When will the market rebel against the deadlock?

There is a mother and a daughter, and the mother wants the daughter to clean her room.  Cleaning the room doesn’t take long, but it does involve the daughter getting out of bed at some positive cost.

The mother can come and threaten to beat the daughter with a broomstick.  That will induce a rapid-enough cleaning (or a good enough start), but the mother would prefer to achieve the end of a clean room without such drastic measures.  That said, the mother will wield the broomstick if that is the only means of getting the room cleaned.  The daughter has a slight preference not to be threatened with the broomstick, ceteris paribus.

Time passes and for a while nothing happens.  What is the equilibrium?

By construction of the example, I’ve ruled out “the mother comes with the broomstick right away” and “the daughter cleans up the room right away.”  So it cannot be common knowledge who will yield first; if it were common knowledge, the cleaning with or without broomstick threat already would have occurred.

The daughter is Congress.  The mother is an anthromorphized set of bond and equity markets.

Under EMH, the next move of “the mother: is generally unpredictable, including by the daughter.  And if the daughter cannot predict her mother’s behavior, what should the mother infer about the daughter’s future behavior?

Does common knowledge arrive?  Does a trembling hand eventually force an outcome?  Which variable is affected by the mere passage of time?  Does it depend on differential discount rates?

There are other ways to think about this.


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