I moved to Pen in the year 2000. At that time, most of the restaurants and ice cream shops closed around 8 pm. Today, most of them are open almost till midnight. What made this monumental change happen?
Game theory could answer this question.
Game theory provides a framework for analyzing situations where the outcome of one person's decision depends on the decisions made by others. One classic example of game theory is the Prisoner's Dilemma.
In the Prisoner's Dilemma, two suspects are arrested, but the police lack sufficient evidence to convict them on the principal charge. They separate the prisoners and offer each a deal: if one confesses and testifies against the other, they will receive a reduced sentence, while the other prisoner will serve a much longer sentence. If both prisoners remain silent, both will serve a shorter sentence on a lesser charge. However, if both confess, they will each serve a moderately long sentence.
Here's the dilemma: Each prisoner must decide whether to cooperate (remain silent) or defect (confess). If one defects while the other remains silent, the defector receives a better outcome. However, if both defect, they both end up worse off than if they had cooperated.
A dominant strategy is a strategy that yields the best outcome for a player regardless of the strategies chosen by other players. In the Prisoner's Dilemma, betraying is a dominant strategy because it always leads to a better outcome, regardless of whether the other player cooperates or betrays.
Now, let us return to the question - Why do restaurants remain open till midnight? Two competing restaurants might face a similar dilemma in business. If they cooperate by being open only till 8 pm, both benefit. People working there get a good work-life balance. However, if one restaurant keeps the shutters up till 10 pm (defects), it gains market share at the expense of the other. Yet, if both keep the outlets open for a longer duration, they enter a war and suffer reduced profits because of increased overheads coupled with stagnant market share. In Pen, the restaurants adopted the dominant strategy of defection.
Is it possible for the players to cooperate? Theoretically, it is possible. But practically it rarely happens. However, it is easier for an outside party to force cooperation. For example, if the men caught by the police were working for a don, then they would have opted to remain silent because the penalty for confession/betrayal would be even more serious.
In my town, all the barber shops remain closed on Monday. Nobody defects. Why? Because their union imposes a severe penalty for such action. Even the rate increase across all salons is driven by their organization and is binding on all members.
Subodh
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