The general rule of thumb is that the one who is most competitive should have the lowest expectations. Do the math, and I’m not sure where I’m taking this.
The reason that the two main principles of game theory are not mutually exclusive is because it is a game theory-based approach. Take a look at one of the three main points, “you can make a game.” You can make a game of this and you can make a good game of it, or you can make a bad game of it, but you’ll get killed first, and then you’ll end up with the next level of competition.
For a purely competitive firm, you don’t want to play an equilibrium game, as it is inherently unstable. You want a game that has a stable equilibrium. The reason for that is that a game with a stable equilibrium is one that is not completely random, but rather is a series of events that are related in a certain way. When you understand this, you can begin to make your own stable equilibrium games.
But what if the stable equilibrium that you want is the one that has you win all the time, but your opponents win a lot of the time? That is an equilibrium that is fundamentally random. The reason is that there is no reason for an equilibrium to be stable. The whole point of the game is to come up with a better equilibrium than the equilibrium that you are currently playing.
This is the way we play poker. There is no equilibrium because it’s just random. That is why we play poker. If you played poker for a long time and you think that you have a good hand, it’s because you play poker very, very conservatively. You play very conservatively, so that you can win. Otherwise, you cannot win, and you are just making sure that you get lucky.
The nature of these games is to be completely randomized. This is true of poker and the game of chess. In both cases, there is no way to win until you have already lost a lot. This is also true for the firm in short-run equilibrium.
These two games are in fact games of chance. These games are not games played by the same players with the same strategies. The first game is a game of chance with a high probability of winning, but a low probability of losing. The second game is a game of chance with a much lower probability of winning. In essence, you can win in poker and chess but not in short-run equilibrium.
This is the same story you hear at least once a week in the news, and it’s a big part of why short-run equilibrium is so hard to understand. In short-run equilibrium, there’s no way to win. You can only lose if you’re really dumb or if you’re just lucky.
The other day I had a conversation with a colleague who works for an accounting firm, and its not a very good conversation. I gave him the example of a business that had recently lost $20k. It was a small firm and had only 20 people on staff. I gave him the example of a business that won $20k.
In the short-run, if you make money, you are guaranteed a win, since no matter how stupid you are, you are still going to earn a win. In the long-run, if you make enough money, you can only lose.
