In this blog post, we’ll examine how game theory and the Nash equilibrium explain the phenomenon of drivers “cutting in.”

Game Theory and Strategic Choices

Game theory is a framework for analyzing situations in which multiple participants pursue their best possible outcomes while taking each other’s choices into account. The actions each participant can choose are called strategies, and the outcomes resulting from each combination of strategies are called payoffs. Because participants predict each other’s choices when deciding on their strategies, it often happens that a choice that is rational for an individual leads to an undesirable outcome for the group as a whole.
One of the key concepts in this context is the Nash equilibrium. A Nash equilibrium refers to a combination of strategies in which no participant can unilaterally change their strategy to achieve a better payoff. The conditions for this are summarized as follows:
1. When Participant A chooses strategy s, the strategy t chosen by Participant B is B’s best strategy. 2. When Participant B chooses strategy t, the strategy s chosen by Participant A is A’s best strategy.

Chicken Restaurant Competition: The Cases of Sillim-dong and Bongcheon-dong

Let’s consider a situation where two franchises are choosing locations. Suppose Restaurant A and Restaurant B can each open a branch in either Sillim-dong or Bongcheon-dong, and market research estimates the annual demand for chicken in those areas to be 100,000 chickens in Sillim-dong and 40,000 chickens in Bongcheon-dong. If the two companies enter different areas, they monopolize the demand in those areas; if they enter the same area, they split the demand equally.
In this game, the players are the two restaurants, and each player’s payoff is the amount of demand they secure. There are four possible strategy combinations: (Sillim, Sillim), (Sillim, Bongcheon), (Bongcheon, Sillim), and (Bongcheon, Bongcheon). For example, if both stores enter Sillim-dong, they each secure 50,000 fish; if only one enters Sillim-dong, that store secures 100,000 fish.
Now, let’s compare each scenario as follows. First, when A chooses Sillim-dong, B would get 50,000 if they go to Sillim and 40,000 if they go to Bongcheon, so Sillim is the better choice. Conversely, if B chooses Sinlim and A also chooses Sinlim, B gets 50,000; if B chooses Bongcheon, B gets 40,000, so Sinlim is also better for A. Therefore, (Sinlim, Sinlim) is a state where neither party can unilaterally change their strategy to gain an advantage—that is, a Nash equilibrium.

The Prisoner’s Dilemma: The Trap of Individual Rationality

The Prisoner’s Dilemma is a classic example demonstrating that a Nash equilibrium may not be the best outcome from a collective perspective. Suppose two defendants can either confess or remain silent, and their sentences vary depending on the combination of their choices. Since a shorter sentence is considered a better outcome (greater payoff), the payoff can be expressed as a negative value.
Under a typical reward structure, if both remain silent, their sentences will be relatively short; however, if one person remains silent while the other confesses, the silent party will receive a very harsh, lengthy sentence. Consequently, since neither can be certain that the other will remain silent, confessing becomes the safe choice from an individual’s perspective, and the combination where both confess becomes the Nash equilibrium. However, since the sentences are longer than when both remain silent, the outcome is worse for the group as a whole.

Cutting In on the Road: Why Do Traffic Jams Persist?

Let’s return to the original question. The reason drivers continue to cut in can also be explained by the same logic. Consider two drivers; if we evaluate the outcome in terms of average driving speed, there are four possible scenarios. If only one driver cuts in, the average speed of the driver who cut in improves, while the driver who did not cut in experiences a drop in speed because there is one more car ahead. If both drivers cut in, traffic flow worsens, resulting in a lower average speed than when neither driver cut in.
In this scenario, the combination where neither driver cuts in is socially optimal. However, from each driver’s perspective, the belief that “if the other driver cuts in, I’ll be at a disadvantage compared to if I hadn’t cut in” leads them to ultimately choose to cut in for their own benefit. As a result, the state where both drivers cut in becomes the Nash equilibrium, and individual rational choices collectively lead to worsened traffic congestion.

Conclusion: Implications of Game Theory in Everyday Life

So far, we have examined the location selection of a chicken restaurant, the Prisoner’s Dilemma, and the phenomenon of cutting in on the road through the concepts of game theory and the Nash equilibrium. Game theory clearly demonstrates that many everyday situations consist of strategic interactions where individuals consider each other’s choices, and that a choice that is rational for an individual is not always beneficial for the group as a whole. While game theory cannot solve every situation, this perspective helps us design more rational and cooperative rules and institutions.