The Econophysics Blog

This blog is dedicated to exploring the application of quantiative tools from mathematics, physics, and other natural sciences to issues in finance, economics, and the social sciences. The focus of this blog will be on tools, methodology, and logic. This blog will also occasionally delve into philosophical issues surrounding quantitative finance and quantitative social science.

Sunday, September 17, 2006

The Undercover Economist in the Dragons' Den

In his regular column for the Financial Times (UK), Tim Hartford -- the author of The Undercover Economist -- discusses a BBC reality show, Dragons' Den, that combines American Idol with investing. The article, The Undercover Economist: Shot down in flames (Sep. 15, 2006), analyzes the show -- particularly the dynamics between the hopeful entrepreneurs and the venture capitalist judges -- by applying (and related topics like the ) from economics and . I found the observations about the information revelation that takes place in auctions -- which Dragons' Den essentially is -- to be particularly interesting:
The den is, in fact, an auction room by another name. Dragons bid against each other, and against the unknown outside offers that the business may receive, and they should be aware that every bid reveals information to the other dragons and the entrepreneur. This is the point of an auction: the seller gives buyers an incentive to reveal, through their bids, what they know about the prize’s value. The auction also, rather neatly, collects money on that basis.
I don't know if you can watch the show in the US (either on BBC America or PBS). Considering the fact that many American reality shows had there start in the UK or in Continental Europe (including American Idol), I wouldn't be shocked if some version of this show was adapted for the US.

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