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Game Theory as it Applies to High Competition Industries and Areas

The following article discusses an interesting relationship between external competition and how that affects “player strategy” and Nash equilibrium. According to the author of the piece, those who function within a more competitive and high stakes environment tend to elicit behavior that benefits others at higher rates. This conclusion was first derived from a comparative analysis of manufacturing industries and the finding that higher levels of competition lead to more communal and considerate behavior. Much of this stems from a heightened sense of trust in these sorts of high-stress situations. Another aspect of this sort of behavior comes from that fact that acts such as collaboration, cooperation, and sharing lead to more efficiency in a group setting and can in some cases be a competitive advantage that helps a firm or company outperform others. In order to test this, researchers experimented in a traditional environment and a high competition one, giving each partner 10 euros to either keep or place into a community pool. In the traditional environment, the results tended more towards the expected Nash Equilibrium in which players, over time, made fewer contributions to the community pool. In the high competition environment, they found that the community pool depended on each other and as a result elicited high levels of contribution and mutual trust.

This article and its accompanying experiment digs deeper into the concept of Nash Equilibrium, which we discussed extensively in class, but also explores its nuances from a behavioral standpoint. I enjoyed this article because it took the classroom concepts of Nash Equilibrium, dominant strategy, and game theory and applied them in a real-world setting. Beyond just a simple game that occurs without external variables, this articles discusses the ways in which extrinsic and environmental factors can heavily impact the way in which people act and their decisions. It is interesting to see that slight changes in environmental circumstances can alter choices made. In this case, it seems that people tend to exhibit more prosocial behavior when in situations of competition due to reciprocal needs and dependence on the other for a better overall outcome. This then leads to greater trust placed on other parties. Thus, it was interesting to see that while the low competition environment encouraged self-interested decision making, high competition environments encouraged selfless behavior culminating in a greater welfare overall.


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September 2018