nwtrade09 - Networked Trade Theory and Behavior Networked...

Info icon This preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Networked Trade: Theory and Behavior Networked Life CIS 112 Spring 2009 Prof. Michael Kearns
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
s trate g ic   g am e s Nas h  e q uilibrium ne two rke d  g am e s be havi o r trade   e c o no m ie s pric e   e q uilibrium ne two rke d  trade be havi o r
Image of page 2
Trade Economies S uppo s e  the re  are  a bunc h o f diffe re nt  goods  or commodities  wheat, milk, rice, paper, raccoon pelts, matches, grain alcohol,… commodity = no differences or distinctions within a good: rice is rice We may all have different initial amounts or  endowments I might have 10 sacks of rice and two raccoon pelts you might have 6 bushels of wheat, 2 boxes of matches etc. etc. etc. Of course, we may want to  trade  or  exchange  some of our goods I can’t eat 10 sacks of rice, and I need matches to light a fire it’s getting cold and you need raccoon mittens etc. etc. etc. How should we engage in trade? What should be the  rates  of trade? how many sacks of rice per box of matches? These are among the oldest questions in markets and economics Obviously can be specialized to “modern” markets (e.g. stocks)
Image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Cash and Prices S uppo s e  we  intro duc e  an abs trac t re s o urc e  c alle d  cash no inherent value simply meant to facilitate trade; “encode” pairwise exchange rates And now suppose we introduce  prices  in cash (from where?) i.e. rates of exchange between each “real” good and cash e.g. a raccoon pelt is worth $5.25, a box of matches $1.10 Then if we all believed in cash  and  the prices… we might try to  sell  our initial endowments for cash then use the cash to  buy  exactly what we most want But will there really be: others who want to buy all of our endowments? (demand) others who will be selling what we want? (supply) how might we find them? A complex, distributed market coordination problem
Image of page 4
Mathematical Microeconomics Have   k abstract goods  or  commodities  g1, g2, … , gk Have  n consumers  or “players” Each player has an  initial endowment  e = (e1,e2,…,ek) > 0 Each consumer has their own  utility function: assigns a subjective “valuation” or utility to any amounts of the k goods e.g. if k = 4, U(x1,x2,x3,x4) = 0.2*x1 + 0.7*x2 + 0.3*x3 + 0.5*x4 (* = multiplication) this is an example of a  linear  utility function lots of other possibilities; e.g. diminishing utility as amount becomes large here g2 is my “favorite” good --- but it might be expensive generally assume utility functions are  insatiable always some bundle of goods you’d prefer more
Image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Market Equilibrium
Image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern