The dilemma of a Coach

Once there was a very disciplined golf coach. His intention is to get the optimal outcome from his students, Steve and John. One day he was observing their performance. John performed really well and Steve performed poorly. He praised John and castigated Steve. On a subsequent day, John's performance degrades whereas Steve's performance improves. He observed that praise deteriorates performance whereas criticism improves performance. His insight is contrary to the motivational theory.

Is it really the case that harsh criticism improves the performance of an individual?

The golf coach is right as well as wrong. His observation is correct but the insight he attributes to the observation is incorrect. He is an amazing golf coach but his statistical skills are rusty. He confuses the correlation with causation. Let's dive deeper into these terms to find out the gaps in the thinking of a golf coach.

The correlation coefficient between the two measures which varies between -1 and 1 is a measure of the relative weight of factors they share. Consider the statement, "Sleep improves the health of an individual." Sleep is correlated with the health of an individual. It is one of the many factors that improve the well-being of an individual. Nutrition, Exercise, Meditation, etc are the other factors that influence the health of an individual. Causation means X causes Y. X is the cause and Y will be its effect. Job promotion increases the salary of an individual. Job promotion is the cause and the hike in salary is its effect.

Let's see some more examples to understand the idea of correlation. Children whose parents consume alcohol got poor grades in school. These statements are very catchy and give a skewed view of reality. The human brain endorses these statements without any thought.

Is it really true?

Sometimes it's good to invert the problem to gain a better understanding of it. It might be possible that children who got poor grades cause depression among their parents. Hence, they started consuming alcohol. The former statement assumes that alcohol consumption by parents causes poor grades whereas the latter statement assumes that poor grades of children force the parents to consume alcohol. The statements seem to be correct in the way they are framed. Both are wrong because each statement assumes that one causes the other. Alcohol consumption and poor grades are correlated with each other but none of them causes the another.

A few years ago, one study revealed that the Success rate of mothers who gave birth to their babies at home was greater than the ones who gave in the hospital. You are more likely to hear these kinds of statements in the news.

Does it mean that the women who assist pregnant ladies have more expertise than professional gynecologists?

In the past, only complicated cases would be taken to hospitals. Such complications arise due to the unprofessional procedures undertaken by the women who assist pregnant ladies. The cases were in terrible situations and it became impossible for the doctors to recover from the damage. Therefore, the success rate of hospitals is lesser than homes. These statements give an incorrect view of reality and don't be swayed by them. Dig deeper to find the root cause to get an unbiased view of reality.

The correlation coefficient is of three types.

1. No Correlation.

2. Perfect Correlation.

3. Weak Correlation.

No Correlation: The correlation coefficient between two measuring entities is zero. In simple words, there doesn't exist any link between the two events. For example, plotting a graph between the suicide rate and the person having a pet in his home won't show any pattern.

Perfect Correlation: The correlation coefficient between two measuring entities is one. According to Wikipedia, temperature is a physical quality that expresses quantitatively the perceptions of hotness and coldness. The hotness and coldness of a body depend upon the velocity of the molecules. Fahrenheit and Celcius are the units for measuring temperature. A one-unit increase in Celcius will produce the same one-unit increase in Fahrenheit. Plotting a graph between Fahrenheit and Celcius produces a straight line. Another name for perfect correlation is causation.

Weak Correlation: The correlation coefficient between two measuring entities lie between 0 and 1. The height and weight of a human body are weakly correlated to each other. It implies that the taller guy has more weight than the short-heightened guy.

Simultaneous occurrences of an event imply that one is causing the other. When two events are weakly correlated to each other then the extreme events will always be followed by the moderate ones. This phenomenon is known as a Regression to the mean. It was discovered by a statistician Francis Galton who found a pattern between the heights of parents and their kids. He observed that the heights of the kids of taller parents are shorter than theirs and vice-versa. The taller parents have above-average heights and their kid's height is more likely to be close to an average value. Later, he found that the regression to the mean and correlation are the two names explaining the same phenomenon.

