Settling into Nasty Equilibria

Game theory: predicting  player B’s move based on player A's.

Say that Restaurant A chooses to advertise. How does that affect Restaurant B? Restaurant B has to advertise so that Restaurant A doesn't take all the business. Both restaurants may be better off by eliminating the cost of advertising. Yet, both are allured by an initial burst of business that results from advertising before the other, and this sucks both players into a mutually harmful outcome, or equilibrium.

When the marble stops rolling back and forth, it is in equilibrium. We hope to end up in good equilibria.

In Professor Jaren Pope’s economics class, I learned that when tobacco companies were banned from advertising, the profits in the tobacco industry increased. This is because the companies could keep their market shares without spending money on advertising.

Despite this and other anecdotes, banning all advertising may not be beneficial overall, because advertisements can convey useful information and bring to light new products and features. Nevertheless, if a company advertises merely to entice the consumers’ minds before its arch-competitor, then the companies are perhaps stuck in a mutually harmful equilibrium (settling point), in which both must advertise in order to stay alive, even though both prefer that neither advertise.

There are a lot of unfortunate equilibria that we can succumb to individually. For example, you might feel the need at work to dress nicer or work more hours in order to fit in. You'd probably prefer that everybody simultaneously dress less expensively and work fewer hours. Then cheaper or more comfortable attire would not compromise your level of belongingness.

Family relationships can also exhibit adverse equilibria. A husband might feel that if he doesn't yell back at his wife, then she will walk all over him, and she might feel the same towards him, even though both would be happier if there were a little more meekness in their relationship.

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Jesus Christ has the solution: break the bad equilibrium. Turn the other cheek, and don't be afraid to be persecuted for a while. In His plan, the equilibrium will become better for those who keep His commandments. I have seen this in families and other groups that live His gospel of faith and repentance.

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