Economics
7 breaks
Prices, incentives and why markets do what they do.
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Why a healthy bank can still collapse: Diamond and Dybvig's bank run
A bank keeps only a slice of your deposit as cash and lends the rest for years, so it quietly bets that almost nobody asks for their money at once. Diamond and…
Why two ice-cream vendors end up side by side: Hotelling's beach
Two ice-cream vendors share a long beach, and every swimmer walks to the nearer cart. Where should each one park? Drag the carts and watch the dividing line…
Why a free shortcut can make everyone's commute longer: Braess's paradox
Build a brand-new road and every commute gets longer. In a town of 4,000 drivers, two routes each take 65 minutes. Add a free shortcut and each driver…
Why mild preferences can build a segregated town: Schelling's chequerboard
Nobody in this town wants it split into blue and orange districts. Each household only asks that a few of its neighbours look like it. Yet run the rule and the…
Why rival ice-cream carts end up side by side: Hotelling's beach
Put two ice-cream carts on a long beach and each one is tempted to creep toward the other, because standing next to a rival steals customers without losing…
Why people bid more than a dollar for a dollar: Shubik's escalation trap
Auction a dollar bill with one twist: the second-highest bidder pays their bid too. It sounds harmless, yet in 1971 economist Martin Shubik reported that…
Why shared fish, fields and water get used up, and how some places don't
When something is shared and nobody controls it, taking a bit more is always worth it for you. You keep the whole gain; the damage is split among everyone…