Mimicking the herd invites regression to the mean. Charlie Munger

How can we use this knowledge to understand the above story?

Success is a combination of talent and luck. More success is a combination of a little more talent and a lot of luck. Luck plays an important role in Golf. John performed above average on one day. It means John is a talented player and a little lucky on that day. Talent is an intrinsic quality that remains static and improves incrementally with hard work. Luck is purely random that fluctuates every day. On a subsequent day, John's performance degrades. Of course, he was a talented player but the luck will move toward an average as extreme events will soften over time. The degradation in performance can't be attributed to praise because the difference arises due to luck which is a random factor.

Steve performed below average on one day. It means that Steve is a bad player plus experienced a stroke of tough luck on that day. On a subsequent day, his performance improves because his luck moves towards an average due to regression to the mean. The increase in performance will be attributed to regression to the mean, not to the harsh criticism.

The lesson is irrespective of what the coach says, their performance will gravitate towards an average. Praise and Criticism have no effect on the performance of a player. The goal of the coach is to find the weaker areas of a player and instruct him accordingly to perform optimally.

Let's see some more real-life examples to understand the concept of regression to the mean.

Head lice were a normal part of life for the inhabitants of Hebrides. The Hebrides is on the west coast of the Scottish mainland. People immediately fell sick when head lice no longer reside on their heads. The simultaneous occurrence of two events makes them believe that head lice are good for their health. They are confusing the correlation as causation. The root cause is lice leave their host because they experience the hotness in their feet due to the rise of the body temperature of a host.

One study reveals that sending more firefighters to a blaze causes more damage to a building. The fire control department immediately freezes the recruitment of firefighters. The root cause is that the minor blaze causes less damage to a building. Therefore, a lesser number of firefighters can handle the situation whereas in the case of a major blaze the damage is so colossal that an even more number of firefighters can't recover the damage.

A newspaper headline describes that depressed children are cured by energy drinks. Parents started giving energy drinks to their depressed kids. Their children have shown an improvement in their behavior. Hence, parents started believing that energy drinks cure depression. Depressed children are at the extremes. They have deviated from their normal behavior. They started showing improvements in their behavior with the passage of time. Irrespective of what they drink, their extreme behavior will be followed by moderate ones.

The human brain has a tendency to fabricate the cause-and-effect relation where no link is present. Even scientists will become victims of this kind of behavior. The antidote is to make use of control groups. Divide the people into two groups. Give energy drinks to one group whereas no treatment would be given to the other group. Track the behavior of both groups. If giving an energy drink shows above-average results then only believe it otherwise ignore such claims.

Sports Illustrated curse is a term that demonstrates that an athlete whose photo appears in the magazine is likely to perform poorly in the subsequent season. The exceptional performance of an athlete happens due to talent and luck. It is highly probable that he will experience average luck in the next season. Therefore, his performance looks bad compared to the previous season. His luck is regressing towards the mean as extreme events are always followed by moderate ones.

Couples generally make a mistake by assuming the initial obsession and optimism to be a real representative of a relationship. It is generally known as the honeymoon period. When you date somebody, you are more likely to see the skewed version of them. They maintain their personal hygiene and look more immaculate than their usual selves. The couples are under the illusion of the Halo effect. It is a cognitive bias that illustrates when one trait is used to make the overall judgment of a person or a thing. Appearances are deceptive. Hence, people ended up marrying the wrong person.

When you're in love you never really know whether your elation comes from the qualities of the one you love, or if it attributes them to her; whether the light which surrounds her like a halo comes from you, from her, or from the meeting of your sparks. Natalie Clifford Barney

A handsome-looking guy might be a terrible person in his personal life. The best way to counter this fallacy is to wait and watch. Withhold your emotions and let the other person comes back to normal behavior. You are more likely to see their virtues and vices by patiently watching them. As you gather more and more information, you are more likely to see the whole picture. It will help you to take the decision more objectively than emotionally.

