Nash Equilibrium in Real Life
Source: https://thelondonglobalist.org/how-game-theory-affects-your-everyday-life/
This article describes game theory and some famous applications in the real world. The author describes how Nash Equilibrium is when each individual in the game “best-responds” to the other individual’s strategies. Thus, every person is looking out for their own best interests and self benefit, something that we all collectively do on a daily basis. Why utilize a strategy that has a worse payoff for ourselves than another strategy where we gain more? The author illustrates the famous example of the prisoner’s dilemma. In this situation, the Nash Equilibrium is for both prisoners to confess, and spend five years, or however many in the context of the problem, in prison. The best outcome for both of them, however, is to not confess in order to spend less time in jail: one year in this case. However, since both are acting in their own personal best interests, it does not result in a social optimum. The author also illustrates these ideas in the example of performancing enhancing drugs and CO2 emissions. In the case of performancing enhancing drugs, it is the social optimum for athletes to not do drugs, since they risk getting caught. However, since every athlete wants to have a leg up against the others, they will risk getting caught in order to potentially obtain this higher payoff. In the case of CO2 emissions, it is the social optimum to lower emissions for the greater good of the planet; however, many companies chose not to in order to maximize production and profits of their firm.
It is interesting to see how intertwined Nash Equilibrium is with everyday life. These few examples are just the beginning of a massive array of phenomena controlled by this theory. The fundamental basis of human “rationality” is enough to satisfy that these equilibrium conditions will hold. Everyday, we make decisions solely based on our own personal payoff for the majority of the time. Of course there are cases in which we look out for others, such as family and friends, but, for the most part, human decisions are driven by our personal wants. Thus, when it comes to things such as CO2 emissions, we are at a standstill. The companies want to make the most profit and be the most successful they could possibly be. Most individuals do not want to pay too much for gas; thus they indirectly vouch for CO2 emissions by buying the cheap gas and driving places when they can. On the other hand, environmentally conscious individuals chose to limit their carbon footprint; thus, they act in their best interests of conserving the environment. Our society needs to balance these factors and find an equilibrium that will both lower CO2 emissions and allow individuals to use their daily goods. This is a huge challenge that continues to persist as the world grows bigger in size, and carbon emissions only seem to increase.