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Economic Crime: Theory - Game Theory

people decisions poor choices

A related extension of the neoclassical approach involves integrating it with ideas first developed by John von Neumann and Oscar Morgenstern (1944) in their work on game theory. The neoclassical approach suggests a world in which individual people gather information and make choices and decisions independently of others; yet, von Neumann and Morgenstern argue that people's choices are influenced by the decisions of others and that people consider these influences when they make their decisions. In other words, people's choices are interdependent, not independent. Von Neumann and Morgenstern's work on game theory, and subsequent research in this tradition, has developed this insight, revealing that people use various strategies when making decisions and that part of a strategy is anticipating the decisions of others.

Game theory research has several implications for crime. Bruce Bueno de Mesquita and Lawrence Cohen use game theory to explore how the decision to offend is part of a sequential process that involves various government decisions on the allocation of resources. Game theory logic suggests that governments that support economic inequality can sometimes encourage the poor to commit economic crimes even when the poor and the rich have the same preferences for legal behavior. Exploitative or unfair governments can also turn nonoffenders into criminals by destroying their confidence that the government will treat them fairly. Moreover, government policies that increase punishment and short-term transfer payments (e.g., welfare) will often have little effect on reducing economic crime among the poor. In contrast, policies that raise people's standard of living and their belief in a system's fairness will more often discourage them from choosing crime. Importantly, Bueno de Mesquita and Cohen note that game theory logic predicts that if people are abysmally poor, no increase in their trust in society's fairness will be sufficient incentive for them to choose legal over illegal behavior.

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