The Farmers' Irrigation Dilemma
Two neighboring farmers share a water source. They can each choose to either contribute to the upkeep of a shared, efficient irrigation system or use their own less-efficient individual pumps. Contributing is costly for each farmer individually, but if both contribute, they both get a much higher crop yield than if they both use their own pumps. However, if only one farmer contributes, the system doesn't work well, and the contributor bears the cost while getting little benefit, making them worse off than if they had just used their own pump. The non-contributor gets some benefit from the other's effort without paying the cost. In this situation, explain why the farmers might end up with a worse outcome for both of them, even though a better mutual outcome is possible.
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Economics
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Introduction to Microeconomics Course
Social Science
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CORE Econ
Ch.4 Strategic interactions and social dilemmas - The Economy 2.0 Microeconomics @ CORE Econ
The Economy 2.0 Microeconomics @ CORE Econ
Analysis in Bloom's Taxonomy
Cognitive Psychology
Psychology
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Interdisciplinary Applications of Game Theory
Best Response (in Game Theory)
Equilibrium (in a Model)
Setup for the Adam and Bella Entertainment Choice Game
Advancement of Game Theory through Nash's Work
Strategic Interaction
Enhancing Game-Theoretic Models to Account for Cooperative Behavior
Self-Interest in Economic Models
Homo Economicus
Foundational Importance of Game Theory and Nash Equilibrium for Economic Modeling
Definition of Social Dilemma
Definition of Social Interaction
John Nash
Analyze each of the following scenarios. Match each scenario with the type of social outcome that is most likely to result from the self-interested actions of the individuals involved.
Strategic Business Decisions
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Analyzing US Financial Fragility
Two competing coffee shops, 'The Daily Grind' and 'Espresso Yourself', are located across the street from each other. Each must independently decide whether to lower their prices. The table below shows the daily profit each shop can expect based on their combined decisions. The first number in each cell is the profit for The Daily Grind, and the second is for Espresso Yourself.
Espresso Yourself: Keep Price High Espresso Yourself: Lower Price The Daily Grind: Keep Price High $500, $500 $200, $600 The Daily Grind: Lower Price $600, $200 $300, $300 Assuming both shops act in their own immediate self-interest to maximize their own profit, what is the most likely outcome of this situation?
The Farmers' Irrigation Dilemma
A social interaction, where each individual's decisions affect the outcomes of others, will always result in a worse outcome for everyone involved when each person acts solely in their own self-interest.
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