Knowing how well your football team can pass or run, and how well the other team can defend against each choice, your decision as the coach is whether to pass or to run.
Decisions made case by case can lead to undesirable results overall.
These problems arise because myopic decision-makers fail to look ahead and see the whole picture.
Strategists who foresee such consequences will use their bargaining power while it exists, namely, before they get into the commitment.
Behind every good scheme to encourage cooperation is usually some mechanism to punish cheaters.
Next we ask how severe a punishment should be. Most people’s instinctive feeling is that it should “fit the crime.” But that may not be big enough to deter cheating. The surest way to deter cheating is to make the punishment as big as possible. Since the punishment threat succeeds in sustaining cooperation, it should not matter how dire it is. The fear keeps everyone from defecting, hence the breakdown never actually occurs and its cost is irrelevant.
In general, where there is a will, there is a way to make your strategy credible.
To avoid the unraveling of trust, there should be no clear final step. As long as there remains a chance of continued business, it will never be worthwhile to cheat. So when a shady character tells you this will be his last deal before retiring, be especially cautious.
The invisible hand guides people to an optimal commuting pattern only when the good “commuting time” is priced. With the profit-maximizing toll on the bridge, time really is money. Those commuters who ride BART are selling time to those who use the bridge.
The important insight from game theory is to recognize early on the potential for future lock-in—once one option has enough of a head start, superior technological alternatives may never get the chance to develop. Thus there is a potentially great payoff in the early stages from spending more time figuring out not only what technology meets today’s constraints, but also what options will be the best for the future.
The key is to get a critical mass of drivers obeying the speed limit. Thus a short phase of extremely strict enforcement and harsh penalties can change the behavior of enough drivers to generate the momentum toward full compliance. The equilibrium moves from one extreme (where everyone speeds) to the other (where everyone complies). With the new equilibrium, the police can cut back on enforcement, and the compliance behavior is self-sustaining.
More generally, what this suggests is that short but intense enforcement can be significantly more effective than the same total effort applied at a more moderate level for a longer time.
Racial tolerance is not a matter of black or white; there are shades of gray.
When actions are taken in a piecemeal way, each step of the way can appear attractive to the vast majority of decision-makers. But the end is worse than the beginning for everyone. The reason is that voting ignores the intensity of preferences.
With a package deal, everyone knows where he will end up. A series of small steps can look attractive at first, but one unfavorable move can more than wipe out the entire series of gains.
The point is that when other people’s perception of your ability matters, it might be better for you to do things that increase your chance of failing in order to reduce its consequence. People who apply to Harvard instead of the local college, and ask the most popular student for a prom date instead of a more realistic prospect, are following such strategies.
Although perverse and counterproductive, there is no invisible hand to protect you in games against yourself.
Goods ranging from common courtesy to clean air are frequently unpriced, so there is no invisible hand to guide selfish behavior.
By acting first, small foundations exercise more influence over which secondary priorities get funded. Large foundations and especially the federal government are then left to fund the most pressing needs.
The general idea is that the better a party can do by itself in the absence of an agreement, the higher will be its share of the pie that is the subject of the bargaining.
The incentive scheme alters the strategic environment for the hardware firm to the point where its moral is “Neither an inflator nor a deflator be.”
The idea of paying the cost you impose on others is useful in many contexts. It even helps us understand bidding strategy in auctions.
Thus, your chances of survival depend on not only your own ability but also whom you threaten. A weak player who threatens no one may end up surviving if the stronger players kill each other off.