Just as GameStop fever was dying, reddit and the collective internet switched to cryptocurrency. Specifically, they descended on Dogecoin, the Monopoly Money of cryptocurrency. But Dogecoin isn’t the only crypto going to the moon: both Bitcoin and Ethereum have recently seen all-time highs.
The price movements, however, are not the reason why I’m wondering if crypto’s time has come. The most bizarre crypto moment of this week was seeing Logan Paul offer his own non-fungible token (NFT) through the blockchain company Bondly. An NFT is a digital collectible, like an online version of a Pokemon card. Historically, anything digital could be easily copied, so there was no way to create digital collectibles. Blockchain prevents the duplication of digital goods, so it is creating a new market for NFTs. That one of the biggest YouTubers is partnering with a blockchain company makes me wonder if we’re entering a new phase of crypto.
Crypto is one of the most exciting areas of economics right now. While many of its features relate to problems economists have been studying for decades, overall it feels like the most significant and novel economic development of our time.
If you live in the U.S., you, like me, probably underrate crypto. We have stable monetary policy and good access to financial institutions. That’s not the case in most parts of the world. In many countries, inflation rapidly erodes value, and banks are an unrealistic dream. Crypto could solve problems that Americans can’t even appreciate.
Anyway, if you’re looking for an interesting field where you can develop expertise, I’d recommend exploring cryptoeconomics. It’s something I’m spending a few minutes on every week.
MrBeast and Game Theory
This week’s video features an economics analysis of MrBeast’s challenges. He’s famous for his last-to-leave challenges, and now he’s opening the competition to millions of people with his Finger on the App 2.
These challenges in game theory are called a War of Attrition. Such games are a bit tricky, since often once you start one there’s no good strategy to play other than to somehow convince your opponent you will stay in longer than they will. An example is the GameStop short squeeze, where retail traders were trying to convince the hedge funds that they could hold longer than the funds could remain solvent. I usually run a war of attrition in my class with a dollar auction (watch my video here).
Check out the video if you want to see me calculate the expected value of the game (I’m pretty proud that I was able to put an actual number to it).
War of Attrition: New York edition
Speaking of a war of attrition, here’s an example that I found this last week. Back in 2004, some real estate developers bought a New York property with the intent to transform it into exclusive, high-end apartments. Well four of the residents had contracts that prevented them from being evicted without being bought out. All four held out for big payouts, but the one who held out longest (i.e. won the war of attrition) got $17 million. In contract theory, this is called a hold-up problem and is critical to incomplete contracts (like when people lost $125,000 betting on Harry Potter’s ending). You can read the story of the war in the book House of Outrageous Fortune.
Children Economics
Since I mentioned both Harry Potter and books, I should mention that I read The Ickabog this weekend. It’s J.K. Rowling’s new children’s book, and it has a lot of good economics in it. There are issues of public choice theory, the principal-agent problem, optimal taxation, and incentives all around. I sped through it to get a feeling for the book, and I enjoyed it enough that I’ll probably read it to my kids in a few weeks (once we finish Harry Potter and the Chamber of Secrets, of course).
Finally
This has nothing to do with economics, but DANG, is WandaVision good or what?