Let us take a look at the following simple game:
There are four players. Each player has two cards he can play – green and yellow.
- If all four players play green, they all get three points.
- If three play green and one yellow, one point goes to the each of the green card players and five points goes to the person who played yellow.
- If two play green and two play yellow, no points for anyone.
- If one plays green and three play yellow, zero points to the green player and one point for each of the yellow players.
- If they all play yellow, two points each.
Clearly the most obvious thing to do is for all the players to co-operate and play green. In that way they are all better off and no-one loses out. The thing is though, this is only possible if all the parties are able to communicate with each other.
If we assume that the players are unable to communicate with each other, it is not necessarily clear what is the safest option to go for. All players would like to be better off, but what if there is the suspicion that one player might decide to play a yellow when everyone else is thinking green? One might then be tempted to play a yellow card instead so as to hedge the risk of losing out and thus nullify the effect of the yellow card move.
The question is though, is the attempt to minimise risk on an individual basis resulting in a lower amount of benefits been available to the whole group? Is seems so. Take a look at attached picture for a multiple round game. It appears as if a large set of the potential benefit for the group as a whole is been lost thanks to the hedging strategy.
Food for thought. So would it be unreasonable to conclude that the lack of communication between market players and attempts to act in one’s own best interest might not be so good for the group in the long run? It seems not.