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Coke vs Pepsi

The article can be found at:

Recently, in class, we have been talking a lot about game theory. We have concentrated on the infamous Prisoner’s dilemma, coordination games, zero-sum games and anti-coordination games. After learning about these various games and their Nash equilibriums, I began seeing games everywhere. While buying a bottle of coke last week, I noticed that there was a sale going on for Pepsi. This week, coke had a discount. Wondering if there was a relationship between the two competing companies, I decided to look online and discovered that pepsi and coke cooperate with each other and invoke market dominance alternately. If they both decide to have a sale on their products at the same time, then neither of them benefit and end up incurring losses for selling their products at a cheaper price. These two companies managed to avoid the Confess-Confess scenario of prisoner’s dilemma. But is it always possible to avoid that true for other games?

The article above puts real life in perspective by ignoring one of the critical assumptions in game theory. It accepts that not all the decisions and strategies we come up with are rational. There are decisions made by participants which lead to no personal benefit and can even cause losses to oneself and to others participating in the game. Andy Morton describes two irrational choices made by two players in a multi-player game a double Morton. If such two stupid moves harm the rest of the players but help each other, then these stupid decisions get positively reinforced.

The article gives an example where player X and Y and you want to play tennis and there are two courts, A (where you can play for 45 mins) and court B (where you can play for 60 minutes).  If you are at a court alone, you don’t get to play and if there are three people, each person gets to play 2/3rds of the total time. The obvious rational answer is to choose court B but if X and Y, under some irrational conscious, decide to choose court A, then you end up not being able to play while X and Y play for 45 minutes each. Such a decision by them reduces the overall benefit for all the players. But in hindsight for them, if they had chosen court B with you, they would have only been able to play 40 (60 X 2/3) minutes each since there would be all three of you playing on the court. This serves as their positive reinforcement.

It is really intriguing how we see irrational decisions made all around us. After all, even when I saw that Pepsi was having a sale, I still bought a bottle of coke.


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September 2011