Tag: rationality

John Von Neumann was a mathematician and one of his many accolades was applying mathematics and his observations of traditional games to create a new discipline – Game Theory. This involves a mathematical approach to decision making whereby different strategies can be assessed. It a tool that not only can be used in Economics, but also can be applied to a broad range of areas and fields of study.

Just as I arrived at work, I was listening to Radio 4 and heard the introduction to the programme In our Time. This one in particular caught my attention because of the name mentioned – Von Neumann, and after arriving in my office I then listened to the discussions surrounding game theory.

The main link is to the discussion from BBC Radio 4, led by Melvyn Bragg, with guests: Ian Stewart, a Professor of Mathematics from the University of Warwick; Andrew Colman, a Professor of Psychology at the University of Leicester and Richard Bradley, a Professor of Philosophy from the LSE. I’ll keep it brief and simply say enjoy!


Game Theory (also at) BBC Radio 4, In our Time, Melvyn Bragg (10/5/12) (Programme details)


Game Theory cannot predict broadcasting future Financial Times, Andrew Edgecliffe-Johnson (4/5/12)
Game Theory, in the real world Phys Org (2/5/12)


  1. What is game theory? How is mathematics relevant here?
  2. The discussion talks about co-operative and non co-operative games. What is the difference between them?
  3. In the game – walking down the street – draw out the matrix and show whether a Nash equilibrium exists.
  4. Draw out the matrix for the game ‘Rock, Paper, Scissors’. How can game theory be applied to this game? What is the best strategy to win this game? Can there be a winner?
  5. Draw out the matrix for the problem of littering when it is non co-operative. Is there a Nash equilibrium?
  6. What is the Prisoner’s Dilemma? Give some examples of it. Explain why it is an example of a dominant strategy game.
  7. How is game theory relevant to broadcasting? Think about the role of auctions and also the information given in the Financial Times article.
  8. Explain how game theory is relevant to the Cold War.

Behavioural economics looks at the way in which people behave when making economic decisions about spending. It looks essentially and what people buy and why they buy it. Research in behavioural economics has started to question some of the traditional economic assumptions of rationality and argues that habits and other psychological factors may be more important than conventionally assumed.

Why we buy what we buy Guardian (20/5/08)


1. Explain what is meant by ‘behavioural economics’.
2. Evaluate the principal factors that people take into account when choosing to buy a consumer good.
3. “….. average people are all far more irrational and more human than economists allow”. Discuss the extent to which this might be true.

In the article below Tim Harford (the Undercover Economist) looks at rationality in the purchase of cigarettes. He consider whether healthy and happy smokers are the same thing and the extent to which smokers would be happier if cigarettes were more expensive.

Why smokers are happier when cigarettes cost more MSN Slate (17/5/08)


1. Identify the principal factors that determine the level of demand for cigarettes.
2. Given the factors identified in part (a), discuss the likely value of the price elasticity of demand for cigarettes.
3. Discuss the extent to which higher cigarette prices would make smokers happier.

The start of a new year is a time that many of us make New Year Resolutions. Generally we have broken these before then end of January, but a new web site called Stickk.com aims to helps us keep the resolutions. Can economics help us rationalise the process of making resolutions? In the article below Tim Harford (the Undercover Economist) looks at incentives and what economics can tell us about New Year Resolutions.

Rationalising resolutions MSN Slate (22/12/07)


1. Assess the importance of incentives in determining people’s economic behaviour.
2. How does the analysis of ‘rational behaviour’ help us understand the economic choices people make?
3. Discuss the likely success of the business model developed by Stickk.com.