Let's play a game....

Here is where I continue from my previous blog post about the current economic downturn.
So which economic theory will last the test of time ? The answer is without doubt CAPITALISM :D

"See, the whole free market is collapsing before your eyes"
"The collapse of the US market and the subsequent meltdowns in Asia and Europe show that Capitalism is failing"

What can you say about the above statements ? Firstly , they are inherently flawed.
The FREE MARKET HAS NOT AND WILL NEVER FAIL.
GOVERNMENT INTERFERENCE IN THE PROCESS MAKES IT FAIL.

Let us see how communism works using Game Theory. For those familiar with Game theory, here is a small intro. Game theory is used to capture how humans respond in various strategic situations. There are many outcomes, but however, in a lot of cases, the best possible outcome is not what really happens.


In this case, we consider A and B.
A is a person and B is the rest of the society.
W => Work
NW => No Work/Dont work

In every square, the top portion represent results obtained by A and the bottom portion represent results obtained by B.

Consider that you are the person 'A'. Whatever u work will be pooled in with the work of the society 'B' and then the results will be equally distributed. A doesnt know how hard the society is working. Similarly , each and every one in the society will not know how the hard the other person is working. If we consider the boxes, we have 4 scenarios.

Scenario 1 : Both A and B (society) work hard and end up with profits.

Scenario 2 : A works well , but the rest of the society's output is not good enough. So, compared to what effort A put in, he will not get the results to compensate that. So, A ends up with a loss.
The society enjoys a small profit at the expense of A's hard work.

Scenario 3 : A doesn't work hard , but the rest of the society manages to put in effort and create some output. So, ultimately A makes a small profit, because he is getting something without doing anything. B takes a loss, because people like A are a burden to society.

Scenario 4: A also doesnt put any effort. The rest of the society also doesn't work. So there is no profit for anyone and no loss for anyone.

What is the ideal case here ? Scenario 1 of course. Both A and B will end up with profits and live in harmony ever after.

But very sadly, game theory proves that that never happens.
Why is that ? That is because of underlying human nature. Here , the 2 participants A and B have no idea of what each other is doing and cannot trust each other.

A will think --> "what if i put in effort and then end up with a loss because other people in society have not worked hard enough ?"

similarly, each person in the society will have the same thought as A. They fear that they will end up with a loss if other people in the society dont work as hard as them.

So, what are the options before A ?

If he works, he will get either Profit, or a loss
If he doesnt work, he will get a small profit, or wind up with no profit-no loss

The same are the options before B.

It is proven that both A and B will go for the option of not working, BECAUSE THAT WILL WORK OUT BETTER FOR THEM ON AN AVERAGE.

So, we will wind up with scenario 4 , where noone does any work.
What will result ? massive stagnation, absence of any development and abject poverty.

Now u know why capitalism works :))

- Tejas