Opportunity Costs Vis-A-Vis Game TheoryEssay Preview: Opportunity Costs Vis-A-Vis Game TheoryReport this essayMr Rajiv after getting a good percentile in XAT, and clearing the rest processes, makes his way to study at XLRI. On the first day of classes, each of his professors distributes a course syllabus and explains that the final exam will be graded on a curve. As a result, performance on the final exam will be measured relative to the others in the class. If Rajiv outperforms most of his peers, he will earn a “good” grade. If he studies about the same amount, he will get an “average” grade, and if he doesnt study much, he is sure that he will fail the course. Rajiv considers himself about average relative to his peers. As a result, good grades will give him a strong sense of accomplishment and bolster his grade point average. However, Rajiv knows, it will take a lot of studying to perform well in the course. On a 0 to 10 scale, Rajiv rates receiving an A in any course as a 10, an average grade as 5 and a failing grade as 0. On the other hand, the costs (in terms of money spent at XLRI and free time) of studying on the same 0-to-10 scale are 4 for studying a little and 7 for studying a lot.
Rajiv assumes that the rest of the class (at least on average) faces a similar set of decisions and has similar costs and benefits. If Rajivs assumptions are correct and if he makes his decision without observing the choice of his classmates (and vice versa), how much should he study per week: a lot or a little?
ANALYSIS: The case in the normal form is set up as follows:THE AVERAGE PERSON IN THE CLASS.STUDY A LITTLE STUDY A LOTSTUDY A LITTLE(1;1)(-4;3)STUDY A LOT(3;-4)(-2;-2)RAJIVThere is a single pure strategy Nash equilibrium where everyone studies a lot and the payoffs are average grades with a lot of work, yielding net benefits of -2 for everyone.
This simple example allows us to illustrate several key economic concepts. For example, the concept of rational decision-making can be conveyed by defining the alternatives of each of the decision-makers as well as through the use of net benefit calculations as payoffs. The process of determining the Nash Equilibrium also requires evaluating opportunity costs and utilizing marginal analysis. As an example, considering the scenario where the “average” person in the class studies a little, Rajiv must choose the option with the highest marginal benefit, which in this case is to study a lot, since the marginal net benefit of this alternative, is 2 (or 3-1). But, by definition, marginal analysis also incorporates opportunity cost. In this scenario the opportunity cost of studying a lot is the net benefit of studying a little, which is 1.
The concepts of net benefit and marginal analysis can be used to understand the impact of a given market for education, which by definition encompasses not only higher education but also the broader life, family, and business sectors of a society. The concept “net benefit” is often used to describe a single set of decisions about a subject of greater importance. For example, in an investment decision the investment decision maker has to calculate the likelihood that a good value for money will be received or held. In a market the investor takes the “good value/value ratio” (EUR) and applies this ratio to the market value value of a given investment, which is the price of a given product. When the market value of a given stock is a negative number, that means that for every good offered in the market, there is a negative return. In other words, there are 2 options for different markets. In these cases, the investor can choose the negative and positive results of a given market and his or her EUR calculation will be based on its EURs, since it is also the market value of each investment, which is included in the market value of every product.
The term net benefit can also be used to describe a specific element of a market. For example—a new or improved motor vehicle purchase that has significant impact on the environment and on public health has a negative EUR with a negative EUR. As part of a cost sharing arrangement, the lender would reduce the rate on its car loans to its borrowers, which could lead to increased indebtedness and lead to lower consumer confidence and reduced earnings opportunities. The resulting adverse net benefit to the borrower would be realized through new or improved cars.
In any given market, the net benefit for each individual subject in an action may be greater or less than the net reduction of the market cost of that action. For example, for a given loan the lender is able to reduce monthly payments because a loan is of less value to the consumer than if the borrower had not received the loan at all. For a loan to increase monthly payments, the lender must make the lender more expensive for the loans and make the borrower more responsible. The lender may be able to reduce its interest rate, but the lender generally could not also decline the interest of the consumer since it would have to repay the loan to the creditor for which the loan is being paid. Similarly, a good interest rate does not necessarily mean that it will increase the value of the consumer’s credit score at some point in its life. For example, when borrowers have already paid $5 per month to settle a bad credit situation, it is more likely that the borrower will not pay the $5 per month interest until the loan is paid back. So a well-understood investment that would enhance the purchasing power of the consumer would have the same net benefit for a lender if it were to reduce the interest rate. A well-understood investment that would enhance the purchasing power of the consumer would have the same net benefit for a lender if it were to reduce the rate of the rate of payment.
Some investors would also think it’s important to compare “best value” in a specific market, given the differences in interest rates among different markets. A good market may contain markets that are attractive to investors, while a bad market may be the result of price changes and other factors that may affect the market
The concepts of net benefit and marginal analysis can be used to understand the impact of a given market for education, which by definition encompasses not only higher education but also the broader life, family, and business sectors of a society. The concept “net benefit” is often used to describe a single set of decisions about a subject of greater importance. For example, in an investment decision the investment decision maker has to calculate the likelihood that a good value for money will be received or held. In a market the investor takes the “good value/value ratio” (EUR) and applies this ratio to the market value value of a given investment, which is the price of a given product. When the market value of a given stock is a negative number, that means that for every good offered in the market, there is a negative return. In other words, there are 2 options for different markets. In these cases, the investor can choose the negative and positive results of a given market and his or her EUR calculation will be based on its EURs, since it is also the market value of each investment, which is included in the market value of every product.
The term net benefit can also be used to describe a specific element of a market. For example—a new or improved motor vehicle purchase that has significant impact on the environment and on public health has a negative EUR with a negative EUR. As part of a cost sharing arrangement, the lender would reduce the rate on its car loans to its borrowers, which could lead to increased indebtedness and lead to lower consumer confidence and reduced earnings opportunities. The resulting adverse net benefit to the borrower would be realized through new or improved cars.
In any given market, the net benefit for each individual subject in an action may be greater or less than the net reduction of the market cost of that action. For example, for a given loan the lender is able to reduce monthly payments because a loan is of less value to the consumer than if the borrower had not received the loan at all. For a loan to increase monthly payments, the lender must make the lender more expensive for the loans and make the borrower more responsible. The lender may be able to reduce its interest rate, but the lender generally could not also decline the interest of the consumer since it would have to repay the loan to the creditor for which the loan is being paid. Similarly, a good interest rate does not necessarily mean that it will increase the value of the consumer’s credit score at some point in its life. For example, when borrowers have already paid $5 per month to settle a bad credit situation, it is more likely that the borrower will not pay the $5 per month interest until the loan is paid back. So a well-understood investment that would enhance the purchasing power of the consumer would have the same net benefit for a lender if it were to reduce the interest rate. A well-understood investment that would enhance the purchasing power of the consumer would have the same net benefit for a lender if it were to reduce the rate of the rate of payment.
Some investors would also think it’s important to compare “best value” in a specific market, given the differences in interest rates among different markets. A good market may contain markets that are attractive to investors, while a bad market may be the result of price changes and other factors that may affect the market
Using a game theoretic approach to present and discuss