Extra Credits: DayZ - Tragedy of the Commons

The tragedy of the commons is a well known effect arising in game theory as a result of self-interested rational agents over-exploiting common good. While this arises in game theory, original concept comes from the XIXth century England. Those times it was customary for a village to have some small parcel of land, which could be used by villagers to let their cows graze. Over-grazing became commonly arising problem.

This problem applies more generally to any other common resource. For example, fish in the ocean, forests, public roads or even common fridge at work. If no rules or regulation is imposed, it is rational to deplete these resources and conserve private ones. This is extremely bad for the society. Hence it is named "tragedy".

It seems that Extra Credits found an interesting "sandbox" example in the realm of video games, which allows to see this tragedy in play from a different angle. This also allows to look for the solutions from a different perspective as well as teach further generations about what is wrong with our current state of affairs.

Concluding remarks on price formation

Couple of months ago I have started a series of posts on price formation in the free market or how and why the free market does (not) work.

In the first part of the series we have discussed economic laws of supply and demand. We have learned that the cheaper the product is the more people will be willing to buy it. Also that the more people are willing to pay for the product, the more of the product will be produced.

In the second part we have discussed a simple example in which printing press failed to predict the demand for the book. We have discussed how non-optimal prices emerge as a result of this miscalculation.

In the third part of the series we have discussed the implications of the cobweb model, which attempts to explain how the prices and produced quantity converge to equilibrium. We have noted that this convergence is not immediate and may take some time.

In the fourth part we have looked into the price formation from game theory perspective. We discussed why competition should emerge and why it might not. We had also discussed some interesting implications of the "price war" game, which highlight crucial importance of the competition.

In the fifth part we have also analyzed the proposed alternative to the "neo-liberal" idea of the globalization and the free trade. We have concluded that it is a terrible idea, which is neither novel, nor successful.

Through out this series of posts we have discussed few simple models lying behind the idea of free markets. We have discussed the assumptions, which are made and which must hold for the free markets to produce desirable outcome. From these posts, and many others on Physics of Risk, we should have obtained a good understanding that self-organization does not always result in a "good" (desired) outcome.

Price formation: should we turn to economic nationalism?

Couple of months ago I have started a series of posts on price formation in the free market or how and why the free market does (not) work. Let us deviate from the topic by discussing the proposed alternative to the "neo-liberal" idea of the globalization and the free trade.

Note that in the post that follows I will not follow the usual practice of listing (referencing) the sources. Most of the sources I found while exploring this topic are extremely questionable as they try to promote ideological agenda instead of exploring ideas behind them.

Also be warned that text is rather long and the answer is rather obvious. No, we should not turn to economic nationalism. It is rather bad idea, which works only for strong nations, which are able to exploit more vulnerable nations.

Phase transition in the "price war" game?

Couple of months ago I have started a series of posts on price formation in the free market or how and why the free market does (not) work. This text is a slightly detour from the part four of the series. In which I would like to delve into interesting properties of the gameI have introduced in the part four.

In the part four I have asked you to imagine that the market consists of two competing companies, which produce almost identical products. Each of the companies can charge a high price or a low price. If one company wants to charge low price, then all consumers would prefer buying its product and not the competitors. I have assumed that there are 100 consumers and that companies produce products for all consumers (namely they always produce 100 units of the product), high price is 5 monies, low price is 3 monies and production costs are 0.5 monies. In this post I would like to remove some of these simplifying assumptions and discuss how the model works if different numbers are selected.