Game Theory is applied to everyday life in many situations that don’t have to do with economics. This is the idea of Nash Equilibrium, which is where one makes the best decision for them in consideration of what others are doing. It is as if you are “best-responding” to situations in a self-interested way. Examples of Nash Equilibrium that happen everyday are situations where you choose something for some reason when you have multiple choices. Maybe T Pumps is farther away than Teaspoon, but you know that you’ll enjoy their boba more so you choose to drive an extra twenty minutes.
However, it can definitely become more complicated than this. The Nash Equilibrium shows how acting rationally from an individual’s point of view can lead to undesirable outcomes. There is a very famous case referred to as the prisoner’s dilemma. In the prisoner’s dilemma, individuals acting in their own self-interest will not produce the optimal outcome. They are presented in a situation where both parties are separated and unable to communicate and are forced to choose whether to co-operate with the other or not. It causes an incentive to choose in a way that will create a scenario that is better for the group than the individual.
An economic example of the prisoner’s dilemma is with cartels. Members of a cartel can restrict output in order to keep the price that each receives high enough to get economic rents from their customers in order to collectively enrich themselves. However, each cartel member can individually cheat on the cartel by increasing output to get rents away from other cartel members.
Sources:
http://www.thelondonglobalist.org/how-game-theory-affects-your-everyday-life/
https://www.investopedia.com/terms/p/prisoners-dilemma.asp
This was an interesting blog post. It makes sense that an individual would try and maximize their profit. I wonder if in more tight knit communities where individuals are more interconnected and less independent, if this NASH Equilibrium becomes less relevant.
ReplyDeleteI agree with your points. We deal with game theory type decisions every day to maximize our utility of the things we buy and the things we do. Using your example, the better boba would make the drive and the time worth it, and other instances like paying to see a movie the day it is released in theaters, and buying more expensive clothes or shoes just because they look better or are higher quality.
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