estimate 1/3 probability.I estimate 1/3 probability.

And how much would you earn during this term?

And how much would you earn during this term?

Probably… 5000 SFR. So if I choose plan A….

Probably… 5000 SFR. So if I choose plan A….

Kate’s utility function

After 6 months I might have 3350 SFR (if I’m not getting

sick) or 3050 SFR if any problem occurs…

After 6 months I might have 3350 SFR (if I’m not getting

sick) or 3050 SFR if any problem occurs…

1/3 probab

CE plan A = 3120

So the Certainty Equivalent with plan A is 3120

So the Certainty Equivalent with plan A is 3120 And with plan B, if you get sick

you will pay the premium and the franchise, having 1600 at

the end.

And with plan B, if you get sick you will pay the premium and the franchise, having 1600 at

the end.

CE plan B = 2720

So the Certainty Equivalent with plan B is 2720. My CE

with plan B is lower than CE with plan A. I’ll choose plan A. What about you?

So the Certainty Equivalent with plan B is 2720. My CE

with plan B is lower than CE with plan A. I’ll choose plan A. What about you?

5 sec

2 sec5 sec

CERTAINTY EQUIVALENT: amount of money that is as good as the uncertain outcomes.

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CE plan A = 3290 CE plan B = 3700

So if I’m getting sick I would have at the end 3050 SFR

with plan A…

So if I’m getting sick I would have at the end 3050 SFR

with plan A…… and 1600 SFR with plan B. … and 1600 SFR with plan B. So my CE for plan B is higher than

CE for plan B. I’ll take plan B.

So my CE for plan B is higher than CE for plan B. I’ll take plan B.

- Swisslotto -

animation

Risk seeking for low probability gains

Well… both of us would like to gamble, aren’t

we?

Well… both of us would like to gamble, aren’t

we?

Demandy draws all the theoretical aspects in 2 seconds.

PROSPECT THEORY: describes how people choose between risky alternatives.

- Bungee jumping -

animation

Risk seeking for highprobability gains

Why don’t you jump? You’re risk seeker!

Why don’t you jump? You’re risk seeker!

Not in extreme situations like this one….

Not in extreme situations like this one….

Demandy draws all the theoretical aspects in 2 seconds.