You’re right; these seem to be more parables on what happens if one side has strong ability to coordinate among itself and keep precommitments and the other side does not.
In Evil Plutocrat, assuming the party whips are very good at their jobs and can enforce their decisions, I think the Nash equilibrium (correct me if I’m wrong) is for the Democrats to make 51% of Democrats vote for the bill, and the Republicans to make 51% of Republicans vote for the bill. That makes the bill pass (and therefore neither party has their opponents get money) but still allows as many Congressmen as possible to represent their constituents. I’ve edited the story above to reflect this. On the other hand, if the evil plutocrat valued unanimity, I think he could get away with saying “I will pay the money to whichever party gives me less support, unless both parties give me 100% support in which case no one gets the money”. This would be riskier (he might have to pay up if one Congressman defected) but in theory should be able to win him unanimity.
In Hostile Takeover, although you’re right, doesn’t that just pass the problem on to whoever you sell it to? At some point the shareholders either have to decide not to sell the company (thus passing up the deal to get $101 for their stock) or sell the company to one of the two bidders. If the shareholders can coordinate well enough to not take the two-tiered offer, they can coordinate well enough to just all take the $101 offer, which is superior to selling on the open market. This problem looks like what happens if the shareholders can’t coordinate.
I agree that Hostile Takeover Part II only works if we assume that you have much stronger powers of precommitment than anyone on the board, and so should be understood as a parable about what happens when one party can precommit better than another. If it were important to rescue the story from this loophole, I guess we could imagine a situation where any motion passed with the consent of someone who owned shares automatically transferred those shares, and so your lackey’s vote on Hostile Takeover allows those shares to be transferred automatically?
I rewrote / adapted some of these so they wouldn’t be outright plagiarism, and I don’t have the book with me but it’s entirely possible the errors are mine and not theirs.
It occurs to me that in Evil Plutocrat, you can get what you want in a simpler way, by just going to the majority party and saying “unless you make the bill pass, I will donate a large amount of money to the other party” which shows that what makes the evil plutocrat powerful is not his clever use of game theory, but again his unique ability to make credible precommitments.
In Hostile Takeover, although you’re right, doesn’t that just pass the problem on to whoever you sell it to? At some point the shareholders either have to decide not to sell the company (thus passing up the deal to get $101 for their stock) or sell the company to one of the two bidders.
You can keep the shares and its associated stream of future dividends, which presumably is worth $100 in present value. (If the 50% owner intentionally does something to reduce the value of future dividends, he would be violating minority shareholder rights, which is why I asked whether we’re assuming that such rights don’t exist.)
You’re right; these seem to be more parables on what happens if one side has strong ability to coordinate among itself and keep precommitments and the other side does not.
My problem is that these examples seem designed (but perhaps not consciously) to oversell the power of game theoretic thinking, by obfuscating the fact that the side that appears to be winning through clever use of game theory is also given other strong and unrealistic advantages. Unless maybe the author intended them to be puzzles, where we’re supposed to figure out what element hidden in the setup is responsible for the counterintuitive/unrealistic outcomes?
Also hidden in hostile takeover is that on those assumptions (other buyer only buys if he gets all shares, your shares are worth less than 90$ if neither buys them) you could just buy 1 share for 102$, and get rest for 90$, no need for that complexity there either.
You’re right; these seem to be more parables on what happens if one side has strong ability to coordinate among itself and keep precommitments and the other side does not.
In Evil Plutocrat, assuming the party whips are very good at their jobs and can enforce their decisions, I think the Nash equilibrium (correct me if I’m wrong) is for the Democrats to make 51% of Democrats vote for the bill, and the Republicans to make 51% of Republicans vote for the bill. That makes the bill pass (and therefore neither party has their opponents get money) but still allows as many Congressmen as possible to represent their constituents. I’ve edited the story above to reflect this. On the other hand, if the evil plutocrat valued unanimity, I think he could get away with saying “I will pay the money to whichever party gives me less support, unless both parties give me 100% support in which case no one gets the money”. This would be riskier (he might have to pay up if one Congressman defected) but in theory should be able to win him unanimity.
In Hostile Takeover, although you’re right, doesn’t that just pass the problem on to whoever you sell it to? At some point the shareholders either have to decide not to sell the company (thus passing up the deal to get $101 for their stock) or sell the company to one of the two bidders. If the shareholders can coordinate well enough to not take the two-tiered offer, they can coordinate well enough to just all take the $101 offer, which is superior to selling on the open market. This problem looks like what happens if the shareholders can’t coordinate.
I agree that Hostile Takeover Part II only works if we assume that you have much stronger powers of precommitment than anyone on the board, and so should be understood as a parable about what happens when one party can precommit better than another. If it were important to rescue the story from this loophole, I guess we could imagine a situation where any motion passed with the consent of someone who owned shares automatically transferred those shares, and so your lackey’s vote on Hostile Takeover allows those shares to be transferred automatically?
I rewrote / adapted some of these so they wouldn’t be outright plagiarism, and I don’t have the book with me but it’s entirely possible the errors are mine and not theirs.
It occurs to me that in Evil Plutocrat, you can get what you want in a simpler way, by just going to the majority party and saying “unless you make the bill pass, I will donate a large amount of money to the other party” which shows that what makes the evil plutocrat powerful is not his clever use of game theory, but again his unique ability to make credible precommitments.
You can keep the shares and its associated stream of future dividends, which presumably is worth $100 in present value. (If the 50% owner intentionally does something to reduce the value of future dividends, he would be violating minority shareholder rights, which is why I asked whether we’re assuming that such rights don’t exist.)
My problem is that these examples seem designed (but perhaps not consciously) to oversell the power of game theoretic thinking, by obfuscating the fact that the side that appears to be winning through clever use of game theory is also given other strong and unrealistic advantages. Unless maybe the author intended them to be puzzles, where we’re supposed to figure out what element hidden in the setup is responsible for the counterintuitive/unrealistic outcomes?
Also hidden in hostile takeover is that on those assumptions (other buyer only buys if he gets all shares, your shares are worth less than 90$ if neither buys them) you could just buy 1 share for 102$, and get rest for 90$, no need for that complexity there either.