Socially optimal solution game theory

Here, the intersection does not have traffic lights. The North-South traffic has stopped. Cars are accumulating in the North-South road, and so Cars 1, 2, 3 and 4 are not going anywhere. Now, 3 can choose to leave a gap for 5 to pass through. The game here is between Cars 3 and 4. If Car 3 feared that Car 4 might try to overtake by taking advantage of the gap, it would move forward and block the intersection.

So, in this case, an expectation of unfairness could lead to a solution that is not socially optimal. However, if people considered each other to be fair , there could be a socially optimal solution that is better than the Nash equilibrium. No traffic lights. There are two lanes going in the same direction South to North.

Traffic is stalled in the North-South direction Cars 3, 4, 8 and 9 are going nowhere. Cars 3 and 8 have the option of leaving a channel open for Car 5 to pass through. Again, that would be the Nash equilibrium. While we can understand why it makes business sense for companies to do this, there are many situations where clustering competitors really hurt society. For example, food deserts are areas that have limited access to affordable and nutritious food.

One of the main reasons food deserts exist is because supermarkets are often located very close to each other. Certain areas are left without sources for healthy food because they do not meet the demand for multiple supermarkets. While it may make more business sense to open supermarkets in areas that are densely populated with other supermarkets, I believe that large supermarkets like Wegmans and Shoprite need to make more of an effort to provide low-income Americans with access to healthy food.

September 17, category: Uncategorized. Leave a Comment. Name required. Mail will not be published required. Google Search. Therefore, choosing the first outcome means that both players get the best payoff they can and that is why this is the Pareto optimal outcome in this case.

Let us consider a few popular two-player games and analyse the Pareto optimal outcome in each of these:. Skip to content. Change Language. Related Articles. Table of Contents. Improve Article. Save Article.