Regression to the mean is a very important tool that puts reality into proper perspective. Always appreciate the role of luck in success. Before starting any new venture, find the average result and try to meet those averages. Once average results are achieved then work hard for incremental improvements. Any unexpected event is not going to continue indefinitely. Therefore, don't give up after facing extreme failure. Things will revert back to normal with the passage of time.

Always take a large sample space to get a better picture of reality. A human brain is an associative machine that tries to attach causal explanations to every outcome. Never judge an event on the basis of its outcome because luck has played an important role in it. Be more process-oriented rather than result oriented. Optimal decisions are the outcome of good processes which helps you to become a successful person in the long run.

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A Ubiquitous Force

Once there was an old man selling balloons at a fair. He released some of the balloons in the air when his business was not generating enough revenue. The balloons of different colors in the sky looked amazing to the children. Hence, they bought it from him. The old man used the same trick at every fair. In one of the fairs, a cute boy came towards him and asked, "Uncle, give me the red balloon." Out of curiosity, the old man replied, "Why do you choose the red balloon out of all these colors?" "The red balloon is higher than all the balloons released by you in the sky," responded the boy. The old man started laughing. Why are you laughing? asked the boy in confusion. My dear boy, it's not the color of the balloon but what is inside it that propels it to rise higher up in the sky.

The crux of the story is outside appearances are deceptive. It's what is inside the person that makes him beautiful. One must be wise to differentiate between inner beauty and outer beauty. Outer beauty is very attractive to the eyes but inner beauty captivates the heart. Outer beauty fades with time but inner beauty is eternal.

Naturally, a question arises in your mind why do some faces are beautiful than others?

The domain of thermodynamics will be helpful in finding the answer to this question. Yeah, I have heard your inner voice. Don't worry, I will not haunt you with complex mathematical equations. Let's start the journey of understanding the fundamentals of thermodynamics. It is the study of the set of laws that governs how the world works. It describes the change in energy within the system and the amount of useful work done by the system on its surrounding. It explains the degree of disorder present in any system, how the energy changes from one form to another, and the direction in which the heat will flow. All the systems present in the universe are moving towards disorder.

The four laws that set the foundation of thermodynamics are:

1. First Law of Thermodynamics: Energy cannot be created or destroyed. It can only be converted from one form to another. An example is the conversion of light into heat. This is also known as the law of conservation of energy. Heat and Work are the two types of energy exchanges. Heat is the energy exchanged through thermal interaction and work is the energy exchange other than heat. All the work can be converted into heat but all the heat can't be converted into work.

2. Second Law of Thermodynamics: The entropy of an isolated system increases with the passage of time. An isolated system is one that spontaneously moves towards disorder. One has to expend some energy to create order out of disorder.

3. Third Law of Thermodynamics: When the temperature reaches absolute zero the entropy of any system attains a constant value.

4. Zeroth Law of Thermodynamics: When two systems(A and B) are in thermal equilibrium with the third system(C), then the two systems(A and B) are also in thermal equilibrium with each other.

Learning is of no use unless one applies it in day-to-day life. The field of thermodynamics has many metaphorical applications. It's time to see its magic.

On Choosing a Spouse: Suppose you went to a beach and built a beautiful castle on the sand. You return to the same place after two days. Will you find the castle intact at that place? Absolutely not. Why so? The magic of entropy is at work. The waves of the ocean and the wind have destroyed it. The oceanic waves and wind can arrange the particles of sand in an infinite number of ways. The beautiful castle is one of the arrangements of those infinite ways. Is it possible for the sand particles to arrange themselves on their own due to the wind and oceanic waves to build a beautiful castle? The probability is infinitesimally low.

Why are some faces more beautiful than others? They are beautiful due to the symmetrical arrangement of the organs like eyes, ears, nose, chin, eyebrows, etc. There are an infinite number of combinations that makes the face or body structure asymmetrical. Out of these, only a few are in perfect alignment with each other.

