Economics Amplified: Becker Friedman Institute Lecture

Welcome to the Economics Amplified series by the Becker Friedman Institute, introducing Hugo Sonnenschein, a notable contributor to the University of Chicago's development.

Introduction to Hugo Sonnenschein

• Career Overview:
  • Undergraduate at University of Rochester; influenced by Lionel McKenzie.
  • PhD from Purdue University.
  • Academic journey includes Minnesota, UMass, Northwestern, Princeton.
  • Former President of the University of Chicago.
• Leadership Lessons:
  • Adaptability in leadership.
  • Importance of making hard choices.
  • His presidency saw significant changes in the university's demographic structure.

University of Chicago's Values

• Strong emphasis on maintaining core values.
• Balancing academic excellence with financial imperatives.
• Importance of undergraduate growth.

Lecture Themes

• Informal talk with focus on basics of economic thought and game theory.
• Incorporation of slides from research lectures.

Key Concepts in Economics

• Invisible Hand by Adam Smith:
  • Describes self-interest as a driver of societal wealth.
  • Critique: Does not address income distribution and social inequality.
• Behavioral Economics:
  • Questions the assumption that individuals know what's best for them.
  • Examples include misguidance by authoritative figures and corporations.

Game Theory and Negotiation

• Prisoner's Dilemma:
  • Illustration of self-interest not leading to social optimal outcomes.
• Bargaining Theory:
  • Introduced by Stahl and elaborated by Ariel Rubinstein.
  • Addressed negotiation processes and outcomes.
• Nash Equilibrium:
  • Explores situations where individual strategies lead to suboptimal group outcomes.

Asymmetric Information

• Meyerson-Satterthwaite Theorem:
  • Demonstrates inefficiencies in bargaining with private information.
  • Applied to understand labor strikes and market exchanges.

Mechanism Design

• Discusses strategies to maximize surplus extraction in transactions.

Negotiation in Real World

• Multi-dimensional contract negotiations as seen in academia and industry.
• Importance of identifying valuable and inexpensive contract dimensions.

Conclusion

• Encouragement to engage critically with current economic theories.
• Emphasis on economics as a tool to address unsolved societal problems.

Recommendations for Further Reading

• Books by Richard Thaler: "Misbehaving" and "Nudge".
• "Introduction to Game Theory" by Osborne.
• "Game Theory for Applied Economists" by Gibbons.

Closing Remarks: Emphasized the significance of broader learning and critical thinking in economics, encouraging students to challenge established theories and explore interdisciplinary connections.