Week 1: An Introduction

Hello everyone!

I am Larry, and I am happy to welcome you to my first senior project blog post. I will be introducing my project, its purpose, and its applications to the real world.

Adam Smith, the man most people proclaim the founder of modern economics, based a large portion of his beliefs in the assumption that people acting in their own personal benefit would create the maximum value for the whole of society. And while many of his theories and contributions are widely accepted today, this premise has been proven wrong. One of the best counterexamples of this premise is the Prisoner’s Dilemma, a classic example in game theory in which the strictly dominant strategy for each player leads to a worse outcome for both. Being able to find a way for each player to achieve the optimal result for both of them, or what is called the Pareto efficient result, would have implications in many places, including shoring up inefficiencies in business transactions and potentially offering an incentive-based solution to negative externalities like climate change.

My project will be analyzing ways to make this happen. I will be designing and testing a framework based on legally binding contracts that may allow for a solution to the Prisoner’s Dilemma to become Pareto efficient. I will design the framework, work through the mathematical theory behind the idea, and design an experiment to analyze the effectiveness of the framework. Previous studies have indicated that repeated instances of the Prisoner’s Dilemma could achieve Pareto efficiency, yet no such solution exists for single instance Prisoner’s Dilemmas.

This week, I read through some of the existing literature within the field. While I did not do an extensive literature review, I found some cool ideas from some of the papers I read, which I may integrate into my project, as a potential extension to games beyond the Prisoner’s Dilemma. I will continue researching the existing literature, and come up with a full literature review in the next few weeks. Stay tuned for that and more details in my coming posts!