Appearances are deceptive. Beauty is only skin deep. Don't get influenced by it. A beautiful face has nothing to do with the qualities of a person. Be more interested in inner beauty like kindness, humility, respect, and unconditional love while choosing a soulmate for yourself. If you will found beauty with brain then you will enjoy the best of both worlds. According to Charlie Munger, to become successful in life one has to avoid early death and a bad marriage.

Happy Marriages: Children are known as entropy machines. Everything is arranged properly in a clean room. There are rules for each entity like a drawer for socks, a hanger for shirts and pants, a locker for jewelry, etc. Many children don't follow the rules and throw their entities at random places which makes the room messier. An effort is needed to keep everything in order. Human beings always try to reduce their efforts which paves the way for the second law of thermodynamics. There are many possible combinations that make the room messier. Out of them, only a few are in order.

Similarly, all happy marriages are alike and unhappy marriages are unhappy in their own ways. Crazy in-laws, financial stress, infidelity, etc. are the reasons behind unhappy marriages. A small amount of success is needed in all the major areas to run the relationships smoothly. Happy marriages follow a definite structure. Therefore, all happy marriages are alike. There are many ways to demolish that structure. Hence, unhappy marriages are unhappy in their own ways. A continuous investment of energy is required to maintain a clean room. Likewise, continuous investment of energy is required to thwart the pull of entropy to maintain a healthy relationship.

Just as the constant increase of entropy is the basic law of the universe, so it is the basic law of life to be ever more highly structured and to struggle against entropy. Václav Havel

The success of any individual is directly proportional to the number of happy relations one has with others. Cooperation drives civilization and fosters growth. The fundamentals of thermodynamics provide a unique perspective on relationships. A successful relationship demands a continuous investment of energy. The natural question arises,

Is there any limit to the number of relationships one can maintain with others?

Robin Dunbar an evolutionary anthropologist gives an answer to this question. According to his research, the number of successful relations one has with others is directly proportional to the size of the neo-cortex present in the brain. The number of stable relations one has with others is one hundred and fifty. One hundred and fifty is also known as the Dunbar number. When the number exceeds one hundred and fifty then the brain is overloaded with information. It becomes difficult for the brain to process the information. Choose those one hundred and fifty people wisely. Foster relationships with those people who are happy to see you succeed and nudge you to become the best version of yourself.

The idea behind Border Walls: When a hot object is exposed to a cold object, heat will flow from the hot object to the cold object. Eventually, both of them reach a thermal equilibrium state. In other words, they are at the same temperature. Insulators are used to slow down the cooling process. Thermos is an insulator designed to slow down the cooling of hot coffee. Any barrier will only slow down the process but cannot prevent it altogether.

What if instead of two objects but two societies of different values are exposed to each other?

They too will reach the equilibrium known as social or cultural equilibrium. Borders and walls act as an insulator to prevent the two societies of different cultures from mingling with each other. The Romans built the Hadrian wall from coast to coast in North England to prevent their society from mixing with the hostile tribe living on the other side of the wall. Still, Romans moved to the other side and built relations with them. The borders can't prevent social equilibrium but only slows down it. An entropy moves the system toward equilibrium. Constructing a hundred percent effective barriers is a very resource-intensive task.

The Chinese people built The Great Wall of China to prevent their culture from outside influences. The philosophy of the Chinese people is to define, enclose, and exclude. Their intention is to maintain their cultural superiority. Despite all this, other cultures still influenced them. It is impossible for two societies having different cultures from intermixing with each other.

After the second world war, the Berlin wall separates East Germany from West Germany. The construction of the Hadrian wall and the Great Wall of China is to protect the Romans from hostile tribes and to maintain Chinese cultural superiority respectively. The Berlin wall was not only built to restrict the movement of people but also to prevent the sharing of ideas. It acted like a psychological barrier because East German ideology is inclined towards communism and behavior-shaping propaganda. It is hard to change the behavior of people if the ideas of the outer world influence them.

