Answer to Question #37210 in Microeconomics for Sherrie

Question

Give two examples of lack of- commitment problems.
(involves one non-credible promise and one non-credible threat.) Can you find any
commitment device? The examples must be a unique story.

Answer 1

Answer on Question#37210 - Econopmics - Microeconomics.

A non-credible threat is a term used in game theory and economics to describe a threat in a sequential game that a rational player would actually not carry out, because it would not be in his best interest to do so.
For example, suppose person A walks up, carrying a bomb, to another person B. A tells B he will set off the bomb, killing them both, unless B gives him all his money. If A is rational and non-suicidal he stands nothing to gain from setting off the bomb, so his threat cannot be considered credible. On the other hand, a person in the situation of B might give A his money, fearing that A is not rational, or might even be suicidal.
Non-credible promise is, for example, when you promise somebody to provide some service, if you can't or don't want to do it.