Hurray for Health Reform By PAUL KRUGMAN

[OnyxCollie]

22. Expecting health care insurance companies to do "the right thing"

and not gouge the ignorant and trusting (or anybody else, for that matter) is irrational.

Actors are intelligent if they recognize that other actors are rational.

Intelligent actors can put themselves in the other actor’s position and rationalize from their point of view.

A central concept of noncooperative game theory is that the “equilibrium” is driven by an actor’s intelligence.

A condition of equilibrium will be achieved if each actor follows certain rules of behavior.

In market relationships the buyer and sell may have diametrically opposed interests, the seller seeking the highest possible price and the buyer the lowest, but unless they can reach a compromise that is acceptable to both sides, neither can do business.

The rationality assumption has prompted debates over its validity.

A large portion of human behavior is not purposive calculation, but rather of social roles that define appropriate behavior.

Many challenge the notion of consistent preferences and utility maximization.

People rarely possess consistent preferences.

People engage in “satisficing” behavior rather than maximization.

People routinely make cognitive errors in calculation.

A game of incomplete information is one in which the rules of the game are not common knowledge among the actors.

There is some asymmetry in the information possessed by the actors even at the start of the game.

Most real world games are games of incomplete information.

Actors do not know the motivation of their competitors.

They do not know their costs and hence their profits from certain actions, nor even if they are guided by profits or some other objective.

Actors do not know the feasible sets of actions by their competitors.

Actors differ in their knowledge of the world.

Max Weber: (Action that is motivated by self-interest can still be) substantially heteronomously determined... (in) a market economy, though in a formally voluntary way. This is true whenever the unequal distribution of wealth, and particularly of capital goods, forces the non-owning group to comply with the authority of others in order to obtain any offer on the market... in a purely capitalist organization of production this is the fate of the entire working class.