After the second world war, Berlin was occupied by America, Russia, Britain, and France. Until 1961, it worked as a single city. The people who didn't like the East German ideology escaped to West Berlin and from there to West Germany. Until 1961, around two and a half million population fled to West Germany. Most of them were skilled workers. The country was losing its cream of educated professionals. Therefore, they built a Berlin wall with multiple layers of deterrents. Any passage that connected East Germany from West Germany was sealed off. Still, people fled to West Germany albeit at a higher cost.

It is impossible to prevent the flow of ideas as well as people. In 1989, the Berlin wall was demolished by the same people who built them. The Berlin wall undermines the value of communism that East Germans were trying to preach. The Hadrian wall, The Great Wall of China, and The Berlin wall were describing the relentless pull of entropy on cultures, ideas, and people. No barrier was hundred percent effective and maintaining any barriers needs a continuous investment of energy.

Personal Growth: Chaotic systems like Weather, Economy, etc surround human beings. Chaotic Systems are those systems in which it is impossible to predict the outcome of an event in any given situation. One can roughly guess the outcome of a situation. It is impossible to predict how the company will fare over time or the economy of any country. Mathematician Edward Lorenz is famous for studying chaotic systems, pioneering a branch of mathematics known as Chaos theory. He introduced the metaphor of the butterfly effect to explain the chaotic systems.

According to the butterfly effect, a butterfly flapping its wings in one area sends air particles in a slightly different direction than they would have otherwise traveled which then amplified over time will produce the tornado in another area. The core idea behind the butterfly effect is that small changes in initial conditions will produce an outsize outcome later in life. The magic of the compounding effect is also in accordance with the chaotic systems.

Life is also a chaotic system. No one knows what will happen in the future. Nobody wants to graduate from college during the economic downturn or expects to lose his spouse at an early age. Planning ahead of time is the only factor that is within our control. The ability to adapt to changing conditions is crucial for success in life. One must know the skills to turn lemons into lemonade. Everybody has some butterfly moments in his life. What if you had taken the mechanical branch instead of the computer science branch? What if you hadn't gone to the event where you met with your spouse?

The antidote to the chaotic systems is to increase your luck surface area. Surface area is defined as how much area the surface of an object covers. An increase in the amount of personal entropy increases the luck surface area. Expose yourself to different situations to think multi-dimensionally. Meet people from different domains to understand their perspectives on life. Travel to foreign countries to understand their culture and traditions.

Rigidity comes through too much order. One won't be able to adapt to changing conditions. Too much disorder hampers productivity. Sometimes it is okay to say yes to some activities to increase personal entropy. Strike out a balance between order and disorder to gain optimal results. According to me, the equation to life is:

Personal Growth = X(Order) + 1-X(Disorder).

The value of X lies between zero and one. When X is 1, life becomes rigid. When X is zero, life is in complete disorder. Change the value of X according to the situation.

The only things that evolve by themselves in an organization are disorder, friction, and malperformance. Peter Drucker

Mismatch Conditions: People are born with specific strengths and talents. It is very unlikely that the ambiance in which they are born is also in accordance with their strengths. Evolutionary biologists call them mismatch conditions. There are an infinite number of capabilities. Out of them, only a few are in accordance with a specific culture. An example of entropy. It is true that great people like Steve Jobs, Elon Musk, Warren Buffet, etc. are born at the right time. The reason behind their success is that they explicitly made effort to fight the pull of entropy to cultivate strengths that match their culture.

Habits: Heat transfers from the hot object to the cold object. If the goal is to share the energy between two objects then expose them to each other. On the other hand, if the goal is to prevent the sharing of energy then create a barrier between them. What if instead of objects people having different habits are exposed to each other? Pay close attention to the people with whom you are hanging out and choose them wisely. Hang out with those people whose normal behavior matches your desired behavior. Suppose you want to increase your fitness. Hang out with those who are fitness freaks and stop going with people who are eating unhealthy.

Time: Time is the most precious resource. If left unmanaged(entropy), one will not go far in life. Allocate your time to those activities that will move you closer to your goals. Use the Eisenhower decision matrix to allocate your time effectively. Similarly, if one is not mindful of money and nutrition then the pull of entropy will make him financially and nutritionally unhealthy.

