Friday, December 27, 2013

Platykurtosis, Bounds, and BATNA

 The "Best" Alternative To a Negotiated Agreement is a little mental fiction useful for considering soap-bubble moral puzzles, floating freely in the atmosphere, undaunted by the cruel shackles of practical gravity. In practice, life is a bit grittier, a bit more uncertain. A "best" alternative is just the #1 spot in a subjective rank ordering of plausible alternatives. For our thought experiments, we rig a guy stumbling through a desert or someone on the verge of being mugged, but actual alternatives out there in the actual world are largely unknown most of the time. If I don't go out to the movies (an odd example for someone with a toddler at home, but please bear with me), what shall I do instead?

If our beloved PJS is like ordinary people... okay, like ordinary people along this particular dimension, she'll be averse to both risk and ambiguity (see Ellsberg, 1961 for the OP, or go here for an overview) and the chore of searching for alternatives will be costly, even in the sweet land of peaches.

With that in mind, what is a BATNA when it's at home? It's a menu with orthogonal elements defined by a multi-dimensional probability distribution. Eek, that sounds gruesome. Fret not, for you're well-equipped to handle it. In your daily routine, you regularly make probabilistic decisions over orthogonal alternatives. Put to the point-blank question, you'd look at me askew if I asked to rank order eating an orange or inflating your basketball. They're not comparable. Yet you still choose between the two without too much fuss. Your mind is built to handle these kinds of decisions, even if categorizing them is daunting in a way that categorizing your favorite shoelaces isn't.

So here's one thing I do with my 2 year old daughter to overcome issues of poorly-defined alternatives. I expressly offer her a false dichotomy. Milly, would you like to watch one Kitty Show then go to bed or just go to bed right away? That way, instead of trying to pluck options from the phlogiston, she's better able to rank-order easily available elements. Until she's able to do this mindhack on her own, I see it as one of my duties as a parent to provide this valuable service for her.

Consider to what extent the Man of System wishes to duplicate my parental efforts for constituents in his jurisdiction.

De novo euvoluntary exchange opportunities arise from the Kirznerian weeds off the trail that's been scribbled on the well-worn menu slate slung like an albatross around our necks. Mind the tradeoff between exploring the platykurtotic edges of the world and Ĺ“conomy of transacting. There ain't no such thing as a free elimination of search options.

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Do you have suggestions on where we could find more examples of this phenomenon?