Archive for the 'AP Economics' Category

Apr 20 2012

UPDATE: Golden Balls, Game Theory, the Prisoner’s Dilemma, and the cold rationality of human behavior!

The excellent Radiolab has now done a story about Golden Balls. After watching the videos and reading the post below, listen to this story.

In my original “Golden Balls” blog post (see below), written almost three years ago after I saw a clip of the finale in an episode of the British game show, Golden Balls, I analyzed the actions of Sarah and Steve, who  had to decide whether they would split or steal a jackpot of 100,000 British pounds. The contestants had one minute to try to convince one another that they would split the money; but when it came down to it Sarah stole and Steve split, meaning Sarah got to keep the whole jackpot and Steve went home with nothing.

In that original post, I proposed that Steve’s best chances for going home with any money would have been “for him to use the one minute of discussion time to convince Sarah that he would choose SPLIT, yet be willing to go home with something LESS THAN $50,000 and accept that Sarah was going to choose STEAL. He could have threatened to chose steal if she did not agree to share her winnings with him to some extent.”

In a recent episode of the same game show, a contestant followed a similar strategy to that I suggested Steve should have taken. Watch the clip below, from a February 2012 episode of Golden Balls.

In this episode, Nick immediately takes control of the negotiations by insisting that he is going to steal, which is a very unorthodox approach to this game, in which the traditional strategy is to try and convince your opponent that you are going to split. By establishing a credible threat to steal, Nick puts all the pressure on Ibraham to decide only one of two things:

  1. Does Ibraham trust that Nick will split the money with him after he has stolen the full jackpot, and
  2. Would Ibraham rather both of them go home without any money at all than Nick win the jackpot and possibly not split it with him later on?
Nick’s strategy is brilliant. By the end of the negotiation, Nick has convinced Ibraham 100% that he is going to steal the money. Ibraham may only have had a confidence level of 50% that Nick was honest about splitting the money with him after the show, but with a 50% confidence level, Ibrahim’s possible payoffs are:
  • Choose steal and go home with nothing.
  • Choose split and have a 50/50 chance of going home with half the jackpot (based on his level of confidence in Nick’s promise to split the money after the show).
In other words, with a jackpot of 14,000 pounds, the payoffs for Ibrahim became:
  • If he splits: 0 pounds or 0.5(14,000) = 7,000 pounds
  • If he steals: 0 pounds or 0 pounds (assuming his confidence level in Nick’s intention to steal is 100%).
Clearly Ibraham now has a dominant strategy: to split. In the typical version of this game, a player’s dominant strategy is always to steal (as explained below), since the possible payoffs are:
  • If you split: 0 pounds or half the jackpot
  • If you steal: 0 pounds or the whole jackpot.
But because Nick has convinced his opponent that he will steal, and then split the winnings, Ibraham’s dominant strategy shifted to split, since the possible payoffs have changed. Ultimately, Ibraham does what is most rational given his confidence in Nick’s threat to steal, and that is to split. Ibraham then chooses split (as he should), but then to everyone’s surprise, Nick chooses split, not steal as he had threatened to do throughout the negotiation. This a surprising twist, since from Nick’s perspective stealing is clearly now a dominant strategy! Nick had convinved Ibraham to split, which means Nick faced a greater payoff by stealing. But by splitting, Nick shows that he had intended to split all along, but first needed to convince Ibraham otherwise to establish splitting as Ibraham’s dominant strategy.
What a thrilling game! I won’t even bother getting into how this relates to economics today, I’m still shaking with excitement over the outcome!
Original Golden Balls post:
Teaching the Prisoners’ Dilemma Will Never Be the Same Again « Cheap Talk

Rarely does such a perfect illustration of the Prisoner’s Dilemma come along for Econ teachers to use in their classroom:

The payoffs are clear:

Each player has a weakly dominant strategy, which is to choose to steal. By choosing to steal, the player has a chance at maximizing his own payoff, but will do no worse than he would if his opponent also chooses to steal and at least will have the satisfaction of thwarting his opponent’s attempt to steal the money.

There are three Nash equilibria in the game, which are outcomes at which a player can not do better on his or her own by changing his or her strategy. The outcome Steve was hoping for by chosing “split” (50/50) was not a Nash equilibrium because Sarah knows she can do better if she chooses steal when Steve chooses split. Steve doomed himself by choosing split because he should know that Sarah’s dominant strategy is to choose steal. However, Sarah would also have doomed herself by choosing split because she should assume that Steve would also chose steal since steal is a dominant strategy for him too.

