Economists With Trembling Hands

June 18, 2010.
Posted by Jay Livingston

Economist Bryan Caplan blogs today about “trembling hand perfect equilibrium,” a concept he learned as an economics grad student and which he now finds “genuinely enlightening.”
It explains, for example, why imposing harsh punishments for small infractions isn't nearly as smart as it seems . . . The trembling hands concept also explains the value of trying to exceed others’ expectations. In the real world, it’s not smart to apply the minimum acceptable level of effort, or pay others the smallest amount you can get away with.
Doing your best work, paying people decently, and imposing rational penalties for infractions – all possible only if you understand “trembling hand perfect equilibrium,” at least if you’re an economist.

And they say that sociology is the discipline that takes common sense and packages it in fancy, abstruse language.


maxliving said...

Economics has given us one of the greatest (IMHO) terms used in social science academia: the "adverse selection death spiral."

Jay Livingston said...

Wasn't that the act at the circus with the motorcycles inside the sphere?

Sam R. said...

That's disappointing. I was hoping that the "trembling hands" metaphor was going to refer to situations where those responsible for assigning punishment avoid punishing at all because the punishment is too high.

So, for example, a high school teacher helps a student avoid a no-tolerance weapons policy because, even though they would have been happy to impose a suspension, their only alternatives are extreme punishment or zero punishment.

Also, what about the Psych 101 argument that incremental punishments are ineffective at deterring behavior?

This doesn't seem that enlightening to me.

But, then again, I'm no economist. Maybe the bar is a little lower.