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| Ability to pay refers to the fact that a person's "willingness to pay" is constrained by their income - that is their actual ability to pay. Thus, using data about willingness to pay may, from a public policy perspective, underestimate the value of a good to a person. |
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| "Taking apart." For the purposes of description (what's happening?); explanation (why does it happen?); prediction (what will happen if...?); and prescription (what should we do?). |
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(Best Alternative to Negotiated Agreement)
In a negotiation, a player will not accept an agreement that is of lesser value than a "fall back" agreement that they have already made. The player can walk away from the current negotiation and still have their BATNA to turn to. |
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| A method of finding reverse cases of conditional probability. |
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A circle in a decision tree. This represents that there is an uncertainty as to what the outcome will be.
Special property: the Probabilities of all outcomes that come out of the same chance node must add up to 1.0. |
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A mixed-motive game where if you think the other player will act rationally, you are tempted to act irrationally. Commitment strategy employed to win.
(3,3) is result if maximin strategies. (2,4) are both stable equilibria. |
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| Individuals acting rationally (in their self-interest) will arrive at irrational social outcomes. The Prisoner's Dilemma is the best example of the Law of Collective Action at work. |
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| "Throwing the steering wheel out the window." This strategy is used in Chicken to convince your opponent that you will not swerve in hopes of forcing your opponent into the equilibrium outcome where they swerve and you receive your highest payoff. |
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| P(A|B) The probability of event "A" occurring given that event "B" has already happened. |
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| A method of evaluating the value of a policy according to monetary values placed on the categories of costs and benefits. The Net Value is found by subtracting the value of costs from the value of benefits. A paradigm based on cost benefit analysis would preduct that only social welfare enhancing policies are enacted. |
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| We use "decision trees" to evaluate a decision based on the probabilities and values we place on the possible outcomes. |
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| A square in a decision tree. This represents a decision that must be made. |
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| Disaggregated Cost-Benefit Analysis |
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| A Cost-Benefit Analysis that looks at how different parties within the same society are affected by a policy. We can generally conclude who the "winners" and "losers" within society are by comparing the costs and benefits that each group incurs. |
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Definition
Used to calculate the NPV. The discount rate reflects the fact that we place a greater value on costs and benefits that happen today than we do on costs and benefits that occur in the future. (Would you rather get $10 today or next week? Would you be indifferent between $10 today and $15 next week?)
Discount rates are generally between 4-8%. A higher discount rate lowers the value of costs and benefits further into the future. A lower discount rate favors costs and benefits that occur closer to the present. |
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Definition
| A strategy is dominant if it does better than all other strategies in at least one circumstance and as well as every other strategy in all circumstances. |
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Definition
| A strategy is dominated if it does worse than another strategy in at least one circumstance and no better than that strategy in all circumstances. |
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Usually associated with a competitive free market in which supply meets demand. Efficiency is usually an argument for private enterprise and against government intervention.
(e.g. if the government is responsible for building a sports complex, political considerations may hinder their hiring the cheapest firms to do the work. While the government intervention may be desirable for other reasons, it is not the most efficient solution.) |
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| Expected Monetary Value. This constitutes the "value" that we expect to receive from a node in decision analysis. |
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| An outcome is in equilibrium if, given that outcome, no party regrets its choice of strategy. |
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| Fairness. Usually an argument for government intervention and a sign of a market failure. We strive for equity and efficiency in markets and society, but often have to give up some of one for more of the other. |
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A case where negative effects "spill over" to third parties not directly involved in the transaction.
Social Cost > Private Cost |
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Definition
A case where positive effects "spill over" to third parties not directly involved in the transaction.
Social Benefits > Private Benefits |
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Definition
The probability that somebody will test negative given they are positive (e.g. the probability that a mammogram will not show signs of breast cancer given that the woman has breast cancer).
P( test neg | pos ) |
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Definition
The probability that somebody will test positive given they are negative (e.g. the probability that an AIDS test will show that somebody is HIV-positive given that person does not have the virus).
P( test pos | neg ) |
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Definition
| An individual, while knowing that all would be better off if everyone acted, has an incentive to free ride, that is, count on others to act. This is because an individual bears the full cost of acting, but reaps only a negligible benefit from his or her action. An individual fares best when everyone else acts, but he or she does not. |
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Definition
In negotiation theory, this can mean framing high or low, meaning whether the first bidder bids very high or very low relative to their reservation values.
In symbolic analysis, Framing refers to the notion that an issue can be portrayed in a certain way that includes or excludes certain elements of the story, thus choosing only to put certain things in the "frame." Framing can also refer to the light in which certain actors are portrayed. An actor could be portrayed as a victim, or as a villain, depending on how the story is "framed." |
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Definition
| To solve a decision tree, you must solve the decision nodes at the end of the branches (according to the player whose decision it is) before solving decision nodes at the left side of the tree. (i.e. players seek to maximize their payoffs based on how they think their opponent will react to their decisions). |
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| The market fails when individual decision-making leads to collectively undesirable outcomes. |
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Definition
| The strategy in a game that maximizes the minimum outcome (guarantees the highest lowest number). |
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| The median voter model is a way to model the preferences of voters along a two-dimentional space. The model assumes that voter will vote for the option closest to their own preferences. As a result, the model predicts the median voter theorem, which states that in a race of two policy makers, both with move towards the policy position preferred by the median voter to maximize their number of votes. The median voter model predicts incrementalist policies that are close the preferences of the median voter. |
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Term
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Definition
NPV is the current value that we place on a project whose life spans a number of years. We use discounting to reflect the fact that current costs and benefits matter more to us than costs and benefits in the future.
