Seeing that my 9-year old was reading The Mysterious Benedict Society and the Prisoner's Dilemma I thought this was an excellent opportunity to teach my kids some game theory. Thus, I explained the prisoner's dilemma and offered the 9 and 12 year old the opportunity to cheat or cooperate with substantial cash payoffs.
My kids are competitive so I didn't foresee any problems. Yet the kids kept cooperating. Did they not understand the game? Alas, it soon became clear that they understood all too well. Silly me. I had neglected to take into account that the opportunity to take money from Daddy greatly raised the payoff to (cooperate, cooperate). (As an aside this did increase somewhat my belief in Steve Landsburg's unusual interpretation of some experimental games).
Ok, I was losing money but no problem, I resolved to change the game on the fly greatly increasing the payoff to cheat. Only I miscalculated. In my eagerness to drive the kids to the (cheat, cheat) equilibrium I raised the payoff to cheat so high that they did best by (cheat, cooperate) followed by a side-payment to split the spoils. Of course the kids saw that right away. Daddy loses again.
Having satisfied myself that the kids understood strategic thinking, unfortunately even better than me, I ended the game. But now I was a substantial sum of money in the hole. What to do? I resolved to auction off some money with an all-pay auction. Success! As usual, I managed to sell a dollar for well over a dollar. Even the kids didn't see their way past that one.
Having regained some dignity I sent the kids to bed. Still the kids were up on net. What could I do? Finally, after some thought I figured out how I could rebalance our portfolios and at the same time teach the kids all about Ricardian Equivalence and (appropriately) the Rotten Kid Theorem. All I had to do was give them less for Christmas. Daddy wins!
(Well, at least until I explained my clever idea to my wife. Nuff said.)