Global Climate Deal

This fresh news article of today was a mind-blowing one as I had a chance to see pretty much every aspect of Game Theory there: namely negotiation, fair division, distribution, Prisoner's dilemma, multiple players, efficiency, coalition and collective action.

As you all know, the delegates of the countries are trying to reach a global deal to reduce carbon emissions. According to some observers, there are two key players in these negotiations, developed countries and developing countries, i.e. rich and poor. According to some others, US and China are the key players. Denmark's involvement as a potential third player cannot be ignored due to the fact she is the host. From another perspective, there are hundreds of players (countries) or thousands of players (There are 15,000 people attending this conference!!) . There is also a regulator for this deal; namely United Nations.

In my opinion, it looks like China and the US will be the major key players though because they are the countries with the largest emissions and largest economical and political power.

Developing countries do not want to limit their peak emissions because they are still growing. Also, they claim that 60% of atmospheric space is occupied by 20% of most developed nations. So they think this is not fair. Developed countries, on the other hand, are afraid that their industries will be affected due to the new rules. They face strong objections locally in the industries that would be most affected. Also, they will be carrying most of the cost to support the developing countries so that developing countries can reach the targets by implementing new technologies.

This is an example of collective action multi-player Prisoner's Dilemma with prescriptive and predictive features. If everyone can agree, the total payoff for each player will be better because there is only one world. There is also only one atmosphere, and we cannot physically divide it. However, in the short-term some countries may financially be affected more. Further, short-term political pay-off structures impact the outcome.

In conclusion, by using the different expectations and payoffs of each country an efficient, balanced and fair deal is viable and has to be reached for the benefit of our next generations. However, due to the complexity of the game, it is very challenging to reach that deal.

http://www.cnn.com/2009/WORLD/europe/12/09/danish.draft.climate.text/index.html?iref=allsearch

Dividing the Wi-fi

When I moved in to my new house a year ago, among so many different issues was the internet/cable requirement. I am not a big TV fan, so I decided to subscribe only to internet. I do not use internet very often, and when I do so I do not need the whole band. I feel like most average users are the same way. So, it seemed really redundant to pay $50 a month for the internet subscription that I would only use few hours a month. On the other hand, I really needed it because of the school. I had this idea to talk to my neighbors but I hardly knew them so i could not. Result: I subscribed myself and am still paying $50 a month:)

So imagine 3 adjacent houses in a townhome community Say A, B and C. Each needs a low amount of internet usage at different times. Residents at A use internet only at weekends, residents at B use it only during the weekdays because they are working from home and residents at C demonstrate a more scattered but occassional internet usage at random hours. Let's assume that they know each other and they do not have internet service at this point. Cost of internet per month per house is $50. If A, B and C have this information in front of them and have some basic Game Theory perspective they would be able to create an efficient and fair division by understanding their requirements. If A and B cooperate and get the Wi-fi together, they would share the service and the cost, each paying $25 dollars for almost the same service experience. Obviously, division does not have to be exactly like that. For a 2-person coalition, the line between -50 dollars on x and y axis forms the ZOPA and Pareto efficient frontier, similar to Goreton and Bushville discussion in the class. Their BATNA is to install their own equipment and their reservation price is $50 each.

If C also joins the coalition, then the cost per person would reduce to $17 and the service would still be almost the same. Obviously, we need to assume that the Wi-fi router is located near the window at B and provides good service to neighbors. Residents could sign "Terms and Conditions" between the three of them pertaining to rules of service acquisition, usage, payment and termination. Note that the differences in the level and timing of internet usage are key to creating and achieving this efficient frontier. Another key issue here is the access to information among the neighbors...