Whitonomics - Issue 2 July 2014 | Page 7

MATHEMATICS P.5 Outside of oligopolistic markets The Future Game theory exists anywhere in which competition or interdependence and choice exists, even in macroeconomics. A final observation is much more significant. The Homo Economicus is a being which acts rationally and in self-interest consistently, but this is contrary to basic reasoning - both competition and cooperation are needed for the most beneficial outcome as game theory suggests. Mutually Assured Destruction (MAD) occurs where two nations have the capacity to destroy each other. This occurred in the Cold War between USSR and USA where both governments suffered opportunity costs of a choice; 1) Spend money stockpiling nuclear weapons in case of imminent attack of the other nation. Recent studies at the Michigan State University by Christoph Adami supports this. His studies found that although acting in self-interest may be advantageous in terms of evolutionary biology in the short run, soon game theory players end up in a society where the most successful beings, and therefore most common by natural selection, are all selfish. This leads to the Homo Economicus ideology becoming ineffective. 2) Spend money on improving the social welfare of the economy and its people. However if one does not stockpile weapons and the other does, they are left vulnerable to utter destruction. Thus game theory produces the same result - both nations stockpile weapons, international relations are damaged and everyone is collectively worse off. Adami, therefore, came to the enviable conclusion that “self-interest is not evolutionarily sustainable.” So should we consider this whilst examining the future of oligopolistic markets?