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Game theory is best exemplified by a classic hypothetical situation called the Prisoners' Dilemma. In this scenario, two people are arrested for stealing a car. They will each serve 2 years in prison for their crime. The case is air-tight, but the police have reason to suspect that the two prisoners are also responsible for a recent string of ...
The definition of the invisible hand comes from the writings of economist and philosopher Adam Smith. In The Theory of Moral Sentiments, Smith discussed an unseen force that naturally guided the flow of a free and open market. These ideas were later expounded upon in Smith’s most important book, The Wealth of Nations.
In economics, a Nash equilibrium occurs when two companies in a duopoly react to each other's production changes until their prices reach an equilibrium. The term is named after John Nash, who is an American mathematician who won the Nobel Prize in Economics in 1994. The 2001 film A Beautiful Mind chronicles his life and struggles.
The basic principle of trickle down theory is that if top income earners have more money, they will invest their money in businesses that will produce goods at lower prices and employ more people. The principle tenet of the theory is that economic growth flows from the top to the bottom. The basic policies promoted by trickle down theory have ...
The idea is simple: when the stock goes above the top of the box, buy the stock; when the stock goes below the floor of the box, sell it. A new box forms when the stock hits a third 52-week high, with the second 52-week high becoming the floor. In this way, boxes can pile up. To see some examples of Darvas box theory, click here.
Market segmentation theory suggests that it is impossible to predict future interest rate outcomes based on short-term interest rates. Moreover, long-term interest rates (for example, the rate of the 30-year Treasury bond) only express market expectations and do not indicate that a definite outcome will occur. Market segmentation theory posits ...
JIC is a traditional inventory-management system referred to as a 'push' system, whereas JIT is often referred to as a 'pull' system. JIC is helpful because it avoids a crisis if demand is higher than expected. In order to employ JIC effectively, however, a company must still forecast demand. JIC also allows companies to offer more options ...
The Super Bowl Indicator is also an example of the difference between correlation and causation. That is, just because two things are correlated does not mean one causes the other. In this case, even if stock prices were correlated with the famous NFC vs. AFC game, the winner is not the cause of the change in stock prices. The Super Bowl ...
Price leadership is common in oligopolies, such as the airline industry, whereby a price leader sets the price and all the other competitors feel compelled to lower their prices to match. The trick, however, is that a fine line exists between collusion (which is illegal), predatory pricing (also illegal) and price leadership -- especially if ...
In 1776, Adam Smith argued for free trade in The Wealth of Nations, which was soon followed by the revolt of the British colonies in North America. This influx of democracy and free trade led to the demise of mercantilism. Although mercantilism lasted into the 19th century, it became a lesser alternative to the free trade policies we know today.