John Nash, who pioneered the field of Game Theory, assumed that humans were coldly rational, self-interested, deceptive creatures that would not hesitate to stab one another in the back to get what was best for themselves. His theory of human behavior is only partially proven correct in this game, in which Steve is shown to be the sucker and Sarah the coldly rational self-interested player. The best chance for Steve to go home with any money would have been for him to use the one minute of discussion time to convince Sarah that he would choose SPLIT, yet be willing to go home with something LESS THAN $50,000 and accept that Sarah was going to choose STEAL. He could have threatened to chose steal if she did not agree to share her winnings with him to some extent. Then again, any promise Sarah makes she could later break, thus further empowering the players to choose steal.

Discussion questions:

  1. What in the world is going on here? Why did Sarah choose steal rather than collaborate with Steve and share the $100,000?
  2. Was Steve totally wrong to choose split? What would you have done in his situation?
  3. How do the choices faced by Steve and Sarah relate to the choices faced by firms in oligopolitic markets? Now that you’ve seen this video, can you explain why collusive agreements between oligopolists often fall apart? Why do cartels such as OPEC often fail to achieve the high price targets agreed upon in meetings of their leaders?

112 responses so far

Jan 29 2012

Welker’s Wikinomics Video Lectures – 50 lessons and still growing!

Since September 2011 I have been producing and publishing around three video lessons per week covering the topics I’m teaching in my three Economics classes at any given time. With an AP Macro class, a year 1 and year 2 class going on all at the same time, this means I’ve been making videos covering everything from linear supply functions to protectionist quotas to monetary policy.

This week I posted my 50th video lesson. Since I began producing lessons on my YouTube channel, they’ve been viewed over 35,000 times and nearly 200 people have subscribed to my YouTube feed.

If you haven’t checked out my new website, The Economics Classroom, consider subscribing to the weekly newsletter from that site. You’ll receive one email a week with links to the latest videos covering Micro, Macro and International concepts. In addition, I’ve been creating and posting free worksheets, practice activities and even unit quizzes and tests to the resource page.

If you’re wondering what my videos are like, check out the one I posted tonight to introduce the new IB Year 1 unit on Theory of the Firm, which I’ll start teaching on Tuesday this week!


3 responses so far

Oct 27 2011

A new website for Video Lectures – the Economics Classroom

If you’re a regular visitor to this blog, you’ll notice that over the last month or so, I have begun posting many video lectures to YouTube and including them in lessons and activities on this blog. My adventures in the “flipped classroom” model of instruction has proven extremely successful, as I have heard much positive feedback from students who have found the videos useful reinforcement for our regular class activities and a helpful tool for revision.

As this project has developed, however, I have begun to notice that this blog has turned into more of a video hosting site and less of what it has always been, which is a written journal of economic analysis targeted at the high school economic student. While I have begun making video lectures, I do not want to neglect the traditional form of blogging that has guided my activities on this site for almost five years.

Therefore, I have decided to add a new site to the selection of resources already available through Welker’s Wikinomics. As of tonight, I have created The Economics Classroom, a website built exclusively for my video lectures. From now on, all video lectures uploaded to YouTube will be published on the new site, at

Videos will be organized in categories based on the five units of the IB Economics syllabus: Intro, Micro, Macro, International and Development Economics. Much like blog posts on this blog, videos posted to the Economics Classroom will include discussion questions or in-class activities for students to complete on their own or during class with their peers and their teacher’s help.

Please visit the Economics Classroom and enjoy the videos that are there. Currently, only about 17 video lectures have been posted, but I am recording on average three per week, and by the end of this year I anticipate there will be around 100 lectures available on the site. Over the next two years, I will record over 150 lectures covering every topic from the IB and AP Economics syllabuses.

Leave your feedback on the posts. Join the discussions that are already going on on some of the posts. Tell your friends, your teachers, and your students about the site! The more people who use it, the better it will become!

Thanks for everything!


4 responses so far

Sep 08 2011

My new IB Economics and AP Macroeconomics textbooks are now available, ready to ship today!

It’s been a long road to this day, September 8, on which what I truly believe is the best IB – specific Economics textbook ships from Pearson’s warehouses in the UK. Pearson Baccalaureate’s Economics ships today, so if you haven’t already, order yourself an evaluation copy from the Pearson website. If you like what you see, consider ordering a set for your classes!

From the Pearson website:

An exciting new textbook with integrated online learning resources. For students and teachers of the International Baccalaureate Diploma, written and developed by practising IB teachers.

