One Nash Equilibrium

  1. The business cannot expect customer loyalty. Get as much out of him/her as you can while you can.
  2. The customer sees the business trying to exploit him/her as much as possible as quickly as possible. The customer feels no loyalty.
  3. Go to 1.

Charities can operate much the same way: past donors are likely future donors, but someone who is “thinking about donating” will probably still be thinking about it a year from now. Keep returning to that well.

As a blood donor, I am troubled.

: Zubon

4 thoughts on “One Nash Equilibrium

  1. Kess

    The firms I have worked for see their reputation as a huge asset. Some are just better at building their business around cultivating that asset than others. Trying to fool all of the people all of the time is simply not good risk management. Corporations who agree with your premise #1 are more likely to implode, and rightly so.

    With any Nash equilibrium, it is important to understand all of the assumptions made. The archetypal prisoner’s dilemma, for example, assumes a lot about the character and circumstances of the prisoners that simply does not pan out in reality in many, if not most, cases. Game theory models with a lot of unspoken assumptions say as much or more about the philosophical beliefs of the mathematician than about the human behavior that the model presumes to model. I get the same vibe from your proposed equilibrium.

    1. Curuniel

      You do get an even more complex situation when you consider how many players move between games often, frequently feeling dissatisfied, and will approach a new game according to Zubon’s number two principle even before they see any evidence of number one in that particular site. That puts a new game company in a difficult position.

  2. Tim Dean

    That could well be a Nash Equilibrium. But that doesn’t mean there aren’t multiple Nash Equilibria in that game. I.e. it could be more Stag Hunt than Prisoner’s Dilemma.

    I can imagine another stable equilibria whereby the company expects loyalty, and rewards it in a costly way. Meanwhile the customer receives the reward and provides loyalty, and the payoff for the company is greater than the cost of rewarding loyalty. Everybody wins.

    The problem is the fitness valley between the two equilibria, so getting from the low payoff equilibria to the high payoff equilibria is tough journey – perhaps requiring one party to have sufficient faith in the other to push things up to the new level.

    So the problem is not only the existence of the sub-optimal equilibria, but the reluctance of companies and customers who are willing to place trust in the other.

    1. Zubon Post author

      Very good. The other equilibrium exists, successfully in many places, but you can’t jump halfway across that valley.

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