NPV = PV(benefits) - PV(costs) |
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| A set of basic assumptions about the way political processes work |
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Definition
| An outcome is pareto efficient if it is not possible to make one party better off without hurting another. |
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Definition
| A situation which makes one player better off while making no other player worse off. |
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Definition
| An outcome is pareto inefficient if one (or more) party can be made better off without hurting another. |
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Definition
| This refers to the people or groups that hold formal or informal positions in the policy making process and who need to be considered as part of any analysis. |
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| Multidisciplinary, applied social science. Analysis of public policies (i.e. gov't actions). Purpose is to inform policy choice. Draw on Economics, Statistics, Political Science, Law, Ethics, Sociology, and Psychology. |
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| Political Analysis (see also politics of interests) |
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Definition
| Political analysis considers the actors, their interets, their souces of power, and the institutions and rules that are part of the poilcy process. Political analysis informs strategies and may constrain policy options. |
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Definition
| A paradigm where the basic units of analysis are individual or groups with interests. The assumption is a that everyone is maximizing their interests (rational choice), but that power is shared and therefore policies emerge out of political bargaining. Phenomena not well explained by the politics of interests are: attention, beliefs, values. |
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Definition
| Pressure group theory considers the power of differnt interests gruops to buy influence with politicians, who trade votes for money. In contrast with the median voter model, this theory predicts policies that favor the interest groups, particularly strong concentrated groups with only diffused opposition. |
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Definition
A famous model in game theory and all of social science. The dilemma is that individuals, acting in their own self interest, arrive at an outcome that is collectively irrational. If the players were able to work together, they could each be better off. Temptation of a player's highest payoff leads to defection. Communication, trust built through playing the game repeatedly, and contracts are methods of gaining cooperation. Click here for example.
(2,2) outcome is result of dominant strategies and maximin strategies employed by both players. It is also a stable equilibrium. |
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Definition
| The chances of an uncertain event occurring. |
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| A public good exhibits jointness of supply (consumption by one person does not diminish consumption by others) and impossibility of exclusion (if procured for one, then procured for all). |
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A public policy is an action by a goverment that affects public welfare.
e.g. laws, rules & regulations, programs & practices, specific policy choices. (at international, national, state, and local levels) |
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Term
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Definition
| Rational choice assumes that an individual chooses the best action according to his or her preferences and the set of actions available. a rational choice framework considers the players, the issue, the interests and the rules. Common limits to rational choice is that it does not explain the sources of interests, or the concept of rational ignorance. It also often does not incorporate altruism or guilt. |
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Definition
| Ignorance is said to be "rational" when the cost of educating oneself about the issue sufficiently to make an informed decision can outweigh any potential benefit one could reasonably expect to gain from that decision, and so it would be irrational to waste time doing so. |
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Definition
| The value (could be a point, a curve, or a line) below which a player will not go when negotiating. For any value below the reservation value, the player will refuse to accept the negotiated agreement. The player is indifferent between every point in their RV and their BATNA. |
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Definition
| Rules and institutions can be formal or informal. Formal rules are for example the constitution, laws, rules of congress, and voting rules more generally. Informal rules can be norms and standards. Rules have important consequences for the policy making process and should inform political analysis. |
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| Members of the society that we are evaluating (in a cost-benefit analysis). In a C-B-A, we only count the costs and benefits that are incurred by parties that have standing. |
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Definition
| The study of how people's beliefs and the framing (see above) influence political will and perceptions of an issue. Symbolic politics considers the narrative of the political story. Socially constructed symbols can be used to engage players and generate political will. Symbolic politics appeals to the fact that humans are rationally ignorant, that they use symbols and identify with symbols, that they seek meaning and identity and tell stories to make meaning of events. In symbolic politics, the central perspective is politics as theater. |
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Definition
In cost-benefit analysis: the value for an unquantified variable at which the project would have an NPV of 0.
In decision analysis: the value for a probability or EMV at which we would be indifferent between the possible choices. |
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| Terminal Node ("Outcome" Node) |
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Definition
| A triangle in decision analysis. This is the last node on any branch. The number that follows it is the value that we place on this outcome, usually an EMV. |
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Definition
Used in iterated Prisoner's Dilemma games. Cooperate in first round, if opponent cooperates, keep cooperating. If opponent defects in first round, (you) defect in the second round. As soon as opponent resumes cooperating, (you) cooperate.
Characteristics of Tit-for-Tat: nice, provokable, forgiving. Never beats another strategy (in one round), but always does well, gets higher total over long run.
Danger: can be exploited by opponent. Can quickly get into a negative cycle with no way of getting out of it (both defecting, no one's going to cooperate). |
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Definition
| Each person bears the whole benefit of allowing their cow to graze on the commons, but only a negligible share of the cost of having an additional cow on that land. Therefore, each individual arrives at a decision that is collectively undesirable. The commons are ruined for all. The key here is individual costs and benefits versus social costs. |
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Definition
In a social cost-benefit analysis, a transaction that is not counted toward the total because it is a cost to one party and a benefit to another party (if both parties have standing).
In a disaggregated cost-benefit analysis, we show the cost and the benefit to the appropriate parties, but there is still no effect on the social value. |
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| A more tangible method of using Bayes' Theorum. We flip trees in order to find reverse cases of conditional probability and to find probabilities that we are not explicitly given in a problem. |
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| The maximum amount that a consumer will pay for a given item or service. |
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| Zone of Possible Agreement. Defined by constraints, including all players' reservation values. Must have joint gains beyond the players' BATNAs or else they wouldn't agree to the deal. |
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