Buy my drugs or I'll shoot you in the face!

On my way to a bar during my quick two-week visit back home to Toronto in September, an aspiring salesman approached me. In an intrusive manner and in an intimidating tone, he tried selling me bud. As I said no thanks and walked away he called me a punk, to which I replied f#ck off. A brief altercation ensued, ending when he reached into his pants and offered to "shoot me in the face". After backing down and walking away, I thought to myself "geez that was bad business". He didn't think about game theory.

GAME THEORY

Game theory, commonly known as the prisoner's dilemma, "studies strategic situations where players choose different actions in an attempt to maximize their returns." (Wikipedia). Suppose in a two player game, if both players cooperate they will be much better off. If they both cheat, they will be mildly worst off. If one cheats and the other doesn't, then the cheater is much much better off and the sucker is screwed.

Game theory proves if a game is played only once, because there is so much to gain from cheating and so much to lose from being cheated, then both players will always cheat, and hence be mildly worst off. However, as Josh correctly commented last week, it's better for both parties to cooperate. That will happen, but only on certain conditions. That is, if many games are played, there can be two outcomes. The first, each player will take turns screwing the other guy over, or second, both will continuously cooperate and enjoy a fruitful relationship.

GAME THEORY IN OUR WORLD

Game theory is everywhere, from who does the dishes tonight to supplier-manufacturer relationships. The way you act towards your JTE in class today dictates how your JTE will treat you tomorrow. If you will only have an exchange with someone once, you have every incentive to look out for your best interest then and there only. However in a longer relationship, involving many exchanges, you have to think about your best interest over the entire term - which will be reached only through cooperation. Remember though, that this theory assumes people always look out for their own best interest, and doesn't account for people who are genuinely nice.

The Drug Dealer

ONE SALE
Indeed in the beginning story it was bad business on the young man's part, and I mean beyond going to jail for murder and thus ending a profitable career in drug dealing. First and foremost, he didn't make the sale because he wasn't nice. If he was, and if I bought it (both cooperate), then he'd make money and I'd get high (both better off). If I had bought it anyway, and it was bush weed, then I'd be short 10 bucks and pissed (one coop, one doesn't). But since I couldn't trust him (and I didn't really want to smoke anyway), I didn't buy, didn't get high, and he didn't make any money (neither coop).

MANY SALES
Further to this, if he was thinking long-term, he would have been nice. Since he wasn't, potential customers would react accordingly and not buy. If he was nice, he would make a few more sales. If he was nice and provided quality stuff, customers would return and he'd make even more sales. Continous cooperation and both parties are better off. He didn't think about long-term game theory.

Disclaimer: I'm not expressing a personal opinion on marijuana. It's just an example.

The stolen goods distributor and part-time drug dealer

Remember my friend last week who bought the stolen TV? This situation is a bit trickier. Yes he swindled the seller into a lower price, and to some may appear to have screwed them over, but sellers will always return to him because they are desperate to dump the hot item and know he will buy. That goes back to "substitutes available". The seller has few, if not no, other options. Despite a tough guy image, he was very friendly when it came to selling drugs. People liked him and could trust what he supplied - good quality, good count - and therefore went back. He thought about the long-term. On a side note, he's now in jail. See kids, crime doesn't pay!!

The Couple

"I'll do the dishes tonight, if you do them tomorrow". This is basic give and take bargaining. Why do you and your loved one take turns doing the dishes (or do them together), and not only one of you always doing the dishes alone everyday? Well not many people would agree to cleaning the dishes two days in a row without something in return, unless of course you're dating a Japanese girl. A deal (or price) needs to be agreed upon. If my lovely girlfriend Dabs does the dishes one day, and I renege the next day, then, according to Game Theory (and her rough n' tumble attitude), she sure as hell won't do them the third day. If I want a clean kitchen, I have to cooperate.

Thai Merchant

If he knew you would come back to buy more trinkets, or as Diane brought up, bring your friends over to his stall, then he would give you a fair and honest price. Because the chances are you'll never meet again, he has every incentive to take as much money from you as he can. One-shot game theory.

In general economics

When extended to economics, in short, game theory looks at supplier-manufacturer relationships. If a supplier has invested in technology to make a specialized part for a manufacturer, then they must trust the manufacturer will continue to buy that part. Likewise a manufacturer must trust that the supplier will continue to make and sell that part at the agreed price. Since trust is a loosely valued term in business, it is substituted for a contract.

Final Thought

Since most people are inherently trusting and genuinely nice, for one shot transactions, both players don't always cheat. But a lot of the time, at least one will. Personally, I don't believe one shot transactions exist. Everything is long-term game theory. No matter where you are or what you're doing, your reputation will follow. If you screw people over, in due time you'll get screwed over. What goes around comes around. If you're always honest, trustworthy, fair, and all that other fluffy stuff, occasionally you may still get ripped off, but the far majority of the time you, and those you work with, will be much better off. My advice, play fair.



When was the last time you got ripped off? Or a promise was broken? What were the circumstances? What, if anything, did you do about it?