Pathik Shah

Just found this little anecdote which explains How a Bubble is formed and how/when it bursts. A simple explanation of the subprime crisis.

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Once there was a little island country. The land of this country was the tiny island itself. The total money in circulation was 2 dollars as there were only two pieces of 1 dollar coins circulating around.

1) There were 3 citizens living on this island country. A owned the land. B and C each owned 1 dollar.

2) B decided to purchase the land from A for 1 dollar. So, now A and C own 1 dollar each while B owned a piece of land that is worth 1 dollar.

- The net asset of the country now = 3 dollars.

3) Now C thought that since there is only one piece of land in the country, and land is non producible asset, its value must definitely go up. So, he borrowed 1 dollar from A, and together with his own 1 dollar, he bought the land from B for 2 dollars.

- A has a loan to C of 1 dollar, so his net asset is 1 dollar.
- B sold his land and got 2 dollars, so his net asset is 2 dollars.
- C owned the piece of land worth 2 dollars but with his 1 dollar debt to A, his net residual asset is 1 dollar.
- Thus, the net asset of the country = 4 dollars.

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This isn’t a review detailing why Delhi 6 sucked (IMO) or where it went wrong, it’s just about how a scene in the movie illustrates an excellent example of Game Theory.

There is a scene in the movie where Jai Gopal (the Black Friday dude) asks Gobar (Atul Kulkarni), the village idiot to choose between two 1 rupee coins and a ten rupee note. Gobar always chooses the two 1 rupee coins and the Jai Gopal proceeds to ridicule him and walks away after handing him the two rupees.

Near the climax of the movie, the Jai Gopal again asks him to choose between two 1 rupee coins and a ten rupee note and Gobar chooses the two 1 rupee coins again. At this point, someone asks him why he takes the two 1 rupee coins instead of the ten rupee note. He replies: “The day I take the ten rupee note, the game would be over.”

BTW, it was pretty dumb of him to reveal his strategy to others in front of Jai Gopal, as it ended the game anyway.

Most of us probably know about it already, but now it has reached such levels – about 200 million percent, that using Zimbabve Dollar notes is now more cost effective than using toilet paper to clean one’s ermm.. behind.

Using the official currency as toilet paper has become so common in Zimbabve, that a hotel in Zimbabve had to put up this notice.

LOL!

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Just read this amazing post at the Freakonomics blog:

Suppose you get a question and have to select an answer with multiple choices to choose from, you can find out the right answer logically using the game theory using the Game Theory. Without even knowing the question.

And the reason I am posting this here, is that I have used a similar method myself a lot of times when I didn’t have the time, or didn’t know how to get the right answer. But I never knew it was related to the Game theory.

Example:

Which of the following is the correct answer?

a) 4π sq. inches

b) 8π sq. inches

c) 16 sq. inches

d) 16π sq. inches

e) 32π sq. inches

Answer:

The odd answer in the series is c. Since it is so different from the other answers, it is probably not right. The fact that the units are in square inches suggests an answer that has a perfect square in it, such as 4π or 16π.

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