The Rising Influence of Rising Affluence

[DewDiligence]

“Prisoner’s Dilemma” in play for US oil producers:

http://www.wsj.com/articles/oil-companies-predicament-who-should-cut-production-1419358086

If the global glut of oil that has sent crude prices plunging has come largely from the U.S., why aren’t American energy companies turning off the tap?

The answer can largely be explained by simple game theory. In short, even though it’s in the collective interest of the country’s oil producers to cut production, the interests of any of those producers is the opposite. Each one of them is waiting for a rival to make the change.

This behavior—hoping someone else will cut production so you don’t have to—is a classic example of the “prisoner’s dilemma,” says Roger McCain, a professor in Drexel University’s economics department.