Miscellaneous Lessons of Life
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Game Theory: In a
game with no-cooperation, each rational player tries to maximize their
expected utility, and assumes that all the other players play their
equilibrium strategies. You might be very nice (altruistic) and
consider the other player's good, as well. But in the end, your
utility is mostly determined by your own good. You expect the other
players to cheat, and you cheat as well. Usually, in the end, a
socially sub-optimal result ("cheat/cheat") comes out.
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Infinitely Repeated Game:
Let's say there is an infinitely repeated game (long time-horizon).
The players agree to cooperate, as long as all the players cooperate.
When one player cheats in this period, all the other players cheat in
all the future periods.
Is cooperation in this game
sustainable?
Let's say I'm considering to cheat.
In this period, I gain a lot of utility by cheating. These are my gains
from cheating.
When I cheat, however, all the other
players will start to cheat. I will lose the utility coming from
cooperation in all upcoming periods. This utility, which I expect to lose
in the future, is the costs from cheating. In other words, it is
the value of cooperation.
If my gains from cheating in this
period are more than my costs of cheating in all future periods, I won't
bother to cooperate.
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Be Rational!: If the other
player is cheating, i.e. not showing enough effort to sustain the
cooperation, it means that the costs from cheating are less
than his gains from cheating. This shows, in turn, that he does
not value this cooperation enough. You are a rational player, be so
and implement the rules of the game. Break the cooperation.
If someone does not
show enough effort to sustain a cooperation with you, sadly there is one
simple explanation: The costs of losing you, the value of this cooperation
are not too high for them. If you show that you don't punish
cheating, the costs from cheating, i.e. the value of the cooperation will
plummet. They will keep on cheating and you will keep on losing.
People show effort for something,
only when they expect gains from it, only when it's important for them. We
devote our time and energy only to things that are important to us.
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Finitely Repeated Game:
In a finitely repeated game (short time-horizon), no cooperation is
possible, because there is no way to punish the players for cheating.
In other words, if cooperation will not bring any utility in the
future (no value of cooperation), nobody will bother to
cooperate.
If you know that your relationship
with a person has no future, you will show less effort to sustain it now.
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Morality: Morality
is a way to stop players from playing the best strategy for
themselves. Morality persuades the players to cooperate by increasing
the costs from cheating. These costs take the form of
"reputation costs". You try to be a nice friend, a loyal
wife, devoted mother, or honest business partner, in order to avoid
these reputation costs. Playing another strategy would have been more
profitable without these reputation costs.
In this case, the value of a
relationship is not only a result of the relationship itself, but also a
result of having the good reputation of a "moral, nice person."
Copyright © August 6, 2005
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