Messy arrangements far outweigh orderly ones. Brian Greene

The sacredness of Art and Life: Take the pieces of a puzzle and dump them on a table. It is very unlikely that the puzzle will get solved. There are many ways to arrange the puzzle out of which only one combination will solve it. Similarly, the human body is made up of a large number of atoms. The chances are infinitesimally small that the atoms are arranged on their own to create an orderly structure of the body that we call life. Everything is moving toward disorder. The orderly arrangement and synchronization in which the human body works make us look at life in a sacred way.

An artist creates art that cannot happen randomly on its own. An artist expends a considerable amount of energy to create order out of the disorder. Next time when you look at any piece of art, treat it like a sacred object. Murphy's law is a common adage people toss around in conversations. Murphy's law states that if anything can go wrong then it will. The underlying idea behind murphy's law is entropy. There are an infinite number of possibilities by which a thing can go wrong. Out of them, only a few will work.

Things are moving towards disorder. The total disorder is also incompatible with life. When everything is at rest then life ceases to exist altogether. The total disorder leads to the end state of the universe as a homogeneous gas evenly distributed everywhere known as the heat death of the universe.

Conclusion: Thermodynamics is a ubiquitous force that permeates every aspect of our life. The growth of weeds in a garden, the aging of people, rust on iron, messier rooms, failure of banks, relationships, and organizations are examples of entropy. Problems arise on their own. It's not because of black magic or some cosmic force conspiring against us. There are so many ways for things that can go wrong. The purpose of our life is to exert energy to create an order that solves those problems.

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A Strange Dilemma

You and your friend were captured by the police (Pardon me! for making you a criminal, I know you are innocent ). Both of you were put in a separate cell and barred from communicating with each other. The police didn't have enough evidence to put both of you into jail for a long period of time but have enough of them to give both of you a short sentence. The possible scenarios of the situation are:

1. Confession to a crime gives both of you a sentence of five years.

2. If one person remains silent and the other one confesses the crime, the one who confesses will be set free and the silent one will be put into jail for ten years.

3. Remaining silent gives both of you a sentence of one year.

What will you do in this condition?

The domain of game theory will be very handy in such situations. Let's understand the basics of game theory. It is the study of strategy and decision-making while interacting with other people. In games like Chess, Badminton, Poker, etc. there are clear winners as well as losers. In real-life scenarios, there are no clear winners or losers. The models of game theory are very helpful in making the optimal decisions that improve the quality of life. A serene life is an outcome of better decision-making.

Sometimes our life is affected by our decisions as well as by the decisions of other people. In those cases, decisions should be taken in such a way that no matter what the others choose, your decision will always move you towards the best case scenario. This point is known as the Nash Equilibrium named after the mathematician John Nash who discovered it. John Nash is the pioneer in game theory and made significant contributions in the field of game theory. According to Wikipedia, in a Nash Equilibrium, each player is assumed to know the equilibrium strategy of the other players, and no one has anything to gain by changing only one's own strategy.

Let's solve the above problem through the lens of Game theory. Since communication is not allowed between you and your friend. Therefore, you are oblivious to the strategy of your friend. Along with that, you are affected by your decision as well as your friend's decision. You will make one of the two choices i.e confess the crime or stay silent.

The cost of staying silent is either one year or ten years. On average, you will spend five and a half years in prison. The cost of confessing the crime is either zero or five years. On average, you will spend two and a half years in prison. The best strategy is to confess the crime. Your friend will also think like that and ended up confessing the crime. Both of you were sent to jail for five years. This is known as the Nash Equilibrium because no one can gain anything by changing their strategies. This is the best strategy only in case of non-cooperating situations.

Sometimes acting because of self-interest produces the worst outcome for the group. Altruistic or Cooperative behavior pays off in the long run. If you and your friend cooperate with each other then both of you will stay silent. Hence spend only one year in prison. It is a win-win situation for both of you. Always think about the win-win situation while interacting with the other person. The problem arises due to fear. What happens if your friend cheats on you? The antidote to fear is trust. Trust is the foundation of any relationship. Trust and Cooperative behavior will always nudge people toward a win-win scenario and improve the quality of their lives.

