Game Theory

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Executive pay and the Prisoner's Dilemma

Excessive executive salaries are in the news, especially with the moves by the president and congress to limit salaries in companies receiving bail-out money. Devilstower at Daily Kos writes that CEO pay is the problem - echoing comments by Roger Lowenstein in an NPR interview. The basic argument is that, when somebody makes a lifetime's worth of money in a year or two, they have little incentive to do things that are of long-term value. Actions that are high-risk and of short-term benefit are taken regardless of possible long-term calamities they may cause.

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