  • Specifically written for the new 2011 syllabus
  • Makes clear connections to real world eventsto build conceptual understanding
  • Provides analysis of economic concepts in light of recent global economic data
  • Extra student practice questions for new HL quantitative methods
  • Lively writing to stimulate interest, with clearexplanations to promote understanding
  • Suitable for use with both SL and HL courses
  • Gives clear links to TOK throughout
  • Enables exam-style assessment opportunities
  • Provides guidance on Internal Assessmentand the Extended Essay
  • Fully supported with online resources.

Sample Content Pearson Baccalaureate Economics sample spreads

And if you’re and AP teacher and feeling left out, please don’t, because my other new book, REA’s AP Macroeconomics Crash Course, also ships out this month!

REA’s AP Macroeconomics Crash Course is the first book of its kind for the last-minute studier or any AP student who wants a quick refresher on the course. The Crash Course is based on a careful analysis of the AP Macroeconomics Course Description outline and actual AP test questions released by the College Board.

Written by an AP teacher, our easy-to-read format gives students a crash course in Macroeconomics. This review will prepare you for test day by focusing on important topics frequently seen on the AP Macroeconomics exam.

Unlike other test preps, REA’s AP Macroeconomics Crash Course gives you a review specifically focused on what you really need to study in order to ace the exam. The introduction discusses the keys for success and includes a list of terms all AP Macroeconomics students must know.

The targeted review chapters are grouped by topics, offering you a concise way to learn all the important ideas, facts, and terms before exam day. The author gives you expert test-taking strategies to conquer the multiple-choice and free-response questions on the exam. No matter how or when you prepare for the AP exam, REA’s AP Macroeconomics Crash Course will show you how to study efficiently and strategically, so you can boost your score!

To check your test readiness for the AP Macroeconomics exam, either before or after studying this Crash Course, take our online practice exam. To access your free practice exam, visit and follow the on-screen instructions. This true-to-format test features automatic scoring of the multiple-choice questions and detailed explanations of all answers. Our diagnostic analysis will help you identify your strengths and weaknesses, so you’ll be ready on exam day!

One response so far

Jun 24 2011

New resources for Econ students and teachers coming soon!

It has been quite some time since I have posted regularly to this blog, but that has been for good a reason. Over the last 15 months I have been working hard on two major projects, one IB Economics textbook and one AP Macroeconomics textbook. Both books will be published at the end of the summer and ready for students and teachers to use during the new school year.

With these exciting and exhausting projects now coming to an end, I have begun to turn my attention once again to this blog and the other online resources that presented me with the amazing opportunities to write two textbooks in the last year. You will notice right away that this blog, and my home page, have a new look to them. This is my attempt to improve this site’s “brand” and bring the design into the new decade!

In addition to re-designing the blog and the homepage, I have also begun to re-design the very popular Lecture Note / Study Guide sets that so many students and teachers have ordered over the last couple of years. The IB Economists out there will know that starting this fall, the IB will launch its new curriculum for the incoming 11th graders, who will sit for the new IB Economics exam for the first time in May of 2013. The text I am just finishing up, Pearson Baccalaureate’s Economics for the IB Diploma, is written specifically based on the new IB syllabus. With its launch, of course, my old lecture notes and study guides will be out of date, so my next project is to bring those popular resources up to speed with the new IB curriculum. The new bundle will include 24 separate PowerPoint Lecture Notes (also available in pdf format for students). I expect these resources to be ready by September or early October, so please stay tuned. Below is a preview of the new slide designs, from Unit 1.1 “Introduction to Economics”.

In addition to a new website design, updated PowerPoint Lecture Note / Study Guides, and two textbooks coming out, I have also recently created a new Facebook profile specifically for readers of Welker’s Wikinomics. If you’re like me, you probably get most of the important information in your life off of either Facebook or Twitter these days, and you can’t be bothered to go to some dude’s blog every day to see what he’s writing about. Now you follow Economics in Plain English through either Facebook, Twitter, or RSS. In addition to the weekly posts on the blog, I will also post many other articles and links to the Facebook page as I stumble upon them in my own online activity. Please friend Welker’s Wikinomics on Facebook, and if you’re not already, consider following me on Twitter too (jasonwelker).

In the mean time, enjoy your summer! I am looking forward to meeting my own group of new IB and AP Econ students in the fall, and also anyone else who happens upon the blog during the upcoming semester!

2 responses so far

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