Law and Pol Review for Midterm usu

auroradye's version from 2016-10-19 12:26


Law and Politics 3120
Class Notes Week 1
Question Answer
Define institutional design and give an exampleformal rules, namely legal and regulatory provisions that try “to create institutions that reach good outcomes through a set of decision-making processes that minimize the workings of bias, self serving, and special interests.” The obstacles that interfere with "good decision making" in the area of public choice are numerous: bad sheep in the process (domineering individuals or spoilers; 18); the effects of strategic behavior by participants; cyclical voting outcomes (Arrow paradox); dictatorship (institutional arrangements that permit one actor to determine the outcome); sensitivity of the collective outcome to the order of the agenda; procedural indeterminacy; power differentials; capture of the process by special interests; deadlock through requirements of super majorities; and information asymmetries among participants.
Define credible commitment device and give an examplea way to change one's own incentives to make an otherwise empty promise credible. A way to overcome the discrepancy between an individual's short-term and long-term preferences. -Create larger obstacles to temptations to increase the costs of temptations. -Make it well known of your commitment, thus putting your reputation on the line. -Make a monetary contract with someone to increase the benefit of staying on course. EG Mutual assured destruction (MAD) - a doctrine of military strategy and national security policy where a full-scale use of nuclear weapons by two or more opposing sides would cause the complete annihilation of both the attacker and the defender. It is based on the theory of deterrence, which holds that the threat of using strong weapons against the enemy prevents the enemy's use of those same weapons. The strategy is a form of Nash equilibrium in which, once armed, neither side has any incentive to initiate a conflict or to disarm. ---Another examples is Han Xin, a general in Ancient China who positioned his soldiers with their backs to a river, making it impossible for them to flee and making them attack the enemy head-on.


Class Notes Week 2
How does a person make decisions?
Question Answer
Rational Choice TheoryIndividuals make decisions that maximize their utility subject to constraints.
               Utility – whatever makes you best off.
   eg happiness, prestige, or money
No utility function across settings – it differs between groups and individuals
eg my utility function may be different than your utility function, and these might be different from the utility function of a business, which may be different than the utility function of another business.
Question Answer
Constraintslimitations or restrictions.
Time Horizon“a fixed point of time in the future at which point certain processes will be evaluated or assumed to end” - Wikipedia
               eg I might be most happy surfing in Hawaii, but in order to surf and live/ travel to Hawaii I’m constrained by money. I’m in class now to get a degree, to get a job I enjoy and so I can make money, to do things like surf. Therefore, even though sitting in class is not the epitome of happiness for me, it helps me get to my goal of max happiness in surfing. I take a longer time horizon to be able to surf a few times per year.
Question Answer
Preferencesa greater liking of one choice over another or several others
               3 types -
A. Strictly preferred – you like one choice best over another or others
A>B, B>A
eg You like to eat breakfast burritos best, then cold cereal, then toast.
B. Weakly preferred
A>B, B>A
eg You prefer cold cereal over hot cereal, but barely.
C. Indifferent
eg You don’t care whether you eat Cheerios or Rice Chex, they are equally good.
“What does it mean to be a rational actor?”
Question Answer
A. Completenesspreferences well defined across options
B. Transitivitypreferences are consistent
If A>B, and B>C, then A>C.
eg If blue is your favorite color, and you like red next, and then orange next, it follows that you like blue more than orange.
Question Answer
Time Inconsistent Preferencesyou can change your mind. What you prefer now may be different from what you prefer a month from now.
C. Independencerelations are not dependent on new alternatives
eg Food You have the option of going to McDonalds or Panda Express. You say you want Panda Express, till someone says, “What about Taco Bell?” If you then say you want McDonalds, merely because the third option was introduced, you’re not acting rationally.
Simplifying Assumptions (some of them must be relaxed to be used in real life)
D. Perfect info about alternatives.
However, it’s impossible to have 100% perfect info and be sure of outcomes.
E. Choice is made under uncertainty.
It’s “important to make decisions based on assigned probabilities updating”
eg You want to buy a car, so you talk to people, you read up on different makes online, you look at listed ads of cars for sale. Then you “assign a probability of expected utility.” You might want the car that’s fastest and smoothest to drive, and you pick which one you think it is – a Mustang. Then you go test some of the cars out, and you update your prior expectation. You don’t get the Mustang after all because of your updated info, and instead get a Bugatti Veyron.
Also called Expected Utility Theory
F. Time consistency.