Living Economics

Games Are Serious and Ubiquitous
In game-theoretic situations, organization and coordination are needed to ensure the compatibility of individual and group interests.

One of the central beliefs in an ideal free market system is that the single-minded pursuit of self-interest will also promote group interest. But in the real market, the costs and benefits of each option depend upon the simultaneous choices of other individuals. Blind pursuit of self-interest may result in sub-optimal individual and group outcome. Behavior to navigate such game-theoretic situations is called strategic.

A well-known game that highlights the conflict between individual and group interest is the prisonerís dilemma (PD) game. In this game, the dominant strategy for all players is to pursue self-interest. But individually smart choices often lead to collectively dumb solutions.

Even the simple traffic custom of keeping left or keeping right involves a game situation. Indeed, we are playing games more often than we realize.

The prevalence of PD and other binary-choice game situations cries out for extra-market co-ordination and organization. The market may be smart, but is often helpless without government intervention in these tricky game situations. Indeed, the market itself may not have existed without these prior government interventions.

Access Tools
• Advanced Search
• Browse Micro
Comparative advantage (14) Competitive strategy (27) Costs and opportunities (53) Entrepreneurship (3) Externality (29) Free Market Solutions (17) Free Ridership (3) Game Theory (22) Incentives (13) Income Distribution (25) Information (20) Labor Market (24) Marginal optimization (33) Market Demand (17) Market Entry (9) Market Exit (2) Market Intervention (12) Market Structure (29) Market supply (4) Material Flow (2) Miscellaneous (3) Price Discrimination (17) Pricing Strategy (47) Profit maximization (48) Property Rights (43) Regulation (16) Rent Seeking (2) Risk Taking (12) Scarcity (10) Tastes & Preferences (31) Taxes (7) Technology (9) Type of goods (31) What Price Means (28)
• Browse Macro
Boom and Bust (9) Budget Balance (12) Comparative advantage (13) Economic Development (1) Economic Indicators (6) Fiscal Policy (12) Incentives (1) Income and output (25) Income Distribution (5) Labor Market (6) Money and Credit (20) Regulation (5) Rent Seeking (1) Saving (6) Taxes (4) Technology (1) Trade and Foreign Exchange (30)
• Glossary
List All

• Microeconomics Lectures • Macroeconomics Lectures • Economics Cartoons
• Instructor Log in • Sample TOC • Video Tour
• Student Log in
Instructor Log in

Student Log in

Open Menu