A classical Game Theory case. People are not taking vaccines in the hope that everyone else would be vaccinated and they would be safe. Vineet Raj Kapoor

Learning will be of no use unless we apply it in our day-to-day life. The arms race is another application of the Prisoner's Dilemma.

Arms Race is a military term in which two countries are involved in accumulating a large number of weapons and ammunition to enhance their military strength. Initially, both countries have an equal number of weapons and ammunition. One of the countries spends its resources to increase its military power. Increased military power will help it in defeating another country in times of conflict. By the same logic, the other country will also increase its military power by utilizing its precious resources.

Once again both countries are at the same level but with more ammunition and weapons. Participating in the arms race is akin to confessing the crime in a prisoner's dilemma that yields the worst outcome for both parties. Worst outcome in the sense that the resources can be spent elsewhere such as improving the education system or the health infrastructure. The lesson is to identify the prisoner's dilemma situation and through cooperation move towards the win-win scenario.

Status Signalling is another application of a prisoner's dilemma. People fell into considerable debt by buying expensive clothes, expensive cars, or by going to expensive restaurants. People imitate others due to the presence of mirror neurons in the brain. When one of our neighbors bought an expensive car, we reciprocate and do the same. Hence, the rat race of status signaling starts.

Participating in the race is akin to confessing the crime whereas staying out of it is akin to being silent in a prisoner's dilemma. The root cause for this behavior is either to impress others or to find happiness in materialistic things. The truth is anything outside of your body will never give you permanent happiness. Everybody wants admiration, love, and respect from others. Never seek admiration by buying expensive stuff instead earn it through kindness, unconditional love, and humility. The wealth can't be seen. Never buy the stuff you don't need to impress the people you don't like. Being aware of the prisoner's dilemma will help you make smart financial decisions. Smart decisions will nudge you towards the path of financial independence.

Having loads of money doesn't make you a better person.. Spending it smart does. Ziad K. Abdelnour

The prisoner's dilemma has an important role to play in the business world. It is very useful in an oligopolistic market but ineffective in a monopolistic market. In the Oligopolistic market, multiple players are competing for the product to generate their revenue. Hence, the strategy of one player will not only affect itself but the other players will also get affected by it. No strategy is required in a monopolistic market because it's a single-player game.

A hypothetical example of Maggi and Yippee will be helpful in understanding the concept. Both products are produced by different companies and are sold at the same price. The current price is generating a revenue of ten million for both companies. One of the companies wants to increase its revenue so it starts selling its product at a low price. The customers switched to the low-cost product and its revenue will be increased to twelve million whereas the revenue of the product which is selling at the old cost will be decreased to seven million.

To maintain its competitive edge, the other company has also lowered the cost of its product. Once again both companies are selling their products at the same price but at a lower cost. Both of them are generating a revenue of nine million due to the low cost of its product. Decreasing the cost of a product is akin to defaulting whereas keeping the same price is akin to staying silent in a prisoner's dilemma. Competition is good from the standpoint of customers whereas bad from the company's standpoint. A similar strategy is used by Reliance Jio to maintain its competitive prowess.

Warren Buffet shared his insight on the prisoner's dilemma in his 1986 letter to shareholders:

Over the years, we had the option of making large capital expenditures in the textile operation that would have allowed us to somewhat reduce variable costs. Each proposal to do so look like an immediate winner. Measured by standard return-on-investment tests, in fact, these proposals usually promised greater economic benefits than would have resulted from comparable expenditures in our highly-profitable candy and newspaper businesses. But the promised benefits from these textile investments were illusory. Many of our competitors, both domestic and foreign, were stepping up to the same kind of expenditures and, once enough companies did so, their reduced costs become the baseline for reduced prices industry-wide. Viewed individually, each company's capital investment decision appeared cost-effective and rational; viewed collectively, the decisions neuralized each other and were irrational (just as happens when each person watching a parade decides he can see a little better if he stands on tiptoes). After each round of investment, all the players had more money in the game and returns remained anemic.

