December 11, 2007

Counterfeit Bill Paradox

In China, many Y100 bills are counterfeit and people in China are careful to inspect every Y100 bill before accepting it. Let's say someone pays you with a suspicious-looking Y100 bill that you think might be counterfeit. What matters most is whether other people will accept the bill when you use it to pay them regardless of whether it's truly counterfeit. What's a good way to determine if someone else would accept the bill? Whether or not you would accept the bill. If you accept the bill, then most other people (thinking like you) would accept the bill as well. If you reject it, then most other people would reject it. In short, your decision to accept or reject the Y100 bill justifies itself.

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