game theory

It is one of the seven deadly sins but, as Gordon Gekko says, greed is good. Researchers in Switzerland recently found a moderate level of greed is favorable for society – or at least, the researchers’ model society.

Common wisdom leads us to believe greed is bad, that self-interest does not work for the greater good of a society or group. In fact, that is exactly what game theory tells us. In a public goods game, where optional contribution to the common good improves the well-being of participants, greed is problematic. Game theory predicts a free-loader problem where participants stop contributing because they will reap the rewards through others’ contributions. The outcome is known as the tragedy of commons: eventually, no one contributes.