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ISU ECON 362 - Socia lContract

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The Social ContractSlide 2Slide 3Slide 4Slide 5Slide 6Slide 7Slide 8Slide 9Slide 10Slide 11Slide 12Slide 13Slide 14Slide 15Slide 16Slide 17Slide 18Slide 19Slide 20Slide 21Slide 22Slide 23Slide 24Slide 25Slide 26Slide 27Slide 28Slide 29Slide 30Slide 31Slide 32Slide 33Slide 34Slide 35Slide 36Slide 37Slide 38Slide 39Slide 40Slide 41Slide 42Slide 43Slide 44Slide 45Slide 46Slide 47The Social ContractThomas HobbesThe LeviathanSocial Contract TheoryLife in a State of NatureNo laws or government.Hobbes calls this a “state of WAR”.No rules of morality.Everyone for themselves.Anyone has the ability to kill anyone.“Whatsoever therefore is consequent to a time of war, where every man is enemy to every man, the same consequent to the time wherein men live without other security than what their own strength and their own invention shall furnish them withal.”The Leviathan“In such condition there is no place for industry, because the fruit thereof is uncertain: and consequently no culture of the earth; no navigation, nor use of the commodities that may be imported by sea; no commodious building; no instruments of moving and removing such things as require much force; no knowledge of the face of the earth; no account of time; no arts; no letters; no society; and which is worst of all, continual fear, and danger of violent death; and the life of man, solitary, poor, nasty, brutish, and short.”Why the state of nature is badNo agricultureNo industryNo seafaringNo societyNo pleasureContinual FearWhy does this occur?There is equality of need.There is scarcity of resources.There is essential equality of human power.There is limited altruism.First Law of Nature“that every man, ought to endeavour peace, as far as he has hope of obtaining it; and when he cannot obtain it, that he may seek and use, all helps, and advantages of war.”Seek peace when you can.“Otherwise, take advantage of war to the extent you can.”Second Law of NatureWhen other people are willing to do the same thing, you should treat others as you would want to be treated, for the sake of peace and your own defense.“that a man be willing, when others are so too, as far-forth, as for peace, and defense of himself he shall think it necessary, to lay down this right to all things; and be contented with so much liberty against other men, as he would allow other men against himself.”Contract Law and MoralityEnter into a covenant with other people.This is the basis of and reason for acting morally.Explains the foundations of contracts: you both agree to give up some liberties.In a state of nature, “upon any reasonable suspicion” the contract is void. (Leviathan, 1.14.18)Third Law of Nature“that men perform their covenants made”“INJUSTICE is no other than the notperformance of covenant.”MORALITY IS BASED ON CONTRACTS.Self Interest (Egoism) Leads to MoralityIt is in your interest to leave a state of nature.The only way to do that is to give up some of your liberty by entering into a contract to treat others as you would be treated with other people who agree to do the same.Self Interest (Egoism) Leads to MoralityOne result is society as we know it including a governing body and moral rules.The only way to secure this contract is for everyone to be subject to some coercive power.Another result is that it is irrational to break the rules.The LeviathanThe “coercive power”Must be stronger thanany one person or anygroup of people“And covenantswithout the swords are but words.”The Prisoner’s DilemmaTwo criminalsAl “Scarface” CaponeJack “Machine Gun” McGurnMajor crimeMurder of 7 people on St. Valentine’s DayMinimal evidence connecting them to massacre.Plenty of evidence linking them to bootlegging.Police interrogate them in separate roomsPolice offer them each a deal.Finger the other guy, and walk if he don’t talk.You both stay mum, we lock the both of youup for a year for bootlegging.You both talk, its 20 years in the slammer.But if he talks and you give us the silent treatment,its 40 years at hard labor for you.ScarfaceStay MumMachine GunAl gets 20Jack gets 20CollaborateStay MumCollaborateAl walksJack gets 40Al gets 40Jack walksAl gets 1Jack gets 1Rules of the gameStructure of a GameWho moves when -- at the same timeWhat do players know and when -- nothingWhat actions are available at various pointsCollaborateStay mumOutcomesAl gets 20Jack gets 20ScarfaceStay MumMachine GunCollaborateStay MumCollaborateAl walksJack gets 40Al gets 40Jack walksAl gets 1Jack gets 1Structure of a GamePayoffsWhat are the payoffs with each outcome?How do the player's rank the outcomes?Years in the slammer for the player Players prefer less years in the penBest response for Al “Scarface” CaponeWhat if Jack stays mum?Stay MumMachine GunScarfaceStay MumCollaborateAl walksJack gets 40Al gets 1Jack gets 1Jack stays mumAl gets the least years by collaborating.What if Jack collaborates?ScarfaceStay MumCollaborateJack collaboratesMachine GunCollaborateAl gets 20Jack gets 20Al gets 40Jack walksAl has a dominant strategy for this game.Al sells out and collaborates.Al gets the least years by collaborating.Best response for “Machine Gun” McGurnWhat if Al stays mum?ScarfaceStay MumAl stays mumAl gets 40Jack walksAl gets 1Jack gets 1Machine GunStay MumCollaborateJack gets the least years by collaborating.What if Al collaborates?Al collaboratesMachine GunStay MumCollaborateScarfaceCollaborateAl gets 20Jack gets 20Al walksJack gets 40Jack gets the least years by collaborating.Jack has a dominant strategy for this game.Jack sells out and collaborates.In factBoth Al and Jack sell out and get 20 years.Dominant strategiesA strategy that is best for a player, no matterwhat strategy is chosen by the competing playeris called a dominant strategy.A dominant strategy is a strategy that is best for aplayer regardless of the strategy of the other player.If each player in a game has a dominant strategy,it is easy to find the equilibrium of the game.If a player has a dominant strategy in a game, wecan assume that the player will play that strategy.It is simply the outcome that occurs when eachplayer plays the dominant strategy.Equilibrium in the prisoner’s dilemmaAl and Jack get 20 yearsIf both stayed mum, each would get 1 yearCollusion and/or CooperationEach will get one yearAl and Jack will both stay mumBut this won’t work in the long runWhy?If Jack chooses stay mum, Hank collaboratesAnd vice versaSo what do we need to get the best


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ISU ECON 362 - Socia lContract

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