We have seen multiple examples of prisoner's dilemmas in our day-to-day life. In the absence of trust, people gravitate toward nash equilibrium whereas trust/cooperation will help us to achieve the optimal outcome. Cooperation with others will generally lead us toward a win-win scenario.

Does cooperation/trust really improve our lives?

Looking at this problem through the evolutionary lens gives deeper insight. Symbiosis is the term used for organisms that can't perform an important function alone. Hence, takes the help of another organism that performs the function for them and in return benefits from the interaction. The cooperation between the two interacting organisms creates a win-win situation for them. The anatomy of an organism sets a limit to the number of functions it can perform.

The two cooperative organisms will create emergent properties which are greater than the sum of their individual strengths. According to Charles Darwin, an organism is considered the fittest that adapts itself to the changing environment. Those who adapt will survive and the rest of them will go extinct. Therefore, the chances of survival of a species increase who is involved in cooperative behavior.

One hand washes the other. Lucius Annaeus Seneca

A shark can't clean its teeth on its own. Therefore, takes the help of a fish to clean its teeth. It won't increase its survival rate but definitely enhances the quality of its life. Healthy teeth will help it to effectively feed on its prey which as result adds some extra years to its life.

The presence of mitochondria inside a cell is not due to natural selection. According to one theory, mitochondrion and the host cell exist as prokaryotic cells, and their presence inside the cell is a result of mutual cooperation. Another theory states that mitochondrion is acquired by the eukaryotic cell for the purpose of converting the toxic oxygen radicals into harmless water. Whichever is true, mitochondria are now an indispensable part of a cell.

Mitochondria is an energy-producing organelle of a cell. It produces Adenosine Triphosphate(ATP) that acts as an energy currency of a cell. A large number of chemical reactions inside the cell needed energy for their completion. Mitochondria acts as a rich energy source for all the chemical reactions happening inside the cell. This event happened two billion years ago. Complex organisms like us won't exist if these two cells won't cooperate with each other.

Another example is the presence of bacteria inside the digestive system of a cow. It helps a cow to digest the cellulose taken from hay and grass. In return, the digestive tract of a cow provides an energy-rich environment for the nourishment of bacteria. Humans won't be able to digest the cellulose because of the absence of such bacteria inside their gut.

Another example is that of Hawaiian squid and a bacterium, Vibrio Fisheri. It emits light and lives in the light-producing area of a squid. The predator who wants to eat the bacteria has to pass through the squid and the light produced by the bacteria helps the squid in camouflaging itself from the predators.

Cooperation, collaboration, and coordination are together more powerful than the competition. Hendrith Vanlon Smith Jr

Cooperation not only helps in survival rate but also drives innovation. It helps in achieving fast results. Railroads and telegraphs are the perfect examples to understand the role of cooperation in innovation. Telegraph is the system of transmitting messages from one place to another over wires. Therefore, the messages are conveyed in advance whether the train is scheduled on time or not.

Perishable goods will be loaded or unloaded on trains due to the updates which make the businesses profitable. In return, the trains provided the way to telegraph companies to expand their infrastructure to far-flung areas. The poles and wires which are the backbone of telegraph companies will be carried by train from one place to another. The two companies are now interdependent on each other and can't conceive of doing business without the other. Instead of duplicating the resources, both companies collaborate with each other and freed resources will be utilized for further advancement.

Conclusion: The cells within us cooperate with each other. How often do humans cooperate with each other? Instead of collaboration, we started competing with others and destroying the delicate relations with our loved ones. Cooperation is the only model that helps in driving civilization forward. Identify the areas in your life that are working on the principle of prisoner's dilemma. Inculcate good habits within yourself to foster good relations with others. Happy relations serve as a foundation for trust. Trust and cooperation between two persons will nudge them towards the optimal results in a prisoner's dilemma.

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