Game Theory: Nash Equilibrium
A state in which nobody gains by changing strategy alone; equilibria can be terrible for everyone, and getting out of a bad one requires coordination or a change to the payoffs, not individual virtue.
An everyday example
Every firm in a sector over-discounting at quarter-end because every other firm does.
What it can cost you
Blaming individuals for outcomes that are equilibria; trying to exit a bad equilibrium alone and being punished for it.
Warning signs
- Everyone hates it and everyone keeps doing it.
- Whoever moves first loses.
One thing to do
When a bad pattern persists though everyone dislikes it, look for the equilibrium; change the payoffs or coordinate the move rather than exhorting.
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