Separating equilibrium in Game Theory - Open Yale Course

Separating equilibrium is proposed by Michael Spence. This model told us the only thing that distinguishes the costs of good workers from bad workers in education is it is so painful to do the work. According to the class, separating equilibrium does not only concern the real money, but also adds the personal interest, talent, pain and suffering in cost difference.

I have some views different from Ben Polak’s. Let me introduce mine first. In my opinion, the income can be controlled, but the cost depends on some kinds like individual’s talent and very hard to change. In a normal and ideal society, the income of various occupations should not be too much, it means you almost get the same income, whatever you drive a dump truck or teach students in college. What exactly determines a person to become truck driver or professor is only the individual cost in different two things. In reality, the two incomes of teacher and driver are certainly not the same, but I think the different income is only determined by supply and demand. Here I don’t add this definition in.

Due to income – cost = profit

We can assume the two professions have the same income as 30.

Somebody A, who is very talented and interested in driving (the cost is 2), but not in teaching (the cost is 20), has two choices.

If he drives a dump truck, his profit is 30 – 2 =28

If he teaches the course like game theory in Yale University, his profit is only 30 – 20 =10.

In the class, he has to tolerate the naughty students, and prepare the class everyday. It is too horrible and so much pain and suffering for him. Apparently, 28 > 10, the comparative advantage for A is choosing driving dump truck.

Somebody B, who is very talented and interested in teaching (the cost is 5), but not in driving (the cost is 10), also has two choices.

If he drives a dump truck, his payoff is 30 – 10 =20

If he teaches the course like game theory in Yale University, his payoff is 30 – 5 =25.

Maybe he also has to tolerate the naughty students in the class, and prepare the class everyday, but the pain and suffering in the class is better than driving a dump truck. Apparently, 20 < 25, the comparative advantage for B is choosing teaching in class.

In this ideal society, each person would play their respective roles in their own areas of expertise. In other words, no matter what kind of occupation you do, you get paid well. Which profession you want to do is entirely determined by your talent and interest, and perhaps you will find driving a dump truck is happier than teaching in class.

What if there is too difference during the two income.

Also depends on Benefit – cost = profit.

But this time, the two professions have very quite different paid.

As a driver, he only can get 30.

As a professor, he can get 300.

Somebody A also has two choices. The cost of driving is still 2, because he has the same talent and interest in driving, the cost of teaching is still 20, because he also hates the naughty students very much. But this case is very different from above.

If he drives a dump truck, his profit is 30 – 2 =28

If he teaches the course, his profit is 300 – 20 =280

The result is though he hates teaching very much, but he has to tolerant all of this for the huge profit. Apparently, 28<<280, as a rational person A is going to choose teaching, even though he has lots of pain and suffering in class.

For somebody B also has two choices. The cost of driving is still 10, because he still don’t have much talent and interest in driving, the cost of teaching is still 5.

If he drives a dump truck, his profit is 30 – 10 =20

If he teaches the course, his profit is 300 – 5 =295

Apparently, 20<<295, as a rational person B is going to choose teaching.

Under this abnormal profit-driven, lots of people without teaching talent are going to join the teacher group, only in order to chase the good paid.

Here I agree Ben’s claim that some children have to be left behind, I don’t agree that education increases inequality, because teach students in accordance of their aptitude, it doesn’t mean unfair,. Dr. Ben was born in England, and got Dr. in U.S., so I can understand he cares about the weak side, but I have to note the purpose we establish the rules to distinguish the good from bad is not to distinguish them in their income, but help them to choose the best position. I think if Ben was born in China, he must know the harm of every person not in his position. When you can’t establish a good rule to achieve a separating equilibrium for everyone, people must take the advanced position with the only purpose that is maximize its own payoff. The person who didn’t have ability to be a judge is to be a judge, and the person who didn’t have ability to be a chairman is to be a chairman. The process when all children go to university is the process which is the dilution of elite education. The only result is qualification inflation, and you will see that in the country there are so many people who can get Dr. Degree, but lots of them suffer unemployment. In any period of human development, we all need one or two, like Nicolaus Copernicus or Isaac Newton who has unique point of difference, to lead the world people open a new page, but the public education must be going to make everyone average. Here I admit the disadvantages of elite education, which will make big gap between them, so I think the public education should be replaced by skills education.

Establishment of good rules is more important than whoever join the rules. This point reminds me the event of ConocoPhillips’ Bohai bay oil spill. Here I am not going to blame the United States company ConocoPhillips, because if I were the company, I also didn’t care about oil spill or not. Did any company dare to do that in U.S. or Canada? I don’t think so, the reason is very simple any company is going to be punished to pay huge cost by the law in U.S., but according to Chinese bullshit law, they only have pay 200 thousands Yuan at most. I remember some words by Thomas J. Dunning. “With adequate profit, capital is very bold. A certain 10 percent will ensure its employment anywhere; 20 percent certain will produce eagerness; 50 percent, positive audacity; 100 percent will make it ready to trample on all human laws; 300 percent., and there is not a crime at which it will scruple, nor a risk it will not run, even to the chance of its owner being hanged. ”

Each person or company prefers to maximize its own payoff, whatever from capitalism which is based on private ownership or socialism which under the name of public ownership, but is only for some privileged class self-interest. Every person or company is neutral, there is no good or bad person or company, but only good rules or bad rules.

   The problem of China food safety is very very serious. In previous years, maybe there are some companies didn’t do the bad things, but current, no company is not going to do bad things. Reasons are simple.

When a company A does the legitimate business, he can get income as 100, the cost is 80 and profit is 100-80=20.

When a company B does the illegal business, he also can get income as 100, but the cost is only 30, because he only uses the toxic and hazardous chemical materials, and his profit is 100-30=70.

Even if company A has a conscience and always does the safe food, the company B also can defeat the company A, just through the price war. Moreover, in a country without laws, you can’t rely on a moral or conscience to restrain a person or a company.