Sargent and Kotlikoff

Topics: Monetary policy, Money, Inflation Pages: 4 (2710 words) Published: November 5, 2014

What is a dynamic game?
In simple word, a dynamic game is where every player gives their best effort to win the game, upon the condition that they follow certain rules and regulations. Although it sounds like in a dynamic game no one knows which team will win, people will see that some of the players missed a few opportunities to score. The main problem with that is when one is inside the game as a player, he or she does not have the outside view and I think having that outside view is very important in real terms, which we call strategy, planning, wisdom, or experience. Therefore, a dynamic game is where each player, both individually and as a team, uses planned strategies and plays with their best efforts to win the game. If we use each of our lives as a dynamic game as the author said, we do not realize how much planning we do everyday, which comes to us naturally. Let’s imagine that you have a great job, but you got an offer from Ali Baba, a no name brand Chinese company; you meet the people and you are not sure, since they have offered you the same salary as you make at your old job, but with 50k Ali Baba shares as a sign in bonus and a 10k share every year until the company goes to IPO. When you talked to executives individually about when the company might go to IPO, they all give you a three to five year horizon, so you joined in 2011. Luckily, as of now, you have struck a goldmine. What happened here is that you had to individually decide, perhaps with some input from your wife (but she really did not care because you will be making same salary), but what made you choose the job at Ali Baba? If someone asks you directly what made you to go to Ali Baba? You will give an answer like “well, it sounded promising”, but in reality, it is that instinct that drives us to win and make us so dynamic. Why should we think of monetary and fiscal policy as dynamic game? Who are the players and what are the strategies? The reason we should think of monetary and...
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