Prisoner’s Dilemma

Game theory is the science of strategy. It attempts to determine mathematically and logically the actions that players should take to secure the best outcomes for themselves in a wide array of games. Prisoner’s Dilemma is the oldest and most studied model in game theory. In the book  Game Theory 101 – William Spaniel gives the following…

Diminishing Marginal Utility

Last week I went out to eat pizza with my elder son. We ordered a large pizza and it had 8 slices. I was paying close attention to him as he was enjoying each slice. He consumed the first slice with extreme joy. I gave a value of 100 for the joy he had from…

Marginal Cost

Marginal means additional. Seth Godin in his recent blog post defines marginal cost as The cost of the next item produced is called ‘marginal cost‘. It doesn’t include set-up fees, rent, years of training, insurance or all the other huge costs an organization might pay. It’s merely the cost of one more unit. Here is…

Scarcity

The population clock shows that the world has 7.1 billion people. Let us imagine that this population is divided into families of 4 member each. We will have around 1.77 billion families. How nice it would be if all the families have a own house, a ferrari car, and have their kids study in Ivy league…

Tragedy of the Commons

Common resources like air, water and public roads are freely available to everyone. One person’s use of the common resource reduces other people’s ability to use it. The common resources gives rise to a new problem called as Tragedy of the Commons. The tragedy of the commons is a dilemma arising from the situation in…

Comparative Advantage

Tom and Harry lived in an island. The island is rich in Coconut and Fish. They have to gather coconut and catch fish for their food. In one hour Tom can gather 10 coconut or catch 2 fish and Harry can gather 30 coconut or catch 3 fish. Coconut per hour Fish per hour Tom 10 2…

Opportunity Cost

In America student loan is close to $1 trillion. If you ask a college student what is the cost of going to college. They will tell that it is their loan. But that is a sunk cost. It means that the cost is already incurred and it cannot be changed. The real cost is what they could…