Microeconomics and Industrial Organization
Research Seminar MicroeconomicsHow Jeremy Bentham would defend against self-fulfilling attacksChristoph Schottmüller (University of Copenhagen)
20 April 2017
Christoph Schottmüller (University of Copenhagen, 17:15 - 18:45, Room 0029 (VMP 5)
Abstract
We analyze situations like revolutions and speculative attacks: A defender faces an attack by a group, which can only succeed if enough people participate. The defender can increase his strength but that is costly. We show that if the attackers do not observe the defender’s strength, there is a unique Nash equilibrium in which the defender has almost no strength, and attacks almost never occur. This result is identical to Bentham’s (1787) idea of the “panopticon”. We show how it emerges from the interaction between the attackers’ and the defender’s beliefs, and does not require game-theoretic refinements.