The Public-Goods Game
Four people play the game. Each is given 20 tokens, and the game has four rounds. On each round a player can either contribute tokens into the public pot or keep them for himself.
If a player invests a token, it costs him money. He invests one token, and he personally earns only 0.4 tokens. But every other member in the group gets 0.4 tokens too. So the group as a whole gets 1.6 tokens for every one that’s invested.
When individuals contribute into the public pot, the whole group becomes richer, beyond the tokens contributed.
If everyone were to contribute all their tokens (20 * 4 = 80) then the whole group would be greatly enriched (80 * 1.6 = 128). Each individual would have a wealth of 32 (128 / 4 = 32).
If everyone were to keep their tokens and contribute nothing into the public pot then they each would have a wealth of 20.
If one person were to contribute nothing, and all others were to contribute all their token into the public pot then the “free-rider” would have a wealth of 44, the others a wealth of 24.
There is a strong incentive to let everyone else contribute so that I can reap the benefits of their investments.
This game has been played around the world. Most people do not act selfishly at first. During the first round most people contribute about half their tokens to the public pot. But as each round passes, and people see others free riding, the rate of contribution drops. By the last round 70-80% of the players are free riding, and the group as a whole is poorer than it would otherwise.
Types Of Players
It has been observed that players fall into three general categories:
1. 25% are selfish and free ride.
2. A small minority are altruists, who contribute heavily to the public pot from the get-go and continue to do so even as others ride free.
3. The biggest group are the “conditional consenters”. They start out contributing some of their wealth, but watching others free ride makes them far less likely to keep putting money in it. By the last round almost all the conditional consenters are no longer cooperating.
– Wisdom of Crowds by James Suroweicki