One of the first models covered in game theory is the Prisoner’s Dilemma. I’m sure you’ve heard of it or at least recognize it from episodes of Law and Order. Let’s look at the simple model with 2 individual players so we can eliminate mixed strategy equilibria and focus strictly on pure strategies. The two strategies for each player are “productive” and “exploitive”. The payoffs for the two players can be summarized on the usual grid. Employee Productive Exploitive Manager Productive 1,1 0,2 Exploitive 2,0 0,0 One possible economic...

This morning I ran through the Dunkin Donuts to pick up two donuts for me and two donuts for my wife. Four donuts cost $3.85 while 6 donuts cost a little over $4.00. The cashier tried to convince me that buying 6 donuts would be cheaper. Understandably, the cashier would not know that I was ordering for only two people or that we prefer not to stuff ourselves with more than two donuts each. Still, I feel like the cashier never quite believes that I understand the cost per donut is lower with an order of 6 versus 4 but that it is entirely rational to base decisions on total cost rather than...